Guest Post: Why is the Bitcoin Price So Weak?

It’s been a wild 2014 so far for Bitcoin. On the one hand, there has been some very bad news in the space. We’ve had the Mt. Gox disaster and the potential overhang those stolen coins have on the market, as well as rumors of an effective Chinese ban (we still don’t have confirmation of anything).

On the other hand, there has been a lot positive news as well. We have seen some of the most brilliant venture capitalists in the world continue to put a great deal of time and money into crypto-currency related enterprises, as well as continued merchant adoption, with the biggest news being Overstock.

One of the leaders in the Bitcoin space, helping people spend their BTC at a wide range of traditional stores ranging from Target and Whole Foods Market, to the recent addition of Wal Mart is Gyft, led by its CEO Vinny Lingham. I’ve known for some time now how intelligent and entrepreneurial Vinny is, but as of today I have also discovered he is a strong writer.

With his permission I am republishing his excellent piece, Finding Equilibrium: Searching for the true value of a Bitcoin, below.

I agree with pretty much all of Vinny’s main points. I have been on record saying the recent surge and plunge is eerily similar to the 2013 surge and plunge. If that pattern repeats, we should see the next big move this summer. Vinny thinks the price may flatline for longer than that before moving strongly again.

Enjoy.

Finding Equilibrium: Searching for the true value of a Bitcoin.
by Vinny Lingham

Bitcoin has a number of headwinds which is keeping the price in check. I’m expecting it to stabilize around the $400 mark for at least the next quarter (although predictions in the Bitcoin space are very hard to do past a couple of weeks).


As Bitcoin stabilizes below $500 for the first time since it’s eye-popping run to over $1,000 in November 2013, many crypto pundits are scratching their heads and trying to make sense of the current weakness — especially given the excitement & innovation that we are seeing within the global Bitcoin community. Venture capital has also been pouring into Bitcoin startups at a rabid pace (north of $100m so far this past year). However, over the past couple of days, I’ve had numerous friends contact me asking the same question : “What’s happening with Bitcoin?”.

Bitcoin is currently trying to finding an equilibrium point — at least at the current volume levels — given all the recent disruptions to the ecosystem (including the recent MtGox collapse). Equilibrium would be defined for me as the point of stability in price where there is symetric volume and consistent growth on a daily basis between buyers and sellers (utopian, but right now there is asymmetric growth which is not being quantified — so traders are having a problem predicting where it would go).

History shows that it needs to find a very stable price point for a few months before it can really retest any previous highs. External factors like Russia, Ukraine, China, etc will contribute to Bitcoin volatility and changes in the supply/demand curve globally.

I spent some time at the CoinSummit conference in San Francisco last week and my panel discussion, “Bitcoin transactions — what are the barriers for merchant and consumer adoption?” was well received by the community.

Its very clear that Bitcoin has amazing potential but the fact remains that we are still in the very early stages of it’s evolution — which many have likened to the Internet in 1993. Mainstream consumer adoption is just not there yet. We’re waiting for the “Netscape moment” for Bitcoin.

I also don’t believe Bitcoin is suitable as currency — I think it’s a commodity that can be traded for goods and services. It may become a currency in time, but it just isn’t one right now. It’s a scarce, digital commodity — and the trading that takes place on exchanges really reflects the market sentiment around the value of this digital commodity.

In the not too distant future, entrepreneurs & technologists will use the actual Bitcoins themselves in new and interesting ways (think smart contracts, etc.) —how many will be ultimately needed is unknown, and that’s what creates the imbalance in price. Right now it’s all speculation as to what that future value of a Bitcoin will equate to. This is what makes the Blockchain far more interesting than the actual Bitcoin — but I’ll leave that for a future post.

I have some alternative views (i.e. not stuff the mainstream press totally gets), as to why Bitcoin is trading below $500 right now, but I want to point out that I am a Bitcoin bull for the long term. I even predicted at the Silicon Valley Bitcoin Conference in May 2013, it would reach over $1,000 in 2013 when it was trading at $100 to audible sniggers and laughs from a very Bitcoin friendly audience.

That said, conversely, here are the key reasons why I think the Bitcoin price may not organically reach $1,000 again this year, without an external event shifting the supply/demand curve for Bitcoin. It is difficult to predict anything further out than a single quarter in the Bitcoin world, so instead of making bold predictions I would rather focus on highlighting some issues that are suppressing the Bitcoin right now.

TechCrunch published a story yesterday about the recent IRS rulings around Bitcoin — which classifies it as an asset, not a currency (which effectively makes transactions using it taxable). To be frank, anyone who thought that Bitcoin would not be subject to taxes in some form is living in a dream world.

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Saudi Arabia Passes New Law that Declares Atheists “Terrorists”

Nothing like being close allies with one of the most despotic, Medieval and backwards societies on planet earth.

Never forget, the USA brings democracy to the world!

With the exception of puppet governments sitting on billions of barrels of oil reserves and disturbing ties to the 9/11 attacks. Those governments we love.

From the UK Independent:

Saudi Arabia has introduced a series of new laws which define atheists as terrorists, according to a report from Human Rights Watch.

In a string of royal decrees and an overarching new piece of legislation to deal with terrorism generally, the Saudi King Abdullah has clamped down on all forms of political dissent and protests that could “harm public order”.

Article one of the new provisions defines terrorism as “calling for atheist thought in any form, or calling into question the fundamentals of the Islamic religion on which this country is based”.

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Neo-Con Republicans Make Pilgrimage to Vegas to Kiss the Ring of Oligarch Sheldon Adelson

Oligarchs are ruining America. They are ruining the economy through their rampant theft and corporate welfare handouts. They are ruining our social structure with their billions used to buy and sell politicians as well as entire Presidential elections. They represent an existential threat to the Republic and the cancer needs to be addressed at once.

Oligarchs now control both phony political parties. On the Democratic side, we have Warren “tax loophole” Buffett and George Soros. On the Republican side, we must become increasingly aware of casino mogul Sheldon Adelson, who boasts an estimated net worth of around $37 billion.

For those still daydreaming that the GOP may nominate a more libertarian-leaning candidate in 2016, rather than the typical big government, warmongering neo-con, the biggest obstacle in your way is Sheldon Adelson and his billions. This threat was on clear display this past weekend in Vegas when Chris Christie, Paul Walker and Jeb Bush all made the pilgrimage to “kiss his ring.”

The serious threat to our political system posed by Adelson was covered by both “left-leaning” and “right-leaning” commentators (although I hate those terms). First, Juan Cole writes at Bill Moyers that:

A series of pro-corporation Supreme Court decisions and the latter’s disingenuous equation of money with speech, including Citizens United, have turned the United States from a democracy to a plutocracy. It is not even a transparent plutocracy, since black money (of unknown provenance) has been allowed by SCOTUS to flood into elections. These developments are not only deadly to democracy, they threaten our security. It is increasingly difficult to exclude foreign money from US political donations. We not only come to be ruled by the billionaires, but even by foreign billionaires with foreign rather than American interests at heart.

The perniciousness of this growing plutocracy was on full display on Saturday, as GOP governors Scott Walker, Chris Christie and John Kasich trekked off to Las Vegas in an attempt to attract hundreds of millions in campaign donations from sleazy casino lord Sheldon Adelson. Since Adelson is allegedly worth $37 billion, he could fund the Republican side of a presidential election (which costs $1 billion) all by himself. In the last presidential election he is said to have donated $100 million.

One important thing he thing he failed to mention was that Jeb Bush was also there, featuring prominently at a private dinner with Adelson and others.

The case of Adelson exhibits all these issues of corruption and eccentricity. Much of his current fortune is recent and derives from the Macao casino, and Adelson has admitted to “likely” breaking Federal rules against using bribes to do business in other countries. (A reference to allegations that his company was involved in rewarding legislators of the Chinese Communist Party for supporting his Macao project.) There was a time when this admission alone would put the donor off limits for mainstream politicians.

 Adelson has a right to vote and advocate for his candidates. But the idea that he and his like should choose the next president is too awful to contemplate. One person, one vote isn’t one person, $100 million worth of votes. That isn’t democracy…

CBS has also chimed in with some interesting commentary:

Both Christie and Bush are cut from the same mainstream Republican cloth: well liked by the donor class and viewed suspiciously by conservative activists. If they both compete in 2016 — and to be clear, neither has decided on a bid — they’ll be fighting for the roughly same slice of the Republican pie, and perhaps more importantly, many of the same donors.

But as Christie stumbled, Bush soared. The former governor was feted at a private dinner on Thursday to kick off the weekend. The dinner was held at Adelson’s private airplane hangar.

Bush delivered brief remarks at the dinner, and after one attendee urged him to run for president, the crowd of donors burst into applause, according to a report in the Washington Post.

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Buy-to-Rent is Officially Dead in California

I’ve chronicled the saga of “buy-to-rent” for well over a year now. From some of its most exuberant phases to its now epic retreat (investment firm property purchases are now down 70% year-to-date). It seems as if the pullback of private equity and hedge funds from this asset class is even more brutal in certain … Read more

Where Does the Real Problem Reside? Two Charts Showing the 0.01% vs. the 1%

While I always supported the overall message and energy that encompassed the Occupy Wall Street movement, I never backed the slogan of the 1% vs. the 99%. From my own personal experience, it is entirely clear that the actual problem is a far smaller group within the 1%, the 0.1% or the 0.01% (although I recognize “We Are the 99.9%” isn’t catchy).

This is why you’ll never hear me demonize “the 1%”, rather I always try to use the term oligarch, which refers a small handful of people who benefit most disproportionately from Federal Reserve handouts, D.C. corruption, tax code loopholes and the destructive trend of financialization generally.

This is is also why I became so disgusted by Sam Zell’s ignorant and destructive comments on Bloomberg television earlier this year that decided to pen an open letter to him.

Thanks to The Atlantic, we now have two charts that show what I have been writing about for many years now. It is not the 1% that is the problem, it’s actually a much smaller slice within that group that is thieving and pillaging at will from the rest of American society.

From The Atlantic:

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The Co-Op Movement – A Decentralized Solution to Solving Inequality and Avoiding Serfdom?

Or take the right to vote. In principle, it is a great privilege. In practice, as recent history has repeatedly shown, the right to vote, by itself, is no guarantee of liberty. Therefore, if you wish to avoid dictatorship by referendum, break up modern society’s merely functional collectives into self-governing, voluntarily co-operating groups, capable of functioning outside the bureaucratic systems of Big Business and Big Government.

-Aldous Huxley, in Brave New World Revisited (1958) 

As readers of this website are well aware, the entrenched power structure has proven itself unwilling to address any of the extreme fraud, crony capitalism and corruption that plagues the U.S. economy. As such, it has become increasingly clear to myself and countless others that the solutions we need must be grassroots and decentralized. I have personally made it a point to encourage people to take matters into their own hands, using whatever tools they have available to make the communities in which they live better for their families and their neighbors.

Of course, in a world in which power is ever increasingly concentrated in the hands of a very unenlightened egomaniacal handful of oligarchs, this seems like a daunting and near impossible task to many. Because so many Americans are simply consumed with making ends meet and putting food on the table, the concept of changing the world appears entirely unrealistic if not downright impossible.

The message I want to convey is that this is not the case. Whether it be decentralized competing currency systems, states rights initiatives such as legalizing marijuana (some pot convictions can now be overturned in Colorado), neighborhood farms, independent energy systems, the path toward localized solutions is the one I firmly believe we must follow.

To that end, I want to highlight this encouraging article from the New York Times titled, Who Needs a Boss?, which explores possibilities worker co-ops provide for workers everywhere. Not only is the pay far better, not only is work engagement considerably more robust, but it restores a sense of community and power to those involved. I think this is a model we should greatly expand upon, rather than looking for centralized solutions, which are merely band-aids placed upon a cancer.

Here are some excerpts from the New York Times:

If you happen to be looking for your morning coffee near Golden Gate Park and the bright red storefront of the Arizmendi Bakery attracts your attention, congratulations. You have found what the readers of The San Francisco Bay Guardian, a local alt-weekly, deem the city’s best bakery. But it has another, less obvious, distinction. Of the $3.50 you hand over for a latte (plus $2.75 for the signature sourdough croissant), not one penny ends up in the hands of a faraway investor. Nothing goes to anyone who might be tempted to sell out to a larger bakery chain or shutter the business if its quarterly sales lag.

Instead, your money will go more or less directly to its 20-odd bakers, who each make $24 an hour — more than double the national median wage for bakers. On top of that, they get health insurance, paid vacation and a share of the profits. “It’s not luxury, but I can sort of afford living in San Francisco,” says Edhi Rotandi, a baker at Arizmendi. He works four days a week and spends the other days with his 2-year-old son.

Arizmendi and its five sister bakeries in the Bay Area are worker-owned cooperatives, an age-old business model that has lately attracted renewed interest as a possible antidote to some of our most persistent economic ills. Most co-ops in the U.S. are smaller than Arizmendi, with around a dozen employees, but the largest, Cooperative Home Care Associates in the Bronx, has about 2,000. That’s hardly the organizational structure’s upper limit. In fact, Arizmendi was named for a Spanish priest and labor organizer in Basque country, José María Arizmendiarrieta. He founded what eventually became the Mondragon Corporation, now one of the region’s biggest employers, with more than 60,000 members and 14 billion euro in revenue. And it’s still a co-op.

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The New York Times Covers “Oligarch Welfare” – Tax Breaks for Private Planes, Yachts and More…

I’m pleased to say that the topic of oligarch and corporate welfare finally seems to be getting the much needed attention it deserves. While billionaires like Sam Zell (read my open letter to him) continue to spout nonsense about how the poor just need to be more like the rich, objective folks are catching on to the joke.

Ironically, the biggest welfare queens in America are the oligarchs and multinational corporations themselves, yet many of them constantly like to blame growing inequality on the supposed character deficiencies of the lower classes.

Earlier this week, I wrote a very well received post titled, A First Look at a New Report on Crony Capitalism – Trillions in Corporate Welfare, as well as the post, Walmart Admits in its Annual Report that its Profits Depend Heavily on Corporate Welfare.

The New York Times has now thrown its hat in the arena with an article titled: A Nation of Takers?

Here are some excerpts:

In the debate about poverty, critics argue that government assistance saps initiative and is unaffordable. After exploring the issue, I must concede that the critics have a point. Here are five public welfare programs that are wasteful and turning us into a nation of “takers.”

First, welfare subsidies for private planes. The United States offers three kinds of subsidies to tycoons with private jets: accelerated tax write-offs, avoidance of personal taxes on the benefit by claiming that private aircraft are for security, and use of air traffic control paid for by chumps flying commercial.

I worry about those tycoons sponging off government. Won’t our pampering damage their character? Won’t they become addicted to the entitlement culture, demanding subsidies even for their yachts? Oh, wait …

Second, welfare subsidies for yachts. The mortgage-interest deduction was meant to encourage a home-owning middle class. But it has been extended to provide subsidies for beach homes and even yachts.

In the meantime, money was slashed last year from the public housing program for America’s neediest.

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The PBOC and Bundesbank Sign Pact to Turn Frankfurt into Yuan Hub….Meanwhile Obama Heads to Saudi Arabia

I haven’t paid too much attention as of late to agreements between China and other nations intended to expand the use of the yuan (renminbi) internationally, because the near-term implications always seem to be exaggerated by many market commentators. That said, this deal between the People’s Bank of China (PBOC) and Germany’s Bundesbank seems quite significant given the importance of Germany within the global economy generally and the E.U. specifically.

From Bloomberg via BusinessWeek:

Germany’s Bundesbank and the ™People’s Bank of China agreed to cooperate in the clearing and settling of payments in renminbi, paving the way for Frankfurt to corner a share of the offshore market.

The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement.

Germany’s financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication. The U.K. Treasury said on March 26 that the Bank of England would sign an initial agreement with the PBOC on March 31 to clear and settle yuan transactions in London.

“Frankfurt is one of Europe’s foremost financial centers and home to two central banks, making it a particularly suitable location,” said Joachim Nagel, a member of the Bundesbank’s executive board. “Renminbi clearing will strengthen the close economic and financial ties between Germany and the People’s Republic of China.”

China was Germany’s third-biggest foreign trade partner last year, with 140 billion euros in turnover passing between the two countries, according to the Federal Statistics Office in Wiesbaden. China ranks fifth among importers of German goods and is the second-biggest exporter to Germany.

German companies including Siemens AG, the country’s biggest engineering company, and Volkswagen AG are embracing the renminbi internally as a third currency for cross-border trade settlements.

“The potential is vast,” said Stefan Harfich, the Siemens Financial Services manager, who steered the introduction of the yuan at the Munich-based company in October. “The introduction of the renminbi as an official company currency will therefore have a big impact on Siemens’s business in the coming years.”

Daimler AG, the Mercedes manufacturer that sold 235,644 autos in China last year, issued 500 million yuan of one-year notes in Asia’s largest economy on March 14, in the first so-called panda bond by an overseas non-financial company.

With all that in mind, let’s not forget that Obama is currently in Saudi Arabia trying to restore ties with the Medieival Kingdom, i.e., he is trying to figure out a way to arm al-Qaeda in Syria without the American public finding out about it.

From the Wall Street Journal:

RIYADH—Barack Obama’s visit to Saudi Arabia on Friday marks a bid to warm relations that the Saudis hope will result in commitments by the U.S. president to boost the supply of sophisticated weapons to Syrian insurgents.

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American Feudalism – Obama Travels to Brussels with a 900 Person Entourage

Earlier this week, U.S. President Barack Obama arrived in Brussels for the E.U. summit, but he was not alone. In fact, he is reported to have traveled with an entourage of 900 people, no doubt leaving a gaping expense for U.S. taxpayers. Brussels itself also took at major hit, with the city spending over $10 … Read more

The Guardian’s Deputy Editor Claims the UK Government Threatened the Paper with Shutdown

Mr Johnson said the whole attitude in the UK was that national security trumped press freedom and that the newspaper should not publish a word…We were threatened that we would be closed down. We were accused of endangering national security and people’s lives. It left us in a very difficult position.

– Paul Johnson, deputy editor of The Guardian

As if you didn’t already recognize the serious threat to press freedom in the UK following authorities holding Glenn Greenwald’s partner David Miranda for eight hours under “terrorism” laws as he transferred through London’s Heathrow airport. It’s not just the traditional press at risk in the UK either, the government is hard at work censoring the internet itself via ridiculous filters.

Now we find out from the Irish Times that:

The Guardian newspaper was threatened with closure by the British government over the Edward Snowden spying affair, the Radiodays Europe conference has been told.

The paper’s deputy editor Paul Johnson said Britain’s intelligence agencies visited them and told them they would be closed if they persisted in printing Snowden’s revelations of mass surveillance involving the National Security Agency (NSA) in the United States and the Government Communications Headquarters (GCHQ) in the UK. Mr Snowden is now in Russia, where he has temporary asylum. He is wanted by the US authorities on espionage charges.

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