No, this is not a Blog about Michael Jackson…..
You would have to be living under a Pile of Stones to not have noticed that Bitcoin and other ‘CryptoCurrencies’ are attracting huge excitement and frenetic activity in recent Weeks/Months - to my mind this is a classic Bubble and it is only a matter of time before we hear the ‘Pop‘. One of the best and simplest pieces of evidence came about from my mate @Conkers3 on the Tweets who was up at a London Underground Station the other day and some geezer shoved a paper Flier into his mitt saying “Buy Bitcoins from us and be a gazillionaire !!” or similar wording to suck in the gullible punters.
And since writing the above paragraph I have heard from a mate who got scammed when buying some Bitcoins (the real Money was handed over and the Bitcoins that appeared to be in their ownership did not exist); and just last week a mate who doesn’t do much on Stocks or anything was asking me what I thought of Bitcoin. It is classic Bubble stuff.
Personally I have no issue with People making money from a Bubble - although it does pee me off when people protest that Bitcoins etc. are not a Bubble and that I am stupid and don’t understand it. I know a Bubble when I see one and anyone who thinks it is not a Bubble should invest a small amount of the Riches they have skilfully made from Bitcoins in a copy of ‘Popular Delusions and the Madness of Crowds’ from Wheelie’s Bookshop - it’s actually a cracking read and the bit on Tulipomania is hysterical - but time and again the Great Unwashed are falling for this nonsense.
I have a very simple problem with Bitcoin and the CryptoCurrencies - it is the fact that anyone with the right Skills can create new CryptoCurrencies and there is no limit on this. It doesn’t take an Albert Einstein to figure out that if you have an Asset but then more similar Assets which are substitutable are created, then the Value of all the Assets must fall. This is simple Economics of Supply and Demand and if you don’t understand this then perhaps the Stockmarket and other Financial Markets are not the best place for your ‘skills’. I don’t know how other Cryptos work but with Bitcoin there apparently are a fixed number of them and highly skilled people ‘Mine’ them by using complex Computer Code or something and it gets harder and harder - but the point is that the Supply increases (I heard another funny anecdote whereby if the current rate of increase of Bitcoin Mining continues, then by 2020 it will be sucking up all of the World‘s electricity supply !!)
I have 2 great examples of this. The first one is that by sheer chance the other night I made the mistake of catching the tail end of that absurd ‘Kaiser Report’ guff on RT News - and the topic they were discussing was Bitcoin. Crazy Kaiser is a big fan of Bitcoin I think but he had an ‘Investment Manager’ of some sort on there and he gave a very good analogy of what was the problem with Crypto. He said to Max that we should imagine someone discovers a new Precious Metal in the Ground and starts digging it out and everybody wants it and the Value rises. But then some other people discover more Precious Metals that are very similar and substitutable - very quickly the Demand is satisfied by the new supply of the different Metals and the Price tumbles. That is exactly the problem with CryptoCurrencies.
My Second example is specific to Currencies and therefore clearly highly relevant. The book ‘When Money Dies’ (you can get a copy from Wheelie’s Bookshop and it is well worth the tiny price and an Ideal Xmas Prezzie for you !!) is the story of German Hyperinflation in the 1920s and one of the features was that the Reichsbank (the German Central Bank at the time) was printing more and more Reichsmarks and of course this is very Zimbabwean (or Corbynian if you prefer) and we all know that such reckless running of the Printing Presses (all day and all night !!) devalues a Currency and drives up Prices causing Inflation and then Hyperinflation.
Anyway, in this case there was a big similarity to CryptoCurrencies in that in addition to the Reichsmarks that were in circulation, certain Towns and Regions started creating their own Currencies and printing these and this added to the ‘Bubble’ of valueless money. The relevance should be obvious.
And if that’s not enough…..
The Investors Chronicle back in their 3rd November to 9Th November 2017 edition did a Main Feature about Bitcoin and on Page 26 said the following:
“What is money?
If Bitcoin wants to rival gold it has to deliver on certain fundamentals. And it is here that is at best unproven, at worst a disaster waiting to happen.
Money – whether we mean dollars, pounds or gold – has always had to exhibit certain traits.
First, it must be a store of value. Barring exceptional events you know that the pounds in the bank will in the future be worth roughly what they are today plus interest, minus inflation. Bitcoin’s price volatility clearly means it falls down on this point – one simply has no idea what it will be worth tomorrow, never mind a year from now. Compared with gold, Bitcoin has been seven times more volatile in 2017, according to a report from Goldman Sachs.
Second, it should be a unit of account – in other words provide a common base for prices. But as a result of the aforementioned price volatility there are at present few individuals or businesses in the world prepared to accept a Bitcoin before they know what the dollar value is. You may be nominally spending in Bitcoin but really this is just a token for a local currency value and the retailer will simply adjust its Bitcoin pricing to reflect the change.
Third, it should act as a medium of exchange – something people can use to buy and sell. This is where there is the most optimism as the blockchain technology clearly holds huge potential at the transactional level. As we use less cash and rely on card and electronic payments, the payments ecosystem is generally supportive. But does that justify Bitcoin at $6,000?”
The really scary bit is that I believe Bitcoin is far higher than $6000 now but with the insane volatility it might be less in 10 minutes time !!
Part of the narrative behind Bitcoin and Cryptocurrencies to keep the excitement going and the Bubble expanding (all Bubbles need a Story to suck new Punters in for the slaughter), is how Blockchain Technology will be all pervasive in the future and I suspect 99% of People wrapped up in the Bitcoin party actually think they are one and the same.
Blockchain arose as part of the Bitcoin development apparently and is integral to how it works, however, Blockchain in itself has potentially far wider uses really as a means of creating a Ledger of Transactions which records all information to do with such exchanges of Ownership and it could enable huge leaps forward in terms of speed, ease, and low cost of Transactions - particularly with regards to Financial Assets and Fintech which is built upon this in part. A huge potential benefit will be the removal of ‘Middle-men’.
A superb presentation from Goldman Sachs came round on Twitter a few days ago and it is really worth watching as it explains things pretty well and quite simply. I watched it on my Fone and to be honest it was a bit painful because of the need to ‘Scroll down’ but it was definitely worthwhile. It might be much better if you do it on a PC using a Mouse or some other small furry rodent (be careful because they can give you a nasty nip). You can watch it here - it’s not long and this is potentially some truly disruptive Technology for the Future so it is well worth getting your head around:
When I did a Google Search I found this in a Youtube Video format - it might avoid the Scrolling and lasts 8.5 minutes:
Best way to Play Bitcoin
As you have probably figured out by now, I am no big fan of Bitcoin or the CryptoCurrencies and I just think it is a crazy Speculative Bubble - I have seen it all before many times sadly.
Having said that, it doesn’t necessarily mean anyone who gets involved with Bitcoin to try to make some Dosh is utterly bonkers - however, they are pretty daft if they think it is something they can ‘Invest’ in as opposed to something to ‘Trade’. Quite simply it is not an Asset and without proper Trading Disciplines like appropriate Risk Management including sensible Position Size, controlled Leverage (best maybe to avoid any Leverage as Bitcoin is unbelievably volatile) and use of Stoplosses that are carefully placed and adjusted as needed etc.
In other words I don’t see Bitcoin as something you can Buy and Hold and it will just go to the Moon for you - it is far more likely to leave you living in a Crater as it will take your House !! But if you trade in and out of it with proper Trading Disciplines then it might work out but the Volatility makes it extremely dangerous if you show it disrespect.
I believe igIndex enable you to Trade Bitcoin via a Spreadbet but of course this involves Leverage so you MUST be careful. There is also something called the Bitcoin Investment Trust (TIDM Code - GBTC) which might be a way to play it but I know almost precisely nothing about this !!
So, you should be able to see the huge and simple drawbacks with Crypto and why I really can’t be bothered to go near it - and I didn’t even talk about problems such as the Criminal Usage and the likelihood of governments taking control of such an unaccountable and untraceable method of payment. By all means ‘Trade’ it and make loads of money (and be careful !!) but don’t try to pretend you are an Investor !!
As a Wider Point, many of the principles I have discussed here regarding how to Trade Bitcoin also apply to other insanely Volatile and dangerous to Trade stuff like Small AIM Miners and suchlike - don’t treat them as Buy & Hold Investments (you will almost certainly lose money) - you need to Trade them with the appropriate Controls.
Consider yourselves told…..
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