Crypto Currencies created by anarchists to bring monetary system down
The total market capitalisation of all cryptocurrencies is now a bit more than $US100 billion ($132bn), about the same as CBA — so, not all that much yet, but growing fast.
There are apparently more than 700 of these blockchain seedlings now, sprouting at the rate of about 30 per month through what are called “Initial Coin Offerings”. The oldest and largest is bitcoin — 42 per cent of the market — with ethereum at 30 per cent market share, and gaining.
ICOs have overtaken IPOs in both number and popularity among the money-hungry; they have captured the fervour of the tech-spec world, in the same way as dot.com IPOs captured it in the late 1990s.
And having watched it for a while, and considered the matter carefully, I think the analogy is apt. That was a bubble then, and this is one now. In fact it’s worse: it’s a giant scam.
Or else it’s a sort of global counterfeiting conspiracy, carried out by anarchists intent on bringing down the global system of money and government.
And here’s another metaphor: it’s like the Gold Rush of the 1850s, because then, as now, the fortune hunters were mining money.
In the 19th century, gold really was money, directly convertible, and the diggers in Victoria could mine and pan it without too much trouble, or capital.
The modern miners of cryptocurrencies use stupid amounts of electricity and are hoping their “coins” become money one day. For the moment they are just tokens for speculating with.
Gold and cryptocurrencies have two very appealing things in common: they are truly international, and can’t be devalued by governments using inflation as a form of taxation — they mostly go up in value instead of down, like money does.
But there are also two very big differences: when gold was money, up to 1971, the supply was effectively unlimited and the price was fixed, whereas with bitcoin and ethereum (not sure about the 700 or so other cryptos) the supply is limited and the prices fluctuate.
And boy do they fluctuate. Bitcoins were $US7 each five years ago, got as high as $US3000 last month, and are now trading at $US2576. That means someone who was prescient enough to sell their $20,000 second-hand car for bitcoins five years ago is now sitting on $8.5 million — a compound annual growth rate of 48 per cent, and not bad for an old bomb.
Ethereum’s rise has been even more startling (read: crazy), from $US10 a year ago to $US263 now — a 12-month rise of 2530 per cent.
What do the speculators think they are doing, apart from playing the old “bigger fool” game?
They are hoping that the world’s governments and central banks take leave of their senses and make cryptocurrencies legal tender. In fact one government — Japan — has already lost its mind and started to do it.
Since the supply of bitcoins and ethers is limited to 21 million and 230 million respectively, for either to become global legal tender — so that you could buy a cup of coffee with them in Zagreb or Anchorage — they would have to be divided up into millions of smaller units.
The more that happened, and the more that small bits of bitcoin or ether were used for transactions, the more each whole unit would be worth.
The problem is that money can’t have a limited supply, can’t be unstable and can’t be separated from government and central banking.
(At least I think the right word is “can’t”, but I’m conscious that we used to think that bleeding was the right way to treat sick people, and that you can’t have a wire­less phone that you instruct verbally, or a car that drives itself, so “can’t” is a dangerous word these days). But money is, in essence, a piece of information that relies on trust. I wave my credit card for a $4 cup of coffee and the barista trusts that she will be able to get $4 worth of something else in return for that piece of data that has appeared in her bank account.
The trust comes from the system of legal tender, in which the community, through the government and the central bank, effectively guarantees payment in full — $4 for $4.
Can the trust bestowed by a blockchain record of a bitcoin’s transaction history replace that guarantee? Maybe it can sometime in the future, but I doubt it.
And what about the weird mining process, in which algorithms churn through trillions of calculations, burning gigawatts of power. That’s no way to run a monetary system, you would think.
Mind you, the current system has plenty of flaws. Let’s face it: money is created by economists in the ivory towers of central banks and by licensed banks lending what has been deposited with them, which stays deposited at the same time as being lent, thereby multiplying.
Money creation by banks is a privatised demand-driven system that periodically comes unstuck because banks either over-lend, or lend unwisely, so that the money gets lost and the original depositors’ savings evaporate — although these days most banks are “too big to fail”, and therefore implicitly guaranteed by tax­payers.
The other problem with the current system is that although the value of money is fairly stable, it tends to devalue over time as a result of deliberate inflation. Central banks have been trying to get inflation up for a decade, in order to reduce the face value of the world’s excessive debt.
Following the adoption of independent “price stability mandates” by central banks in the 1970s and 1980s, prices have been anything but stable: inflation has averaged 3.5-4 per cent per annum, dramatically reducing the value of money ($1000 40 years ago would now be worth a quarter of that).
So those pushing for non-fiat money, that is money not controlled by central bankers and/or politicians, have a point: under the current system, governments debauch the currency for their own purposes and periodically banks blow it up through greed and incompetence. But the people trying to build an alternative system are basically anarchists.
In fact, I’d say that global governments will soon need to declare that cryptocurrencies will never become legal tender, and legislate to that effect. You can play with them, and have fun trading and gambling, but actual money? Nah.
That’s not to say blockchain, the technology behind cryptocurrencies, is also a scam, far from it. In fact, it looks a truly revolutionary technology that is likely to change the world through mass disintermediation — but not disintermediation of government.
Alan Kohler is publisher of The Constant Investor.

Bitcoin SCAM warning: Currency is ‘pyramid scheme’ says top investor who predicted crash.

The respected Wall Street boss warned clients agains investing in the digital money, which has surged to record highs this year. 


But the co-chairman of Oaktree Capital said Bitcoin has little value and its priced has been pushed up by speculators. 


Mr Marks previously predicted both the financial crisis and that the dotcom bubble would burst, according to CNBC. 


He told clients: “In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.”


The investor compared cryptocurrencies to the Tulip mania of 1637, the South Sea bubble of 1720 and the internet bubble of 1999.


He added: “Serious investing consists of buying things because the price is attractive relative to intrinsic value. 


“Speculation, on the other hand, occurs when people buy something without any consideration of its underlying value or the appropriateness of its price.”

Bitcoin suffered a crash earlier this month but has since bounced back and is now up by almost nearly 160 per cent this year. 

Its success has prompted values to increase in other digital currencies.

Ethereum cryptocurrency is up around 2,300 per cent in year to date.
The digital currencies limited supply has caused some experts to compare it to safe havens, such as gold. 


And a number of experts have predicted Bitcoin’s value will reach much higher in the coming years, if it becomes more mainstream. 

Sheba Jafari, the head of technical strategy at Goldman Sachs could reach $3,691, from current levels of around $2,600.

Bitcoin bubble dwarfs tulip mania from 400 years ago, Elliott Wave analyst says


Just as many on Wall Street are warming up to bitcoin, one of the lone financial analysts who forecast a surge when the digital currency was just six cents now has an extremely negative view.
“A bearish trifecta — the Elliott wave pattern, optimistic psychology and even fundamentals in the form of blockchain bottlenecks — will lead to the collapse of today’s crypto-mania,” analyst Elliott Prechter wrote in the July 13 edition of The Elliott Wave Theorist newsletter.
“The price activity and manic sentiment that led to present prices have dwarfed even the Tulip mania of nearly 400 years ago,” he said. “The success of Bitcoin has spawned 800-plus clones (alt-coins) and counting, most of which are high-tech, pump-and-dump schemes.”
“Nevertheless, investors have eagerly bid them up,” Prechter added.
He’s the son of the famed technical analyst Robert Prechter, who popularized the Elliott Wave by using it to forecast the stock market crash of 1987 and has published a newsletter since 1979. However, debate over the accuracy of the Elliott Wave has grown after Robert Prechter called the end of the 1990s bull market five years before it actually ended.
The principle is a sophisticated form of technical analysis widely followed by traders that analyzes cycles of sentiment in an attempt to predict market performance — five waves typically signals a coming downturn.
Regarding bitcoin, “under the Elliott Wave model, what we’re seeing, we’re making a final fifth wave from six cents,” the younger Prechter told CNBC in a phone interview Thursday. “It does not imply it will go to zero. It does not imply it will go to six cents. I do think it will happen to the clones [newly formed digital currencies].”
The Elliott Wave for bitcoin
Source: The Elliott Wave Theorist
In September 2010, Elliott Prechter wrote in The Elliott Wave Theorist about bitcoin when it traded at 6 cents. Very few in the financial world seriously considered the digital currency at the time.
“It proved to be the buying opportunity not just of a lifetime, but so far of all time,” Prechter said.
Bitcoin hit a record of $3,025 in June, 50,000 times its price in 2010. The digital currency traded near $2,652 Thursday, more than twice where it started the year.
Bitcoin (July 2010 – July 2017)
Source: CoinDesk
As a result of the meteoric price surge, Wall Street has started paying closer attention to bitcoin in the last several weeks.
For example:
  • Standpoint Research’s Ronnie Moas said in early July that bitcoin could possibly reach $5,000 “in a few months.”
  • Fundstrat’s Tom Lee issued a reportaround the same time on why bitcoin could soar to $20,000 or $55,000.
  • Forbes reported Tuesday that legendary investor Bill Miller bought bitcoin in 2014 and that it’s one of the top holdings in his $120 million hedge fund.
  • Also on Tuesday, Josh Brown, CEO of Ritholtz Wealth Management and a CNBC contributor, said in a blog post he used Coinbase to buy bitcoin with a “small amount of money.”
  • Goldman Sachs and Morgan Stanley have also discussed bitcoin and the blockchain technology behind it in recent reports.
To Prechter, the forecasts for bitcoin to rise dramatically resemble calls in 1999, just before the burst of the dotcom bubble, for the Dow Jones industrial average to reach 100,000.
He said the excitement surpasses the tulip bulb mania in The Netherlands in the early 1600s.
As Investopedia tells it, tulip bulbs became such a prized commodity that by 1636 they were being traded on many Dutch stock exchanges and “many people traded or sold possessions to participate in the tulip market mania.”
“Like any bubble, it all came to an end in 1637, when prices dropped and panic selling began,” according to the article. “Bulbs were soon trading at a fraction of what they once had, leaving many people in financial ruin.”
“Technology has advanced greatly, but human psychology is still the same”
Source: The Elliott Wave Theorist
Some analysts have also compared the excitement around bitcoin and other digital currencies to the Beanie Babies craze in the 1990s.
Prechter also pointed to the challenges bitcoin and its rival ethereumare facing in order to expand their reach.
Bitcoin faces an Aug. 1 deadline for developers to agree on a system to upgrade the network and prevent the currency from splitting. Meanwhile, transaction fees ran up to $5 in June and are still near $2.
In June, some sales of new digital currencies clogged the ethereum network, creating a backlog of orders. Separately, ethereum prices briefly plunged from above $300 to 10 cents on one exchange before recovering.
To be sure, Prechter told CNBC that a mania “can be both a mania and a revolution at the same time.”
Like many digital currency enthusiasts, he sees significant potential in the cryptocurrencies for automating the banking and legal industries.
“The distant future of crypto is bright,” Prechter said in the report. “Crypto tech is like the internet in 1999: It was poised to take over the world, but the NASDAQ still fell almost 90% during the dot-com bust of 2000-2002.”
But bitcoin may not be part of that future.
“It’s too soon to know if Bitcoin is Facebook or MySpace,” Prechter said.

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