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Cryptocurrency Has Fallen 70% – When It Should Be Going Up. I Think.
Since “President” Biden “won” the last “election”, the economy has had some difficulties. Inflation is running rampant. It’s listed at around 8.5%, but the real cost of living for most people has gone up quite a bit more than that. With cash losing its value, you might expect people to invest their money in the stock market, hoping to keep up with inflation. This injection of cash would presumably inflate the value of the stock market. But the stock market has been dropping quickly, with the NASDAQ losing around 30% of its value so far this year. This has led many Democrats to criticize “President” Biden’s handling of the economy. And to demand more government spending. Simultaneously. Mysterious are the thoughts of Democrats…
I’ve never quite understood cryptocurrency, and have not invested in it. But one aspect of it that made sense to me was to protect oneself from the vagrancies of the fiscal policies of misguided politicians. The value of the dollar is at least partially dependent on the fiscal responsibility of whoever is in power in the American government at the time. If all your money is in dollars, and then Democrats are elected to office, your dollars will lose value.
Bored Ape Yacht Club
But crypto is free from such concerns. It doesn’t matter how much money the government prints – the value of cryptocurrency is not affected by political winds the way national currencies are. And as more and more people become concerned about our economy, they would run to invest in crypto, which would then continue its remarkable increase in value over the past 10 years. Except that crypto has suddenly lost around 70% of its value so far this year. Which seems counter-intuitive.
So inflation is reducing the value of the dollar (at this rate, the value of your dollars will be cut in half in about 8 years – possibly much faster if the real inflation rate is higher than the reported inflation rate). As the dollar falls, people invest to try to keep up with inflation. But the stock market is falling. So people flee conventional markets and invest in crypto. But crypto is falling even faster. All at the same time.
I don’t understand.
I’m not a financial guy, and my understanding of all this is obviously extremely rudimentary. Although I suspect I may have a better understanding of finance (and perhaps a few other things) than some “Presidents”.
But still, I feel like I’m missing something big, here. I just don’t understand how these trends fit together.
Can any of our financial gurus here explain this to a novice like myself?
Published in General
lol I love this.
https://doomberg.substack.com/p/dollars-ex-machina
Satoshi invented bitcoin because of 2008. The ultimate question is why do people want hard money? I would say they want it for good reason.
You’ve just admitted it’s not a Ponzi, which has a definition. It may be that the whole thing is inherently worthless, but this may be said of gold as well. We do assign value to things based on its expected utility, which in the case of any form of currency, or anything like it, is all about expected other people in the future to perceive value.
What you describe is a real problem, and may apply to various crypto, but is not a Ponzi.
EDIT: What you describe is speculation, which both gives and takes.
Now you have me trying to think of lyrics for the Scarlett song. That opening line almost fits the Gilligan’s Island theme.
A week or so ago Bari Weiss’s Honestly podcast hosted a very good interview, here, with a couple of fellows who have opposite perspectives on the nature, risks, and future of cryptocurrencies. I’m a crypto-skeptic, and I found myself largely in agreement with Michael Green (mentioned above). One thing Green said that I thought made a lot of sense was that the argument that cryptocurrencies are immune to government manipulation is, in general, not all that relevant, because the forces that influence the value of a currency are numerous and varied, and can easily swamp fiscal policy factors.
The other guest on the podcast, Anthony Pompliano, kept returning to that independent-of-government-fiscal-policy argument: it seemed to be the major argument he had in favor of cryptocurrencies. What we’re witnessing now is, I think, an indication that Mr. Green is closer to correct.
By the way, this podcast is a beautiful example of how two people can have deep disagreements on a subject and yet engage in a civil conversation about it.
This was totally painful. Green wiped the floor with that guy. He runs a huge hedge fund I think. Crazy.
This is the only one that I’ve seen where it was kind of even with Mike Green, but I am no expert at this.
I thought this one was really educational. I think what it comes down to is for geopolitical reasons you’re better off with having politicized fiat money. The problem is they central plan us into dust with it. It happens every time. It’s never not happened. Everybody is too stupid and corrupt.
Of course I’m gonna tell everybody to listen to the Mike Green interview on Gestalt University and nobody is going to do this. There is a transcript. He lays out all the issues. He basically makes the case for progressive governance with community banking over inflationism. The problem is we are too stupid and corrupt to do it.
The stock comparison makes sense too in that you don’t go to the grocery store and buy food with stock. You have to convert it to currency first. The “conversion” costs of stock apply too. You pay something extra to buy it, and to sell it.
The dollar is actually quite strong (currencies are all relative to each other), thus gold has been flat. The inflation is because of supply limitations (too few things). With the “everything bubble” built on leverage, people are selling everything (including metals) to stay solvent. Perhaps Bitcoin goes back to a buck…
I see that India’s industrial companies are buy materials from Russian with Yuan. Sanctions failure.
I keep trying to think about how you could have kept the system and avoided 2008, all of the social problems, and socialism and populism.
The Western Central bankers should have told all of their legislatures that they were going to run with one percent deflation until they totally loosened up libertarian wise. That is the only way you are going to deal with the deflation from trade and automation.
They did the opposite.
When the central banks guess the interest rate and shove it down everybody’s throats, it’s central planning and they don’t have enough foresight and integrity to do it right.
Well, no, I didn’t admit that it’s not a Ponzi. I said that it depends on the definition. What is the definition?
Investor.gov says: “A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors.” Investopedia says: “A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors.”
This is going on with crypto. The only thing that pays earlier investors is the investment of later investors, right?
Do you know how the market is run? I would imagine that whoever issues Bitcoin has to be informed of a transaction in Bitcoin, and thereby keeps track of the ownership in some way. Maybe there is something in the encryption that makes this automatic. I don’t know the technical details, but it isn’t obvious that these effect the classification of the activity as a Ponzi scheme.
The original Ponzi scheme, and others like Madoff’s, gave investors the false impression that they were investing in something real. Crypto seems to be open about being nothing but, well, maybe the Emperor’s New Banknotes is a good way to put it.
Wow. Say what you want — I see no point in continuing.
I don’t find her “cute”. She is sexual.
Cute is Mary Ann. Ms. Johansoon is more Ginger.
Doc,
Your questions are scientific questions, like questions about why a drug has the effects it has.
You worked hard to learn the serious scientific theories of chemistry, physiology, and pharmacology, and now when you want to understand a pharmacological phenomenon, like why a drug exhibits the effects that it does, you always turn to your knowledge of the scientific theories that you learned.
To know the answer to your questions of economic science you will need to follow the same course that has served you so well in medicine.
Study serious economic science. When you have learned you will be able to determine the answers from the literature or by using your own powers of critical thinking.
And yet, for all that, people who try to call winners and losers in commodities and stocks still have a dismal record – even when they know a lot about money and markets and economic theory.
Maybe because they didn’t study PEOPLE very much?
Amen.
And because PEOPLE don’t make any sense…
Well people do have motives for things etc, but the problem is that there’s so dang MANY of them, coming up with formulas is hard!
It’s called a nonlinear dynamic system. And we aren’t good at predicting how they evolve over time. And we probably never will be.
I have a very good understanding of the underlying technology (blockchain ciphers). I don’t own any crypto. IMNSHO, it has no intrinsic value.
The only thing one can do with a cryptocurrency is trade. Crypto’s use as a store of value against government manipulation will only really be tested in a systems collapse, where the availability of the network to process transactions will be very much in doubt. (Quite possibly accompanied by loss of the grid, too.) No network and grid equals no crypto trades. Precious metals can be traded without network or grid, and have utility within industry to set a value floor.
That said, I think the most practical value store for a scenario where crypto claims value will be ammunition. Ammo can be used to protect real assets and real people. Can even be used to harvest game. Relatively portable and tradable without modern technology.
So, I own no precious metals, either. (Not counting wedding rings–duh.)
Buy ammo, not crypto.
My thoughts almost exactly.
Copper and brass – the best metals.
They are being propped up very well. It’s working well in the short term.
What I hear is it some kind of technical thing about getting oil from Russia or some thing.
I just heard that they are making a lot of money off of the price of oil, but everything else is really ripping on the structure of their economy. The citizens are taking it in the shorts.
Whiskey and cigarettes, too. :)
Also, judging by the Covid response, toilet paper and paper towels.
My husband is trying to figure out where to store it all now.
“stope” or “store”?
I also invest in lead. Smart decision. I would never invest in this. The whole premise is wrong. They say it can’t be diluted by issuing more crypto. You can’t just create more bitcoin. BUT… you can create more crypto’s which is actually watering down the market. How many different ones are there now?
The only reason to buy is thinking you can find a bigger fool than yourself to sell it to. I’ll pass.
Hundreds, perhaps thousands.
The fact that Bitcoin can be cloned is one I’ve brought up before, but I’ve never heard it discussed at length. And, honestly, I’m not entirely sure what it implies, either about Bitcoin or about how we think of stores of value.
Most things that are scarce are scarce for reasons of physical limitation. Bitcoin is scarce because of mathematical limitations: Bitcoin solved the problem of how to make a decentralized “virtual” commodity that couldn’t be digitally copied and given away to multiple people simultaneously. But Bitcoin itself, the blockchain and algorithms and software, can be perfectly cloned: any of us can use the Bitcoin software to create a new blockchain identical in structure and function to the old. The only differences between the old and new are the transaction histories associated with each blockchain and, most importantly, the enthusiasm of those who participate in each blockchain.
That makes Bitcoin more like, say, a Louis Vuitton logo than like gold or diamonds or ammunition or toilet paper. It’s scarce because of math, but it’s valuable because it has a fashionable pedigree.
This is different than, say, the network advantage enjoyed by Facebook: Bitcoin’s value doesn’t derive from the fact that it’s just more convenient to trade Bitcoin since so many people are already there. Its value comes from the fact that its is the original Bitcoin blockchain with the original Bitcoin transactions. No other blockchain will have that history about it.
And, again, I honestly don’t know what that implies. What I suspect it implies is that Bitcoin is almost purely a speculative fad — a commodity with limited practical utility, but with the status of exclusivity, of participants being part of the original Bitcoin club.
Combine that with the fact that Bitcoin is extraordinarily leveraged in favor of early adopters and it’s easy to see why it’s tempting to call it a Ponzi scheme. (And I think it is one.)