Crypto: ‘The end is nigh’

Finally, I think the Bitcoin improbability bubble has burst. Ever since it claimed it was mainstream and respectable back in January when the SEC was bounced into giving regulatory approval for Bitcoin ETFs, it has crashed 15%! By Bill Blain

 
How loudly be the Trickster Gods of Finance laughing at the absurdities of it all. It was a classic Buy-the-Rumour, Sell-the-Fact moment, catching out all the “greater fools” who were persuaded to buy ahead of the approval on the basis it could only go up. Wrong; the laws of mean reversion mean something worth nothing will revert towards nothing.

I consider Bitcoin complete froth and nonsense. All this malarky about a limited number of coins, and making them progressively more difficult to mine (via “halving”) get the believers terribly excited. Yet, these mechanisms and limits exist only to keep pushing up the price. For that to keep happening the “interested parties” lurking behind Bitcoin need to keep convincing the marks – i.e. any gormless Crypto buyer – that it has real value, longevity and utility.

Sadly, there is absolutely no investment case for Bitcoin. It does not pay interest, it is not a store of value in any understood sense, and it offers zero utility or unique use case. But it does one thing; as long as people are prepared to buy it, it should continue to go up. To keep the number of “greater fools” buying it, the only thing that matters for Crypto shysters is ADOPTION. That was the plan from the start. To work, Bitcoin has to continuously persuade converts it will achieve and sustain mass-adoption. Simple as. If that sounds ponzi-esque… top of the class.

The issues to consider are simple: is Bitcoin in particular, really going to garner mass adoption and be widely used as a global currency, means of exchange and store of value?

When Bitcoin launched in January 2009, the world was a very damaged place and trust in fiat currencies had taken a battering in the Global Financial Crisis. Speculation fuelled by ultra-low interest rates was coming to fore, driven by a hope/belief new technologies could rescue the battered post-Lehman GFC global economy via everything tech and digital – the internet-of-things (remember that) – and disruptive concepts like fin-tech and electric cars.

Someone had that judder moment insight: why not equally disruptive digital money?

Bitcoin inventor Satoshi Nakamoto (who is likely a collective of clever proto-fin-tech nerds) spotted the opportunity to play the Zeitgeist of the time, spice it with some libertarian balderdash about freeing money from government control, and created the ultimate get-rich-quick scheme.

If Crypto overcomes the suspicion and is widely adopted, then these Crypto-whales, the high priests who designed and have refined the Crypto-Cult are going to become phenomenally rich. No one owns the Bitcoin project, but it’s reckoned the Satoshi Nakamoto collective is the biggest owner. Nakamoto Inc mined the first 22,000 blocks (each of 50 Bitcoins) for pennies; now worth more than $45 billion at today’s price. These Bitcoin are held in thousands of different addresses, but very few of them have ever traded except to test and hype the product.

Behind Nakamoto there are six other big anonymous holders of anything between 100-50k Bitcoins. The biggest known holders are the “charming” Winklevoss twins of Facebook fame who have 70,000 coins.

Crypto promoting “fund,” Greyscale, owns over 650,000 Bitcoin; you can see why it is so anxious to lay off the risk by selling them as ETFs to retail investors. The Block 1 and MicroStrategy funds own around 150,000 each. The US government through various confiscations, and proving just how insecure Bitcoin keys really are, has amassed over 170,000 Bitcoin!

The largest 97 holders of Bitcoin hold nearly 3 million Bitcoin – 14.7% of the total that can ever be issued. Go figure what that means if it really ever did become a medium of global exchange.

Crypto shills argue Bitcoin is now a currency. It is not. The value of a currency is a factor of confidence in that currency which includes the underlying political competency of the nation with sovereignty over the currency, and its ability to keep the currency strong and stable via the economic success of the nation. What underlies the value of Buttcon? Nothing more than the expectation the greater fool will pay more for it.

Over the last 10-years, no one has persuaded me Crypto has any real utility. There is absolutely nothing legal Bitcoin can do, or provide, that isn’t already performed perfectly well by other mechanisms or assets. My offer of £100 to anyone that can propose a genuine unique, useful and legal thing Bitcoin makes better still stands. Think about it one moment. Except for buying arms and drugs on the dark-web, does Buttcon allow you to do anything you could not already do?

However, it’s not what I think that matters. It’s what the participants in the Bitcoin markets are prepared to believe that counts; they set the price. Never make the mistake of thinking you can out-think a market – markets are not intelligent and don’t think. They are just voting machines.

The Crypto shills pushed the SEC for approval of ETFs not because they thought it would give Bitcoin a veneer and glister of regulatory approval, but because it would draw in the marks.

Crypto is like a cult; it’s just another form of Ponzi where the top players are enabled to pray on the most recent entrants at the foot of the ladder. Ponzi’s succeed because they convince their marks about the story, the myth, the lie. This one is about: “everyone else is doing it.” It is designed to breed Fear of Missing Out (FOMO).

Focus on who the players are. I perceive four layers of Crypto participants:

• the High Priests – Nakamoto and the other anonymous names,
• the Acolytes – the funds and tub-thumpers like ARK
• the Believers – who really should know better
• the Cultists – the retail who are sucked in before the inevitable crash

We know Nakamoto and other Crypto whales are out there, sitting on digital mounds of the stuff, waiting to rule the world or cash out at the highest levels by manipulating sentiment, hopes and expectations. With the exception of the Winklevosses, these High Priests are smart enough to say nothing and quietly work in the shadows to reap returns by predating and farming the lower rungs of the Crypto food-chain. They know to fully cash out their founder positions at market highs could kill the market (and lose the ultimate reward). So they play the wave-game, fattening up the marks for slaughter. That means generating volatility based on the inherent miasma of myths that surround Crypto, like halving and the finite number of Bitcoins.

The High Priests leave it to the Acolytes to preach and shill the message of imminent higher value; folk like Greyscale, MicroStrategy and Cathie Wood confidently predicting a $1 million target by each and every month end. Learned, complex articles about adoption by major hedge funds fill the pages of the Crypto-media, eventually picked up by the mainstream. It fuels FOMO.

It’s funny how it’s always the same value myths the Acolytes promote to drive up Bitcoin:
 

• That large institutional investors have become major adopters of Bitcoin.
• Anyone who claims it’s a Ponzi or Shell company is a fool, a know-nothing not clever enough to understand it; much like the silly folk who can’t see the emperor’s marvellous invisible suit in the fairy-tale.
• Regulators are set to approve the market and have given their blessing.
• That holding Bitcoin is simple and safe, usually right before yet another exchange collapses on illegality.
• Some tech event (like a branch or halving) is about to create massive Bitcoin upside.
• Stories of overnight and immediate riches, and how Celebrities are giving their support, fuel FOMO.

 
All the Crypto-guff is eagerly devoured by the Believers who seek to back up their hunch there might be value in Buttcon, but are blinded by the quasi-science, quack-maths and fiscal mummery that postures as Crypto-market analysis.

Then there are the Cultists, the want-to-get-rich-quick meme-stock trading retail who read in the National Enquirer they will make $300k a week buying it, are persuaded the market can only keep going higher. The Cultists don’t need to see anything more than headlines that Buttcon is Digital Gold, and the price is rising, and they pile in willy-nilly. As they buy and the market ratchets upwards, the smart High Priest holders are the ones selling, while the Acolytes fan it higher.

By the time the Cultists are driving Crypto-prices, common sense is out the window. Greed and FOMO drive prices higher. Because the market participants voting on the price of Bitcoin are desperate to get rich, easily led, and willing to believe in fairy farts, then it’s likely the next few months will see Bitcoin upside.

As a final thought, let me ask you if you would ever use your Bitcoin to buy anything? If you believe in it, the answer is clearly no. You would hold your Buttcon in the sure and certain knowledge there can be no more than 21 million and more and more people want to use it. Ask why. Then ask… what use is it? It’s apparently valuable but I can’t possibly sell it.

Walk away now… while you still can.

There is a little child in the audience about to ask very loudly: “Why is the emperor stark naked?”
 
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