Bitcoin Goes Parabolic: My Updated Thoughts

Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.

- Nassim Taleb on Reddit yesterday

So Bitcoin has finally dipped its electronic toe into the fringes of mainstream consciousness. The results have been, to put it mildly, explosive, divisive and highly emotional.  I can see why.

While I had been aware of it prior, I never truly became curious about Bitcoin until I read an excellent six page article about it in the New Yorker on October 10, 2011.  I had no clue how the technology worked, but it intrigued me to such a degree that I sent it to my email list of close contacts.  What really struck me was the rationale for creating Bitcoin by its creator, the anonymous “Satoshi Nakamoto.”  This cryptographer was well aware of the cancerous nature of the world’s monetary system and the key role of Central Banking in that system.  This wasn’t just some technology geek playing games with virtual currency, this was a well thought out monetary revolution.

He had thought this entire thing out like a chess grandmaster.  He knew he had to be anonymous and that Bitcoin had to be decentralized, because he knew the Central Bank overlords would fight to the death to protect their money monopoly.  He created a currency that central planners could not naked short to infinity and manipulate with derivatives as they do with the precious metals markets.  It was this foresight that has led to its tremendous success today.

It wasn’t until I started accepting Bitcoin donations in September of last year (donate here) that I truly started gaining a small understanding of the technology and who the major players in the “Bitcoin Economy” are.  It was at 10 back then, it is 73 as I write this today.

BTC

A chart like the one above is nothing short of parabolic, and parabolic charts beget parabolic emotions.  From my end, I have received some complaints from “gold bugs” who seems annoyed that I am highlighting Bitcoin seemingly in preference to precious metals.  To them I have a few things to say.

First, I spent four years writing about gold and silver non-stop.  Sorry, it just gets repetitive and boring.  Never once have I wavered in my conviction on the need to buy and hold these metals; however, the world is dynamic and when new things enter the picture I will formulate new thoughts.  Some of the complaints against Bitcoin are valid, others are not.  The one I hear the most, which is completely untrue, is that Bitcoin is another “fiat currency.”  I’m often shocked that people make this error, as the definition of fiat is: 1. A formal authorization or proposition; a decree and 2. An arbitrary order.  Synonyms include: decree, diktat, directive, edict, rescript, ruling.  Bitcoin is 100% voluntary.  No one is declaring it the “money of the land,” forcing you to pay taxes in it, or invading the Middle East to protect the pricing of oil in it.  So let’s move on.

The one legitimate criticism of Bitcoin with which I sympathize is that it has no intrinsic value.  It really doesn’t.  Bitcoin can absolutely go to zero.  All that would take is people losing confidence in it, or something better coming along.  While I see absolutely no evidence of either of these things happening any time soon (in fact I see the opposite), in theory this could happen.  Would I rather have a flash drive of Bitcoins in a safe and open it 500 years from now, or the equivalent in gold?  I’d still take the gold ten times out of ten.  That’s still not the point.

Proponents of precious metals need to be very careful not to tread into the realm of religious dogma when it comes to money.  The point of gold and silver is not to sit around worshipping its beauty and the fact you have to mine it, but rather to appreciate it as a means to an end.  As a way to vote against the corrupt monetary and financial system plaguing the world.  As a potential means of exchange that is decentralized and not of or by the government.  While I personally don’t plan on putting a huge amount of my net worth into Bitcoin, I support it wholeheartedly for what it represents and the ingenious philosophy and technology behind it.  Do I think Bitcoin could become a huge deal in the world of currency over the next decade?  Yes, I do.  Do I also acknowledge the enormous risks inherent in it.  Yes, I do.  Once again, that’s not the point.

The point is no matter what ends up happening with Bitcoin, it is showing us all the way forward.  It is showing humanity that we don’t need government for money.  We certainly don’t need Central Banks.  All we need is each other and a mutual means of exchange by which we agree to trade with each other, no matter what that may be.  Bitcoin has led the cat out of the bag and there’s no putting it back in now.

As I write this, there are about 10.9 million Bitcoins in existence, putting the entire market at around $775 million.  To put this into perspective, even after this parabolic move, Ben Bernanke still prints into existence an average of four new Bitcoin markets every single day.

So What’s Next
Based on intuition, psychology and nothing more I suspect the Bitcoin market will hit a total value of about $1 billion before experiencing a severe pullback.  That would put the price at around 92.  At that point, it is likely to be all over the financial press and I think “the state” may be tempted to threaten it.  Supporters of Bitcoin should not only expect such an attack, we should embrace it.  Just think about how ridiculous the government will look if they attack Bitcoin.  I mean, these guys can’t put a single banker in jail, but when citizens decide to freely exchange goods using a currency of their choice that is where they draw the line!  Bitcoin’s purpose is to both show us the way forward and to make the authorities look foolish as they spastically and irrationally respond to it.  I suspect it will be highly successful in accomplishing both objectives.

As Woody Guthrie might say if he were alive today:  This Digital Currency Kills Fascists.

In Liberty,
Mike

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30 thoughts on “Bitcoin Goes Parabolic: My Updated Thoughts

  1. This isn’t a sarcastic question to your very astute and sound thoughts: Can the government shut down Bitcoins because it isn’t “legal tender?”

    I really don’t know the answer to this. This just got me thinking:

    http://goldsilver.com/news/arizona-could-soon-approve-gold-silver-as-legal-tender/

    By the way, if you think I’m one of the ones annoyed you’d be wrong. I’m with any movement that helps circumvent the central cancer and I am open minded out it all. I just can’t help that this will ultimately back fire (the BTC’s popularity right now). Imagine if something “terrible” suddenly happens to Bitcoins. Will this only help legitimize the central cancer in some kind of twisted plan?

    • “Legal tender” doesn’t mean that other currencies are not allowed to exist. It means something very specific: suppose I owe you a debt and I offer to pay it off using the legal tender currency; you cannot refuse to accept that payment as cancellation of the debt.

      On the other hand various other laws do exist in some countries against the creation of currencies that compete with the state fiat currency. For example the “Liberty Dollar” was shut down using counterfeit laws, even though it hardly resembled the US Dollar at all.

      I think governments would have a hard time arguing that bitcoins are counterfeits of any national currency. They’ll probably go after it using anti-money-laundering rules.

  2. One other thing I’d like to say: I too like the idea of Bitcoins if not for anything else that it’s an important movement–not a protest, but a genuine and profound movement. A stream of consciousness by the people around the world that are truly awakening to the madness of monopoly money where the rulers sit back as though they are all important and successful and royal—for doing nothing other than being on the front end of the distribution system recklessly hallowing out the rest of us.

    People are starting to get it: For Cyprus we can thank and of course every central organization around the world that think they have a stranglehold on the future and all assets. They don’t.

    Now, if there was a way to make Bitcoins more stable for one’s hard earned labor it could really take off IMO.

    • While I’m no IT guru, I hear that to shut-down Bitcoin you’d have to shut down the entire internet. I don’t think that’ll happen soon
      ………….mind you,……….when I think about it…………..some of the BS that has been and gone. Anyone who tried to predict today’s state of affairs a dozen years ago would be in a straight-jacket!.

    • Thanks Jeremy. I can literally see them “letting” Bitcoins soar to the moon–getting massive amounts of people involved bidding up the price of Bitcoins than crashing it silly. People will flock to a 7% bail-in. That would be sad.

    • The attack vector for Bitcoin is to take over more than 51% of the mining hashrate and then get incredibly lucky. In order to do that now, you would need to dedicate about 30 Cray XK7′s (the world’s fastest super computer) to the task.
      But you’ll have to hurry. ASIC miners are starting to coming online and once they get fully deployed that will drive the network hashrate up by probably a factor of 10.

      • That’s the attack vector that you know about. Its those pesky unknown unknowns that’ll getcha.

        BTW – what about Shor’s algorithm?

  3. I believe the problem with bitcoins will be 2 fold. Access to them will be prohibited by the state and those that produce them for the market will be jailed indefinately and the money to buy bitcoins there will still need to be another currency which keeps govenments in control.

    • There is no good technical way to block access to Bitcoins. It’s completely decentralized. “Those that produce them” makes no sense. There is no “person” that makes them. That fact there is another currency doesn’t keep gov in control. They are totally out of control now. They are losing what’s left of their control every day because their system is unsustainable and we are nearing the it’s end.

      As their currency gets closer to $0 (It’s 95% of the way there), Bitcoins and gold/silver and other tangibles will go in the opposite direction.

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  5. The only problem I see with Bitcoin is that it presents yet another diversionary outlet, just like the Gold ETF’s, for people to invest in rather than the only real money, Gold and Silver. Really compelling idea but I am very suspicious.

  6. Great read and I agree with many of the thoughts. And right now
    It’s half mania half desperation. I suspect its thousands
    Of 17-35 yen olds in Europe each buying a few (1-5 each)
    Because its going up and they are worried about
    Cyprus type event. World govts are in uber tax revenue collect mode, I just don’t see them standing on sidelines and not being able to collect pounds of flesh. To those long BTC good luck !
    I

  7. I read a white paper from Carnegie Mellon Cyber labs entitled ‘Traveling the Silk Road: A measurement analysis of a large anonymous online
    marketplace’ not too long ago. For those who don’t know, The Silk Road is a comprehensive measurement analysis of Silk Road, an anonymous, international online marketplace that operates as a Tor hidden service and uses Bitcoin as its exchange currency. (it also deals in black market merchandise)

    In the paper, they identified The Silk Road as a threat and proposed ways in collapsing the market. Since the marketplace is anonymous and encrypted, one of the proposed methods is: ‘Disrupting the Bitcoin network appears, compared to attacking the Tor network, to be a more actionable possibility.’ Bitcoin has definitely been on the radar of the US government (as well as those with a vested interest in maintaining their monopoly hold on the money supply).

    Referenced paper here: http://arxiv.org/pdf/1207.7139v1.pdf

    FBI paper here: http://cryptome.org/2012/05/fbi-bitcoin.pdf

  8. There are a few ways they can go after Bitcoins.

    1. Discredit it. Usual propaganda misdirection in the mainstream media. I see this as the best chance of slowing the flow of new people into Bitcoins. Most people are afraid of Bitcoins. Then they start reading up on it and are still afraid. Propaganda will work well on the sheeple. Techies who understand it are the current cheerleaders.

    2. Lawsuits. They could go after specific Bitcoin exchanges to block their business. Which is why any smart Bitcoin exchange is outside the USA. MT.gox is in Japan. The ones that are in the USA are in for trouble.

    3. Make it illegal. This won’t work.

    4. Apply taxes on it. This won’t work. Who is going to claim any taxes when the Bitcoin wallet you are using is on a flash drive somewhere?

    5. Money laundering rules. Their usual playbook to stop competition. Considering the gov. is the biggest counterfeiter and money launderer (big banks), this is farcical. But to be expected from the authorities of nothing. They are as predictable as a $2 whore.

    Even if they shut down one or more large merchants, exchanges, etc, it doesn’t matter. The system is so decentralized, the big exchange business will move to people exchanging directly with each other privately if another big exchange in another jurisdiction doesn’t show up yet. There is no way to stop Bitcoins activity no matter how hard they try. This is total peer to peer activity with a large decentralized network as its backbone.

    By the time they make a dent in slowing down Bitcoins their currencies will be down so much people won’t listen to a thing the powers that be say. I can’t imagine who listens to them now. But as time goes on any non-coma breathing human will see the emperor has no clothes and never did.

    It’s hard to buy Bitcoins at an exchange rate of 75-1, but it will seem cheap when it’s 500 or 5000-1. The point is the maximum Bitcoins that can be in circulation is finite. Fiat money is not. As long as there are continuous financial collapses happening all over the place Bitcoins will continue to go up as gold/silver should of been doing.

    I postulate that Bitcoins is actually stating the future purchasing power of fiat currencies. The demographic of Bitcoins users are ones that really understand financial matters of the world and are acting accordingly. It helps that the world is experiencing currency collapse in various places too. Bitcoins is the perfect storm against the fraudulent world monetary regime we have had for way too long. It’s time for something else.

  9. “I postulate that Bitcoins is actually stating the future purchasing power of fiat currencies”

    I think this is exactly why Bitcoins have been soaring in price. This is exactly what they’ve been able to stop over the last two years with Gold and Silver, the parabolic rises in the PM’s with their countless “tools.” PM’s have been stopped cold in its tracks time and time again over the last two years–the despots are all over it. (Just look at today–Gold and Silver getting flogged today makes no intuitive sense. But that’s the way it rolls).

    I understand wholeheartedly the enthusiasm over Bitcoins. It’s something that you can do right now….waiting endlessly and getting stomped on daily gets old. For now, BitCoins is doing the real accounting for the money supply around the world (on a micro scale)–not gold and silver.

    Frankly, I’ve grown completely irritated with the endless “gold” has bottomed, “parabolic rise now underway” meme. Sure, they’re manipulated which is the excuse for every bad call. But we’re all grown ups here. If you KNOW they are manipulated, then stop making ridiculous assertions that 200 an ounce is around the corner IMO.

    Anyway, I’ve said it a millions times and I’ll say it again: The Federal Reserve has gotten every bubble it has wanted. They will get one in stocks too–long before PM’s find parabola. I have been right and I believe I’ll continue to be right about that.

    The 307 page Senate report on JP Morgan’s financial dealings was supposed to be for public purview. But guess what? They concealed all the parts about JP Morgan’s equity dealings and especially their ETF equity dealings.

    That tells you all you need to know. Silver will continue to mostly sell sideways (they can’t have it too far below 30 for a protracted period of time with that being the cost of marginal production); gold will continue to simply bounce around where every 50 dollar move higher will be met with the “here we go” yelling, stocks will continue higher by year end another 15% (Larry Fink said so), and we’ll continue to have to hear about the Great Recovery until sometime next year. Sorry for the off topic rant but that’s the game for now!

    I hope Bitcoins go to 16 trillion.

  10. Bitcoins are only useful if merchants accept them in trade for goods.If government steps in and makes them illegal then no merchants will accept them as payment accept maybe a few rebels.Then they are basically useless and worthless.

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  12. I realized this is an unwelcome observation, but Bitcoin smells like an op to me. I cannot prove it of course, and I don’t think any of the proponents of Bitcoin cited herein, or ones generally thought to be experts about it, are part of it.
    It just seems a plausible deduction from what we know, and don’t know.

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