Let Us Dissect the Opposition

The increasingly buffoonish establishment stooges at Business Insider are providing a platform for a Cathedral sanctioned expert, a finance professor, who is predicting a Bitcoin crash to below $10 by mid-2014.

I guess it’s to be expected that the opponents of Bitcoin would take advantage of recent price declines to slander Bitcoin and do their best to scare the shit out of insecure investors. It’s important to remember that we are in a war of perception here and that The Establishment is going to use all the weapons at its disposal to convince the undecided that Bitcoin is evil, dangerous, and destined for failure. Let’s unpack some of the good Professor’s arguments to see if he’s made any legitimate points we might address.

And from January to December 2013, markets obeyed with prices rising over 8,000 percent.  In the mist of this hype, it appeared that the Bitcoin Revolution was on its way to transforming the economy, putting central bankers out of work and minting new e-currency millionaires daily.  Bitcoin was priced for perfection. This past week, however, the market didn’t stick to the script.  Instead it began to challenge the rhetoric, knocking prices down as low as $535, a drop of about 55 percent from recent highs.  The market has finally realized that hype alone cannot support lofty prices.  Bitcoin is not a legitimate currency but simply a risky virtual commodity bet.

Well, I can agree with him on one thing. Bitcoin is not a legitimate currency. Yet. The first thing you’ll notice about the opponents of Bitcoin is that they examine the properties of Bitcoin in it’s present state and then assume they will remain in perpetual stasis. Bitcoin is immature as a technology and as a financial instrument. Remember how crappy the internet was in 1990? Of course it isn’t ready to take over world reserve currency duties today. I don’t think anyone ever said it was. Over the coming years the system will mature, the Bitcoin protocol will be better understood, and the market will determine Bitcoin’s place in the financial universe.

We should also note that despite the 55% price declines mentioned in the article, Bitcoin has still grown by 550% over the past 6 months. If you compare the recent price action to the peak of March 2013, it seems likely that exuberance has cooled and the BTC market is searching for a new, substantially higher, baseline.

Above we have a graph of the March 2013 peak. Notice the accelerating increase, the decline, and the eventual stabilization at a significantly higher level. All in all, prices started at $40 and rose to $120, with a ton of action in between. Problems arise when you try to extrapolate future pricing based on price movement during violent up and down swings. If the “bubble” trend had continued we’d be over $100,000 by now. If the “crash” trend had continued the price would have hit $0 in April. But of course it didn’t. It never does. This is just how markets work. The herd works itself into a frenzy either buying or selling, but eventually the mania subsides and prices stabilize.

Now let’s compare to a chart of the recent price action.

Screen Shot 2013-12-17 at 8.44.57 PM

Here we see a similar a pattern. A steep run up followed by a sharp decline and a period of stabilization. What the good Professor is trying to do is convince you that the recent sell off is a permanent trend, when in actuality it is already over or nearly over. Of course it’s possible that the price of BTC craters down to zero from here on out as the Professor predicts, but nothing has fundamentally changed to destroy the long term viability of the Bitcoin network or protocol. It seems much more likely that the price will stabilize somewhere between 500 and 800 and trade in a tight range for some time before the next major upward movement.

The next attack mounted by the Professor is on Bitcoin’s allegedly “flawed DNA”:

Since inception, Bitcoin has had a flawed DNA.  It was dreamed up in a virtual world — by computer geeks — but was to be applied in the real world.  Bitcoin is steep in Libertarian and anti-Fed dogma but weak in understanding of how global economics, central banking policies and financial markets function.  The lifeblood of the global capital markets is money – greenbacks — transactional currency that facilitates commerce.  Virtual currency can create value and efficiency but it needs to be linked to fiscal and monetary policy.  To assume currency can be computer generated, run in a decentralized manner and outside of the central banking system and controls is farcical and economically dangerous.

In this passage the Professor states his allegiances plainly. He is a shill for the central banking system. He is not here to analyze Bitcoin, and it is clear from his writings that he knows very little about it. All he seems to know is that it is very very bad. It was “dreamed up in a virtual world” by “computer geeks” just like those others nightmares, Google, Facebook, and basically every other positive economic development of the past 30 years. It is “weak in understanding of how global economic works”.

I hate to break this to the Professor, but Bitcoin is computer software, and unless there is some type of artificial intelligence layer built in to contemplate “how global economics works”, it doesn’t know jack shit about global economics. Bitcoin is a machine that was built to do a job, facilitate financial transactions between people without need of a third party, and it does this job remarkably well. No understanding of “how global economics works” is required or desired for completion of this task.

I think what bugs the Professor so much is that Bitcoin doesn’t give a hoot what his benefactors, the central banking establishment, thinks or says. It does not bow down to their expertise and largesse. It is not grateful for the careful stewardship they have provided us over that past few decades, which have been so blissfully free of financial disasters.

Next, the Professor admits that “virtual currency can create value and efficiency”. He actually had me nodding my head for a second there before adding the totally unsubstantiated caveat that it needs “to be linked to fiscal and government policy”. By this he means that Bitcoin needs to be under central bank control. He then comes in with the knock out blow, that a computer generated decentralized currency is “farcical and economically dangerous”. Sadly, he does not provided the slightest rational argument for why this is so. I can only assume it is because it is dangerous to the economic interests and oversized egos of central bankers.

For currency to be adopted as a medium of exchange there has to be trust in the ability to honor the underlying obligation and the ability for central banking policy to control inflation.  Historically the Fed has done a remarkable job maintain an average inflation rate of no greater than 2.5 percent.  Given that two-thirds of U.S. GDP is driven by consumption, price stability in currency is essential.  Without it, GDP growth is retarded and standard of living shrinks.

In this passage he makes some claims about the great skill of the central bankers to control inflation. I don’t even know if this is actually true, but if so, good for them. It is completely irrelevant. Bitcoin does not care what the US dollar does or how much it inflates. Regardless of what happens with Bitcoin, the Fed will remain free to inflate the dollar to its heart’s content. I have absolutely no idea how he makes the next leap to GDP being driven by consumption and how if it is retarded “standard of living shrinks” but I can only assume he was out of ideas and forced to resort to ham-handed scare tactics. This statement amounts to franticly screaming “You’re gonna be poor!!!!! Because Bitcoin is evil!!!!”.

To be honest, there is just too much bullshit in this article to deal with. I could address the other points, and maybe I will if there is demand for it, but none of it is actually deserving of criticism. I don’t have the time to go through line by line and point out that all of his arguments are based on the faulty assumption that the Central Banking Establishment needs total control to ensure that poor helpless consumers don’t hurt themselves with the dangerous bitcoins.

He rails against the volatility of Bitcoin which shows once again that he has no concept of what Bitcoin is or the inherently volatile nature of new technological developments. All disruptive technologies experience high volatility during their adolescent periods as it is determined if there is a market for their value proposition, and if there is, how big that market actually is. He even tosses out a Litecoin reference, as if it is somehow an immediate threat to displace Bitoin that market participants are unaware of. This would be more compelling if the Professor mentioned at least one technical or economic reason why Litecoin is an imminent threat.

Lastly, he predicts that “new regulations will be imposed and prices will plummet”. On this point, I cannot disagree. Bitcoin will continue to experience occasional crashes. It has from its inception in 2009. What the Professor neglects to mention is that if the four year trend persists, these crashes will be more than compensated for by explosive upswings.

The truth is, what makes the Professor so anti-Bitcoin and what he will never dare to mention, is that Bitcoin is displaying the S-curve of exponential growth common to all widely adopted network technologies and this makes his friends in central banking very very nervous.

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Why You Need to Own Bitcoin (at least a little)

There is something sweeping the world right now, something people are going to look back on thousands of years from now (if humanity still exists) as a critical development in the evolution of the human species on par with the invention of agriculture and systems of written language and potentially even language itself.

Obviously, given the scope of this website, the thing that I’m talking about is Bitcoin. The implications of Bitcoin are hard to understand because it is the rarest of things — a truly novel invention. It is so much more than “money for the internet” or a “digital currency”. Those monikers do justice to Facebook credits or WoW gold, but Bitcoin is a different beast. It is a radically disruptive technology that has just begun to shake the foundations of human society. It is for money what the internet is for information. It is economic freedom for the masses on a level unimaginable before its creation, and as it proliferates, it will ignite a surge of innovation and prosperity unprecedented in human history.

You are going to hear that word “unprecedented” a lot in relation to Bitcoin in the coming years.

In case you couldn’t tell, I am more than slightly bullish on Bitcoin. Actually at this stage in the game, I think it is nearly impossible to be too bullish on Bitcoin. You know you are beginning to understand Bitcoin when your eyes glaze over in awe and your projection of the future shifts from a dingy extension of the stagnant present to an ocean of limitless possibilities. This is our new internet boom and it will probably be so much more.

If you are a True Believer like myself you are probably nodding your head at the statements I’ve just made. Now stop reading this blog and get to converting new Believers. We need boots on the ground, Soldier! Your BTC will never appreciate without them.

My intention with writing this particular post is to appeal to the skeptics, the people who aren’t quite sold on the Bitcoin just yet. I don’t blame you folks. Bitcoin is far from an easy thing to understand, It is new and strange and there are a lot of moving parts. “Peer to peer network”. “Protocol”. “Miners”. “Cryptography”. It’s a lot to handle, and in truth, most of its supporters don’t fully understand it either. As the media will tell you, they buy bitcoins because of frighteningly abnormal political affiliations like “anarchist” or “libertarian” which are generally euphemisms for “hates the government”.

Here at Winning Bitcoin we don’t hate ol’ USG. Mainly we feel kind of sorry for her. It’s painful to watch at times, to see her lurching around, bloated and drunk and obviously past her prime, completely oblivious to the writing on the wall. Or maybe she isn’t oblivious. It doesn’t actually matter, The fuse has already been lit and it’s one of those damn water proof ones. It’s just a matter of time until this puppy blows. I expect we’ll see some flailing, A last ditch attempt to clutch monetary power. That’s when you’ll know that the real fireworks are starting. What happens if USG shoots Bitcoin in the head, but Bitcoin doesn’t die?

That’s just one element of the brilliance of Bitcoin. It doesn’t have a head. Or it has many heads. I’m not really sure.

But where were we? Oh yes, back to the skeptics. I am going to assume that you are not a believer and that you are potentially hostile to Bitcoin. I’m not going to try to explain Bitcoin to you like a five year old. We already have CNBC for that. If you’d like to read up on the technicals of Bitcoin this is a good explanation. If you aren’t in the mood to absorb obscure cryptographic concepts, this guy has some good videos. As always, Google is your friend.

In truth, you don’t really need to understand Bitcoin. All you need to understand is your own self interest. The reason everyone should own Bitcoin is upside. Personal greed, pure and simple. The most potent motivation that has ever existed. You need to own bitcoins because, if it works, a 1000X return is a realistic scenario from current price levels. If it doesn’t work, well, the most you can lose is 100% of what you invested.

But its not going to work! I can hear you screaming. Well, maybe, probably, it won’t. But let’s do some math on this one. Even if the chance of Bitcoin succeeding is only 1%, if you invest $100 you have a 1% chance of earning $100,000 and a 99% chance of earning zero. The expected return on this investment, factoring in both probabilities, is $1000. That is a 10X return on your initial $100 dollar investment. So yea, you might lose, but you might win. A lot. The laws of maths are in your favor on this one.

The second protest I anticipate is that $1,000,000 USD is not a realistic valuation. To this I would counter that $1 million plus, and zero, are the only realistic valuations on an extended timeline. Either this thing dies or it takes over the world. To give some context to that number, if the same number of dollars were pumped into Bitcoin as are currently pumped into gold, the price would be 1 BTC = $400,000. And bitcoins are like a billion times more useful than gold! There is a lot of money in the world, mind boggling amounts of it, and if a portion of it flows into Bitcoin that is commensurate with the value proposition of this remarkable new technology, $1,000,000 per BTC may be far too low. Bitcoin, if it succeeds, is destined to swim in the same water as today’s major currencies and asset classes, and the value of those is measured in trillions.

A final note. Bitcoin is a network. Every additional person that buys bitcoins adds value to the network and increases the value of their investment. How cool is that! The very act of investing makes your investment more likely to succeed.

Ok, so now the usual caveats. Don’t risk money on Bitcoin that you can’t afford to lose. Yea, yea, it’s really risky, no one knows what’s going to happen, etc. If you get burned on this one, its your own fault, so don’t go betting on Bitcoin before you pay the electric bill — that could make them rather hard to use. I’m just trying to do you a favor by laying out the facts of this proposition for you. It can be a loser for sure, but it can also be hell of a winner. Like the type of winner the world has never seen before. Some might even call it unprecedented. So why not dip your toe in? You know, like maybe $20? I would say 1-2% of your savings is not unreasonable. Just think about it. And maybe learn a bit more about Bitcoin. The truth is that there are way better reasons than financial gain to purchase a bit of BTC. This is the future of the humanity we’re talking about. It’s going to happen fast, possibly incredibly fast, and you’re gonna feel bad if you miss out.

So anyways, think about it. In other posts I’m going to cover the practical aspects of Bitcoin ownership to give you an idea of how to make a move into this exciting opportunity, as well as other fascinating aspects of the technological and economic implications of Bitcoin.

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