MD: Money Delusions has no illusion for what money is (see right sidebar). Bitcoin, like gold, is a clumsy stand-in for “real” money.
Well, it looks like they’re taking it a step further. On the one hand, they’re trying to give it stability while on the other hand they’re trying to give it leverage. In both cases, Bitcoin’s foundations are firmly planted in quicksand.
And the allure of Bitcoin? “It doesn’t require trust … there is no entity to be trusted”.
Well, a good way to study issues is to inspect the limits. On one limit, we have no Bitcoins. At that limit, confusion about money remains unchanged. At the other limit, everything is the Bitcoins … and just looking at the algorithm this limits the number … thus infinite value is at the upper limit. Traders (like you and me) can’t trade in that environment. When we promise to trade 360 monthly payments of money for a house today, we want that money to be worth exactly the same every one of those months. “Real” money behaves this way. Bitcoin money does not. Every month, the Bitcoin we must return is harder for us to earn.
Let’s see if there is any wisdom in this article.
Bitcoin bond launch brings digital currency step closer to ‘world of high finance’
- Fisco, a Japanese financial information company, announced this week a unit of the company has issued a bitcoin bond.
MD: Where are the Bitcoins going to come from when these bonds mature? Where are the Bitcoins going to come from that pay the coupon? Bitcoin is hopelessly deflationary. Thus, buying a Bitcoin bond puts huge pressure on the seller to deliver higher valued Bitcoins when the bond matures. How are they going to do that? And with the value (through scarcity) of Bitcoin continuously increasing, the bond will continuously increase too. Why in the world would Fisco create such a thing? What’s in it for them?
- The bitcoin bond “brings digital currencies into the world of high finance,” said Dan Doney, chief executive officer of Securrency.
MD: High finance is nothing but highly leveraged gambling. It only works with inflation. It strangles itself with something deflationary like Bitcoin. High leverage is instant death for these gamblers facing deflation … and with Bitcoin, that deflation is guaranteed in exponentially increasing fashion … until it just collapses totally out of self strangulation.
- The development of bitcoin options, futures and now bonds could help the often volatile digital currency become a better-established asset class.
MD: “Real” money is not volatile. It is in perpetually perfect supply/demand balance. It is in perpetual free supply. Thus, there is no need for options, futures, or bonds of any kind. How could it be more obvious that Bitcoin is a terminally stupid idea?
CNBC.com
Bitcoin is getting closer to looking like a traditional financial product.
MD: Oh really? Can you buy a ribeye steak at the super market with one?
Japanese financial information firm Fisco announced Monday it is experimenting with the country’s first bitcoin-backed bond. The news follows other announcements in the last several weeks for bitcoin options, futures and an exchange-traded fund tracking bitcoin derivatives in the U.S.
“I think it’s a very healthy and natural progression of the space,” said Adam White, Coinbase vice president and general manager of its GDAX exchange, told CNBC in a phone interview.
MD: Adam White. Might as well be Joe Jones in searching for what becomes of that idiot and his predictions.
Derivatives products will allow for greater liquidity, better price discovery and lower volatility, White said. “I think products like derivatives or an ETF effectively allow traders to do two things: speculate and hedge risk on the price speculation.”
MD: Why does Bitcoin need greater liquidity? A “real” money process has perfect liquidity. There is no restriction on its supply and it maintains perpetual perfect supply/demand balance … zero inflation. It requires no price discovery. It’s value is permanently in units of HULs which never change. You don’t need derivatives for it because leveraging zero does nothing. You don’t need ETFs for it because there are no exchanges. All money exchanges on a 1 for 1 basis after “real” money drives out all less efficient money.
Bitcoin price 12-month performance
Source: CoinDesk
MD: Now look at that! A “Real” money price performance curve is a straight horizontal line … for all time. Why would any trader want to make a promise spanning time and space with a time dependent curve like that? He wouldn’t!
Bitcoin has more than quadrupled in price this year, hitting a record above $4,500 Thursday and notching a market value of $74 billion amid growing institutional investor interest in the digital currency.
MD: Over the same period, any “real” money would have remained at exactly the same price. Traders? What would you rather have? Your trading promise spanning time and space linked to … an unpredictable accelerating object or to a perfectly static object?
Many governments and financial institutions see enormous potential for improving transaction security and efficiency using the blockchain technology that supports bitcoin.
MD: But does that blockchain technology dictate the scarcity Bitcoin exhibits (and cherishes)? If not, blockchain technology would be enormously helpful to “real” money too. Real money requires complete transparency of the money “creation” process and blockchain (if in free supply) would facilitate that.
But the surge in investor demand has also revealed access issues with third-party storage systems and trading platforms that fall short of the more established Wall Street markets.
MD: What is being stored is just information (ledger entries) … and it’s essentially replicated so can’t be destroyed. The blockchain, being universally distributed, implies no storage at all? It would be an increasingly rare case where “real” money using a blockchain would have to be in coin or currency form which could be physically destroyed.
Bitcoin’s price is also prone to massive swings of several hundred dollars within a day. With bitcoin futures in the works, investors will be able to protect themselves from potential sharp drops in prices through hedging.
MD: Why? “Real” money is certainly not so prone! Why are people using and advocating Bitcoin being so skittish? Remember, it requires “no trust”!
The ability to hedge bitcoin investments paves the way for other products, such as bonds.
MD: Insurance is useless when the insurer is guaranteed to fail.
Fisco’s three-year bitcoin bond was issued by its digital currency exchange unit for an internal trial on Aug. 10, according to a Google translate of the press release.
The bond has a three percent annual interest rate and returns bitcoins when it matures, the release said. The total worth of the bond was 200 bitcoin, or $900,000 at Thursday’s prices.
MD: 3% paid in Bitcoins? Where are those coming from? And they’re only paid at maturity? Thus, a buyer would have to wait three years before realizing he was scammed? With an annually paid coupon, he would know the bond writer was room temperature in one year.
The bitcoin bond “brings digital currencies into the world of high finance,” said Dan Doney, chief executive officer of Securrency, which plans to launch a platform at the end of the year to allow investors to buy stocks using bitcoin. Doney was chief innovation officer at the U.S. Defense Intelligence Agency before co-founding Securrency in 2015.
MD: World of high chicanery!
The biggest challenge is “it is very difficult to predict the price of bitcoin tomorrow, let alone a year from now,” Doney said.
MD: … just as is gold. And just like gold, you can be sure it will go up over time. It has to. It is deflationary by design. Next thing they will invent is a dollar / bitcoin cocktail trying to match the dollars inflation with the bitcoins deflation. If they are able to do that perfectly, they arrive at “real” money. Why not just institute “real” money to start with. It is guaranteed to stay real … perpetually in real time.
A bitcoin-backed bond would allow large institutions to store value using the digital currency and potentially be more open to accepting bitcoin as payment, analysts said.
MD: Ah … so they think it’s a storage problem? Why? Because the dollar is inflationary? Or because it might catch fire and turn to ash? Why would large institutions store value as something that is guaranteed to blow up (or more accurately, blow-down) by design?
“It is interesting financial firms are trying to get their arms around the currency and what it can be,” said Brian Patrick Eha, author of “How Money got Free: Bitcoin and the Fight for the Future of Finance.”
MD: If I could get that guy to comment, I would welcome an opportunity to annotate his book. Otherwise, by the title, reading it would be a waste of time.
In early August, the Chicago Board Options Exchange said it planned to launch bitcoin futures as soon as the fourth quarter of this year. That paved the way for VanEck, which sells gold ETFs and other investment products, to file last Friday with the U.S. Securities and Exchange Commission for a “VanEck Vectors Bitcoin Strategy ETF” that proposes to initially invest in bitcoin futures.
MD: If you can create a fiction like the VIX and trade it, you can create any fiction and trade it. What’s not to love about that? It’s going to become a pretty cluttered landscape isn’t it? Compare that to “real” money. Regardless of how many purveyors there are, they will all trade 1 for 1 for each other. It’s the nature of the process.
The U.S. Commodity and Futures Commission in late July also approved a digital currency trading platform called LedgerX to clear derivatives.
MD: You can make a market in cow dung and clear it. What’s the big deal?
Historically cryptocurrencies “were very much a domain for crypto anarchists and tech-savvy people, and that has changed in the last couple years,” said Niklas Nikolajsen, CEO of Swiss-based digital currency broker Bitcoin Suisse. “This means a whole new ballgame of people are going to get access to the market.”
MD: Right. Like religion changed after they first printed the bible. It just enabled more corruptions and variations of something that was a hoax to start with … something of the sole domain of the monks on high… (and the soul domain of the stupid) .
WATCH: Trader explains when to buy bitcoin
MD: Buy until it becomes a trading black hole by self strangulation. Don’t even worry about the buy low/sell high wisdom. It will essentially always be buy high/sell higher. Just before the limit, your return is infinity squared. At the limit, it strangles itself.
