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Musings Report 2017:22 6-2-17 About Those Crazy Projections of Bitcoin's Future Value
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About Those Crazy Projections of Bitcoin's Future Value
A lot of smart people are convinced the recent rise in bitcoin and other cryptocurrencies is a bubble that is sure to pop, sending bitcoin (BTC) back to $100 or less.
A great number of other equally smart people are convinced cryptocurrencies will disrupt the financial status quo, and their valuations are in the very early stages of ignition.
Both groups can't be right. One group will be wrong and the other will be right.
I am not an impartial observer. As those of you who read my book A Radically Beneficial World know, I see the potential for cryptocurrencies to become the foundations of new forms of money that are intrinsically fairer and more just than the centralized forms we accept as the norm today.
Cryptocurrencies enable the emergence of "labor-backed currencies" of the sort I describe--money that is created and distributed in the bottom of the wealth-power pyramid, by the useful labor of people contributing to their communities.
This is entirely different from state-central-bank-created money (fiat currencies such as the USD, euro, yuan, yen, etc.) which is created and distributed at the very top of the wealth-power pyramid: banks.
Here is a chart prepared by bitcoin analyst/booster Tuur Demeester in 2013. As he noted in a recent tweet, " I made this graph in 2013 and despite fast growing adoption, even #1 hasn't happened yet. Bitcoin's upside potential is sill monumental."
Why would enterprises and institutions embrace bitcoin? If we accept the mainstream narrative--inflation is dead and interest rates will stay near-zero for the foreseeable future--then what's the appeal of bitcoin?
"Inflation is dead" is the Grand Narrative that governments and central banks have been promoting for 15 years.
What could break this narrative? Clearly, the rise of inflation that can't be discounted by statistical legerdemain would undermine this happy narrative, as inflation would devalue fiat currencies and pressure the spending of governments as their interest costs rose.
I consider the rise of inflation as inevitable, and perhaps this is one hidden driver of bitcoin's recent rise.
Here's my reasoning:
1. Conventional economists are virtually unanimous that deflation is the danger and modest inflation is a "good thing" we need to spur so servicing existing debt becomes easier for debtors. But inflation is near-zero, so authorities are struggling to generate some inflation against deflationary headwinds.
When the consensus is near-100%, we can safely bet Reality will not conform to expectations.
2. For the past 17 years, central banks have funneled credit and liquidity into the banks at the top of the wealth-power pyramid. Very little of this new "wealth" has trickled down to the bottom layer of consumers in the real economy who have seen their earnings stagnate and their costs rise.
Now that debt and essentials are absorbing the bottom 90%'s earnings, there's no fuel left for additional debt-based consumption. This is why we see auto sales plummeting.
The only way the central banks can fuel more debt and spending is to drop "helicopter money" directly into the consumers' checking accounts.
Once they do this, the "new money" goes directly into the real economy. This is quite different than the past 17 years of monetary stimulus that went mostly into assets owned by the wealthy.
Once trillions of stimulus enter the real economy, inflation is baked in, as the deflationary effects of technology are not enough to offset the much larger increases in big-ticket expenses such as healthcare.
3. The world has been awash in cheap commodities for 20+ years. Other than the brief spike in oil in 2008, commodities have been relatively cheap and abundant. Grains have plumbed historic lows, for example.
The two are connected, of course; low energy costs reduce the costs of production of commodities.
But we've collectively forgotten that shortages can occur due to "perfect storms" of extended bad weather and political crises. At some point, humanity's luck will run out and key commodities will soar in price due to shortages.
These shortages will puch prices much higher very quickly.
Nation-states generally seek to offset any economic weakness by devaluing their currency, on the theory that weaker currencies encourage exports.
But this "race to the bottom" couple with inflation will devalue all fiat currencies.
Since gold and silver are being suppressed via "paper" futures markets, they are no longer the inflation-devaluation hedge of choice for many. That status has been transferred to bitcoin, which cannot be leveraged or manipulated or "printed" beyond its built-in limit of 21 million coins (several million of which are estimated to have been lost).
I set $17,000 per bitcoin as a reasonable estimate last year should a major financial-currency crisis occur--and in my view, such a crisis is not just inevitable but increasingly likely.
Beyond that, I suggested that should a significant percentage of global financial assets seek the safety of bitcoin, that could result in a price of $170,000 per coin.
These valuations sound crazy, but we won't know if they're crazy or reasonable until we get a real currency crisis that can't be resolved with the usual central bank assurances that they are Masters of the Universe, and creating another trillion dollars/yuan/yen/euros will quickly fix everything.
Should inflation take off, that would dismantle the Grand Narrative and collapse the entire credit-asset-currency bubble. Once everyone loses faith in the Grand Narrative, bitcoin could rise by thousands of dollars literally overnight.
That we have not had a real financial crisis (2008 was merely a warm-up exercise) doesn't mean we won't have one. Bitcoin is one hedge against a global meltdown that only gathers momentum, regardless of central bank assurances or actions.
This short essay is worth a read: Hyperbitcoinization (via Jonee T.)
Summary of the Blog This Past Week
Projecting the Price of Bitcoin 6-2-17
When the "Fix" Increases Systemic Fragility, Things Fall Apart 6-1-17
High-Touch, Low-Touch and the Relentless Automation of Jobs 5-31-17
How Debt-Asset Bubbles Implode: The Supernova Model of Financial Collapse 5-30-17
Will the Crazy Global Debt Bubble Ever End? 5-29-17
Best Thing That Happened To Me This Week
Harvested our first lychee--not many fruit, but a small thrill nonetheless.
Market Musings: Is Gold Setting Up a Major Move?
A recent article asked: Is Bitcoin Standing In For Gold?
The basic idea is that since gold/silver can be manipulated in the "paper" futures market, and bitcoin has no such leveraged futures market, then bitcoin is now replacing gold as the favored hedge against currency devaluation and financial crisis.
This is one reason why I'm monitoring gold closely this year. Last month, I highlighted the support/resistance around $1300 that has capped recent gains. I also noted the multi-year wedge/ pennant that may contain gold until it breaks decisively up or down.
Many technical analysts are wary of putting too much weight on head-and-shoulders patterns, as these are often "in the eye of the beholder." That said, the potential for a right shoulder here should give us pause, as a H&S pattern is typically a topping pattern.
Gold appears to be testing the patience of everyone seeking a longer-term trend.
From Left Field
"The Western Status Quo Political System Is Collapsing Into 'Something Else'"--Ben Hunt's latest, worth a careful read...
INTERNET TRENDS 2017 -- Mary Meeker's 300+-page annual review of Internet trends...
What Gets Stolen From Restaurants? Everything -- sign o' the times?
The New Class War (Michael Lind) -- long-form review of conventional economics and the fractures between haves and have-nots.
THE DEATH OF THE SUBURBAN OFFICE PARK AND THE RISE OF THE SUBURBAN POOR
WHY CHINA’S ‘ONE BELT, ONE ROAD’ PLAN IS DOOMED TO FAIL--not the usual rosy PR...
THE LIGHTS ARE GOING OUT IN THE MIDDLE EAST--failed states...
Celebrity isn’t just harmless fun – it’s the smiling face of the corporate machine
Anarchists Fill Services Void Left by Faltering Greek Governance (via Joel M.) -- self-reliance is the future...
"Peak Hats." Social Change and the Coming Demise of Private Cars -- already unaffordable without 1% financing....
Is there a new capitalism? -- interesting analysis of the digital economy's tech monopolies...
If everyone lived in an ‘ecovillage’, the Earth would still be in trouble-- lifetime costs, externalities...
"Never hire anyone you wouldn't work for." Mark Zuckerberg
Thanks for reading--
charles |
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