The #BitcoinBreakdown: Bigtime Bubble-time
By @Sellputs This areticle first appeard on the TheBitcoinBreakdown.com
All the world is a stage—for the Bitcoin Bubble.
Never mind that
stocks have soared up 30% in the full year since Donald Trump stunned
even himself by winning the presidential election—everybody would rather
talk about bitcoin and its brethren. The other day I got this text from a friend:
“What’s up bud long time , u know anything about litecoin”?
This, from my gardener.
JPMorgan Chase’s
CEO, Jamie Dimon, calls bitcoin a “fraud” used mostly by “murderers,
drug dealers and other miscreants,” as the FT put it. Fed Chairwoman
Janet Yellen just called out bitcoin as a “highly speculative asset”
that “doesn’t constitute legal tender,” nor is it “a stable store of
value.”
After which the price of bitcoin (BTC) rose another $3,000 or 18% in the next four days, to approach the $20,000 mark. Nobody puts Bitcoin Baby in the corner.
The boldest
risk-loving investors out there view bitcoin as a panacea for the
digital millennium: a soaring store of value propped up by insanely
great encryption, untraceable origins and the urgent need for a
post-dollar currency that can survive global catastrophe. Similar
enthusiasm adorns “altcoins” that came in bitcoin’s wake: Litecoin
(LTC), Ethereum (ETH), Zcash (ZEC), Dash (DASH), Ripple (XRP), Monero
(XMR) and some 800 more rival forms of digital currency.
A soaring store of
value: yes, indeed. If you were ballsy enough to buy a bit of bitcoin
at the end of 2013, investing, say, $1,000, you got in at a low of $600
per coin; today that $1,000 stake would be worth roughly $15,000. That
is up 24-fold—2,400%!—in four years.
And if you were ballsy
enough to bet on bitcoin, it may be time to get out now, because other
people view the cryptocurrency as the Next Great Meltdown, a malignant
mash-up of P.T. Barnum (“There’s a sucker born every minute”) and
Charles Ponzi, the circa-1920 swindler who popularized the kind of
scheme that made Bernie Madoff famous.
The truth may lie somewhere in-between—and, either way, it’s good to know a few things about bitcoin and all that it entails. This is the first part of a series on my Bitcoin Breakdown—read it and reap! First, some breaking thoughts:
Bitcoin just got more real. The legitimate, old-guard world of Wall Street and finance now figures this crypto-currency is worth betting on (that’s high praise from these guys.) On the Chicago Board Options Exchange, futures for betting on bitcoin price swings began trading on December 10. A week later, TD Ameritrade began letting holders of its 11 million accounts trade those futures, just as Cboe’s crosstown rival, the Chicago Mercantile Exchange, launched its own bitcoin futures exchange (although with no TD Ameritrade support, as yet).
Bitcoin futures contracts, essentially, are electronic bets on the future prices of bitcoin (just as other futures let you bet on and hedge prices in pork bellies, soy beans, orange juice, ad to-infinity-and-beyond). You buy or sell a futures contract based on whether you think bitcoin prices are headed up or down. Eventually, I expect the CME to create options on futures contracts: traders will be able to buy and sell “puts and calls,” the right to buy (a “call” option) or sell (a “put” option) a bitcoin futures contract at a particular price by a particular date.
So when a pro someday will trade options on bitcoin futures, he’s using a kind of triple-synthetic. Bitcoin itself doesn’t exist the way, say, bacon from pork bellies exists, so that is one synthetic layer; a Cboe option is a second synthetic layer; and on the CME traders may one day bet on the future-price-of-bitcoin-futures, not just on the price of bitcoin—a third synthetic layer. A triple-synthetic. Bitcoin’s fans are anything but fazed by this.
Coming soon: Bitcoin ETFs. ProShares and VanEck have filed applications for new ETFs (Exchange Traded Funds) based on bitcoin futures. (Come to think of it, that’s a triple-synthetic, too.) Look for SEC approval by the end of the first quarter of next year, some reports say. New ETFs would push bitcoin even more into the mainstream for mom-and-pop investors. All of this increases already manic investor demand for an “asset” that no one even can see.
A bitcoin supply-squeeze could fuel more price gains. Supposedly, only 21 million bitcoins are in existence (however invisible, digital and intangible that may be). It is said that a thousand early buyers of the digital coin own fully 40% of the world’s supply. (And I bet ya dozens of these bitcoin billionaires are drug smugglers, given that’s how bitcoin got its start.)
Typically, ETFs are required to own the underlying assets on which the ETFs are based—an ETF representing a “basket” of energy stocks requires the ETF’s issuer to go out and buy those stocks and keep them on hand. Given the short supply, if enough bitcoin-based ETFs enter the market, each one required to hold a store of bitcoins commensurate with its total value, the law of supply and demand dictates what happens next: the price of bitcoin could rise higher still.
Though, I mean, who knows, right? Bitcoins are, in truth, little more than a contrivance,
a non-existent thing derived from some horribly complex, secret formula
cum algorithm invented by some guy (or gal or people) whose
authenticity remains masked and uncertain. What’s to stop him (or her or them) from tapping a few buttons on the keyboard to make 21 million more bitcoins? Suddenly, supply doubles, each coin is worth only half what it was just days before. Or what’s to stop the same anonymous forces from inventing a “New! Improved!” version of bitcoin that obviates the original?
If you do get involved in the bitcoin rush-to-riches, you would do well to discard any notion of yourself as an investor; view yourself as an ice-in-the-veins speculator, a gambler with gonads (or ovaries) the size of boulders.
The #BitcoinBreakdown: Should You ‘Invest’ ?
Hey guys. Remember the giddy Internet bubble and what it spawned—the Tech Wreck of 2000? I was somewhat aware of the destruction, despite my distractions as a teenager with raging hormones at the time. A decade later I was trading hard, scared of losing it all in the aftermath of the real estate bubble and the Great Meltdown of 2009.
And now, as the Bitcoin Bubble inflates to ever more epic proportions, I get a creeping feeling of dread. There’s this way old sequel to “Alien,” and this one character, Hudson, is played with scary, panicky intensity by the late actor Bill Paxton. He keeps warning his shipmates: “Game over, man, game over! We’re fucked!”
He was right about that, he got ripped apart moments later.
So, will you get ripped apart if you invest in bitcoin, much less the lesser copycat cryptocurrencies it has inspired: Litecoin, Ethereum, Zcash et al? No doubt a lot of speculators will meet a monstrous end by chasing the Bitcoin Bubble, while others get in early enough and get out early enough to pocket profits in fantastical proportions.
It’s more about gambling than investing. In fact, I’ve heard that some professional poker players in the legal card rooms of Los Angeles are investing in bitcoin’s fly-by-night rivals, targeting what they believe to be Ponzi-like scams and using them as “escalators” (my term)—you board at the bottom, ride it upward for as long as you dare and bail before everything topples.
Elsewhere, I have a friend whose gal pal—she’s this artsy Burning Man type, and sometimes she is so tight on funds she has trouble paying her phone bill—has just put $400 into a new Coinbase account to trade in bitcoin, Litecoin and Ethereum.
Bad idea, right?
Yet this Burner sees bitcoin as the struggling non-investor’s ticket to riches. Federal regulations aimed at “protecting” the poor block them from many investment options because they aren’t “qualified investors”—read: with a net worth of $1 million. Whereas, the feds haven’t yet tried to grab control over bitcoin exchanges. This is unregulated turf where newcomers can freely roam.
And she’s right—she could make a windfall if she watches closely and sells early. (That old saying comes to mind about bulls and bears getting rich, while pigs get slaughtered. A lot of Johnny-come-lately cryptos will be “makin’ bacon” a year or two from now.)
Bitcoin Bubblers revel in dreams of a DRW windfall. Do you know that story?
Donald R. Wilson runs a large, aggressive high-speed-trading firm in Chicago known by his initials: DRW Global Holdings. In 2014 he formed a cryptocurrency-trading subsidiary and named it Cumberland Mining (for the Grateful Dead song, “Cumberland Blues”). A year later, Cumberland bid $5.5 million at a federal government auction. The prize: 27,000 bitcoins, of a total 44,341 digital coins seized by the feds in the shutdown of the notorious Silk Road drug-dealer site on the dark web.
Silk Road had racked up $200 million in illegal-narcotics transactions in a few years, all of it in bitcoin. The cache of 44,000+ coins was found in the laptop hard drive of Silk Road’s creator, the infamous Ross Ulbricht, who was 32 years old at the time. In federal court in New York, he later was convicted on seven counts related to drug-kingpin offenses, after which he lost on appeal and now serves a life sentence, with no parole.
DRW’s investment of $5.5 million, at roughly $200 per coin on auction day, has soared upward to more than four hundred million dollars. Some $405 million at recent prices of almost $15,000 per bitcoin, up 72-fold in two years, if prices hold.
Ahhhhh, there’s the problem: If prices hold. More on that, coming up.
The #BitcoinBreakdown: How-to, Step by Step
Third part in a series.
Merrrrrrrrrry Bitmas!
Bitcoin has been crashing like a Bad Santa all week long—it had surged up to $19,856 last Monday and had plunged as low as $11,590 by Friday, bouncing back up to $14k and change. So anyone who bought bitcoin last Monday is still smarting, and those who bought below $12k yesterday are feeling just plain smart.
Either way, this column will tell you how to join the fun.
In search of a Christmas miracle, we’re going to map out the ten steps for setting up your own bitcoin trading account. It is so fast and simple that in 15 minutes or so, you will be linked-up, “appified” and able to invest in bitcoin and other digital currencies from your smartphone. Once you are set up, you can make each crypto purchase in seconds.
If you dare. Lately it has been a pretty scary videogame.
Millions of people seem undaunted; convinced this bubble still has plenty of room to grow. Coinbase, the cryptocurrency exchange, now is said to have 13.3 million accounts—more than Charles Schwab & Co. (10.6 million) and, maybe, sign of just how much this Bitcoin Bubble is inflating.
This, at a time when stocks are especially hot since the Trump election that has so many of my liberal pals in New York apoplectic and foaming at the mouth. (Then again, they never have felt so outraged and alive—they love it.)
It took a full year for stocks to go up 30%, yet you can lose 20% on bitcoin in just two days. Example: if you bought into bitcoin, Ethereum and Litecoin this past Wednesday evening (12/20), by Friday afternoon you were down a sickening 20% in bitcoin and almost as much in ETH and LTC. Don’t ride this wild rollercoaster if you can’t stomach that kind of a setback.
For those of you who can, and for those of you who believe you are ready to get started on this tumultuous investing journey, here’s an easy guide, step by step, to setting up a cryptocurrency trading account. We did it the other day at Coinbase. When in doubt, go with the biggest, it may be the biggest for a good reason.
Step 1: Go to app store, download Coinbase app. In a minute or two it’s ready to go.
Step 2: Before you open up the app for the first time, make sure you know, ahead of time, the online password to your checking account, if that is the account you will link up to Coinbase to transfer real U.S. dollars into purchases of tiny increments of untraceable bits. Same goes for the credit card you might link to your new Coinbase account (which triggers a 4% fee rather than the 1.5% fee charged for linking to your bank account).
Step 3: Open the app. Give fingerprint, and the opening screen shows the Bitcoin price at the moment, and a year-long fever chart that starts at $800 in January 2017 and soars to $19,205 by December 2017. It is exhilarating. Two buttons beckon: Sign Up or Log In. Touch on Sign Up.
Step 4: A few screens in, the app has you use your phone-cam to snap a picture of your driver’s license, front and back, and then it has you take a selfie of your face. It tells you it must verify the photos and will get back to you in five to 10 minutes.
Step 5: Five minutes or so later, you are verified, and a fast questionnaire pops up: fill in your occupation and “employed by,” and a message flashes: “You’re almost ready to invest.” Click the green box labeled, “Complete account setup.”
Step 6: The app teases you with the current flashing prices of the coins you anxiously are waiting to buy (BTC, ETH, LTC), as it sends a verification number to your phone. You enter that number into a box on-screen, and the next message says: “You’re almost ready to buy.” (Italics added). Note the change in verbiage from “ready to invest.”
Step 7: “Please complete your account,” the app instructs. You add a payment source (your banking account is recommended), a user name and a password (write it down on a slip of paper and slide the paper into your wallet; security pros might preach against it, but they preach against most everything, and hacks keep happening anyway.)
Step 8: Now take a deep breath and psyche up. For some people wary of how bubbly bitcoin is, talking yourself into making the first bet is like a testosterone-soaked trader trying to talk himself into getting married. You never will be truly ready, so just take the leap. Do it in a small way, and don’t flinch when what you bought suddenly slides in value.
Step 9: Commence buying. Touch the teensy “Prices” icon in the bottom left of your phone to see the latest coin bids, then touch “Accounts” and you get a screen of “wallets,” one for each coin type. Touch the bitcoin (BTC) wallet and a new screen pops with two buttons: Buy. Sell. Can’t sell what you don’t yet own, so you click Buy.
Step 10: Instantly a new screen shows up, with the numbers pad helpfully displayed near the bottom so you can enter in the dollar amount you are about to spend. You tap in the dollar figure into a box marked USD, the app calculates the microscopic portion of coin that sum will fetch, you tap on “Buy” at the top of the screen, confirm the buy on the next screen and BAM!
A new screen shows, against a field of royal blue, a checkmark in a circle at the top, and below it a headline declaring: “Your buy was successful!” And below that, the exact portion you just bought, starting with a zero and carried out to eight decimal places. Or in the case of this purchase (of bitcoin cash, BCH, a new offshoot that we bought at 11:19 p.m. on Friday night):
0.08721555 BCH
At the bottom of the screen a bar instructs: Go to Accounts. When you press it, up comes the listing of the asset you just bought, with the Buy and Sell buttons at the ready. One back-arrow press and you are back to the full Accounts page listing five “wallets” for buying five separate currencies (BCH, BTC, ETC, LTC and the good ol’ USD).
From there you can get fancier, setting price alerts to learn when a currency has fallen to the price you were waiting to see. “Never miss an opportunity,” the Coinbase app advises. This can get obsessive pretty quickly (and drain your time away from Facebook, Instagram and Snap). The app also can alert you when your bitcoin crashes down through a floor you specified, in case you want to sell.
Although, selling isn’t really the point here, is it? If you are bold enough (or unwise enough) to bet on this ethereal thing everyone is talking about, then maybe it is best to put up your money and leave it there for a while, electing patience over panic. You are a rough rider trying to stay on top of this giant, swelling bubble and hold on long enough to reap returns from those who jump on after you. With easy apps like Coinbase, millions more investors may be aiming to do just that. Giddyap!
The #BitcoinBreakdown: Five Easy Pieces
The Fourth part of a series.By Evan McDaniel, @Sellputs —
Published December 26, 2017:
Isn’t Christmas time just wonderful, so much time with family, really, just… so… much time. With family.
If you caught the irony in that statement, you, too, need a distraction, an excuse to detach from the conversation and take a little “me” time. So take a few minutes to read this, our fourth column on bitcoin and all that it has unleashed. Your relatives will appreciate that you did.
Gold, the precious metal found in dental work, beautiful jewelry and Fort Knox, has been a “store of value” for five thousand years. Invented by nature or God (take your pick), it is able to survive global economic meltdowns and even nuclear meltdowns. It has been said that if you accumulated, in one place, all the gold mined since humankind started doing it, you’d have enough to fill only three or four Olympic-sized swimming pools.
An ounce of gold currently trades at $1,280 or so.
Now compare that to bitcoin: extant less than a decade, invented by unknown creators in 2009, said to be in a finite supply of only 21 million coins, and weightless, invisible, untraceable. It started the year 2017 priced near $1,000 and just bumped up against the $20,000 mark before settling down near $15,000, with millions of people trying to get in on the Bitcoin Bubble.
So, what holds up the price of bitcoin? Not GDP growth or earnings at any particular company; not the price of gold. The main thing keeping bitcoin prices aloft is little more than speculative frenzy and the virally spreading desire to own a piece of this newfangled invention. This is emotional, and it is important to force the emotional to bow to the rational.
Here are five easy pieces of advice for investing in bitcoin and its lesser brethren:
1. Bet only money you are willing to lose. When you buy a stock, usually the chances are almost zero… that the price will fall to zero.
Buying crypto-coins is more like trading in puts and calls on the CBOE,
options that have a definite expiration date and which often end up
worthless. So invest only what you are willing to lose at this roulette
wheel.
2. It is utterly insane to borrow money from elsewhere
to invest in bitcoin or any other cryptocurrency, whether the borrowing
is from a new low-interest credit card or from a second mortgage on
your home. Be smarter than that.
3. It may be safer to buy bitcoin and skip the imitators. In
the long run, anyway. In this realm, the Shakespearean axiom that a
rose-is-a-rose-is-a-rose seems untrue to us—there’s bitcoin, and then
there’s everyone else. We would advise betting more on bitcoin. Other
currencies such as Litecoin (LTC) and Ripple (XRP) may rise higher in
percentage terms when they do rise, given bitcoin’s extraordinary climb,
yet bitcoin’s price may fall less that that of its knockoffs.
4. Even bitcoin may be only a short-term play.
Some “investors” may ponder putting up $20,000 for one bitcoin, locking
it away in some Coinbase-like account (“cold storage”) and returning
ten years from now to unearth a coin worth $20 million.
One-thousand-fold returns have happened for the earliest bitcoin buyers.
Now, however, the Law of Large Numbers makes a thousand-fold rise from
these levels much more difficult. So if you do make a wager, watch it closely and constantly, and be ready to bail.
5. If you invest, consider the “halfsies” rule. I
know, it’s pussy, right? (As in “pusillanimous,” gutless, timid.) Yet
it is a way to avoid Bitcoin Bubble Bankruptcy! So if you put up, say,
$10,000 in a bitcoin account, and the price doubles from where you
started, sell half your stake to recover your original bet, and let the other half ride. This way your principal will be preserved, yet you retain a stake in the next round of upside.
Remember, my friends, the way to get rich is focused more on preserving and protecting what you have earned than on finding the next windfall. Good luck.The #BitcoinBreakdown: Before You Buy, More Caveats
Fifth in a series.
By @sellputs
Let
us regard the wonders of technology & innovation: Suddenly, we now
have multiple easy ways to lose money betting on bitcoin. Giddyup!
With
incredible speed, from your laptop or even your smartphone and without
even thinking about it, you can open up a new account, inject real U.S.
dollars into it, use that to buy a teensy piece of your favorite
cryptocurrency, and begin surfing the bitcoin wave. Or begin getting
crushed by that wave, depending on your timing, smarts and luck.
This
occurs to me on a recent Thursday night, as I visit an old friend in
Brooklyn and bring along Big Guy, a college pal who stands 6-feet-4
(“and a half,” he feels it necessary to point out). The Big Guy and I
had been hanging out at the famed Waverly Inn in the West Village in
Manhattan, where I had the vodka martini, marked down on special: just
$28, down from $30 list.
This
next point has nothing to do with bitcoin, okay? I gotta say: Anybody
who regularly spends 30 bucks on a martini is a P.T. Barnum-scale
sucker. What a waste of money. Waste it, instead, on something really irresponsible. . . . like bitcoin.
Anyway,
we’re standing around a table in my friend’s apartment in Brooklyn, and
Big Guy is taking swigs from a bottle of Blue Point Winter Ale and
staring into the screen of his smartphone, as if mesmerized by some new
videogame. Instead, he is tracking his own cryptocurrency trades.
“Uh
oh, Ethereum is flash-crashing,” he says. He had gotten got into
Ethereum (ETH), a newer “altcoin” alternative to bitcoin, a few days
earlier at $620, watching it rise to $740 in a day or two and holding
on, only to see it crash instantly down to $650 just this moment.
Should he sell?
Guy
resists the urge and doubles up on his bet, adding to his ETH holdings
(as well as Litecoin, LTC) “to lower my cost basis and scalp the
bounce-back from the flash crash,” as he describes it later. By 3 a.m.
that same night, Ethereum had re-inflated to rise back up even higher,
to $850. Whew.
Big
Guy had put $10,000 into a new account he opened at Coinbase, a digital
exchange akin to the New York Stock Exchange (except it is unregulated
and carries no particular guarantees, far as I can see). He had bet his
stake all on bitcoin, pulling out after a 53% gain in a week, after
commissions.
Guy
opened up a second account, this one on GDAX, a 24/7, online platform
in the rather unregulated, Wild West of crypto (it is owned by
Coinbase). GDAX offers FDIC guarantees up to $250,000 (what happens to
your money as a result of your trades is on you). On GDAX, he bet his
bitcoin profits on the two lesser lights, ETH and LTC. He says he can
take profits out of Litecoin in only minutes, while transferring money
out of bitcoin would take several hours. (LTC is lighter-traded than the
binge-fueled bitcoin.)
GDAX
charges him 25 basis points (0.25% of the total value of the trade) for
“taking markets,” that is, buying coin shares on offer, and no fee at
all for “making markets,” or selling on the platform. Coinbase’s buying
fee, at 1.5%, is fives times as much that of GDAX. A few days after he
sat out the mini-flash-crash, Guy transfers some LTC from his GDAX
account to another coin platform, Binance, where he wants to sell LTC
and spread the proceeds among various coins trading below $5 apiece.
And
a day or two after that, Big Guy is beaten down: He was up 75% and lost
most of it all when he panicked and fled ETH and LTC at the bottom of a
later plunge. Too fidgety. Easy come, easy go. He’s back in Ripple,
though, and it has been “outperforming.”
Yes,
the Big Guy admits, he does worry that in a flash crash or especially
high trading volume, he may not be able to minimize his losses and take
out cash. In cryptocurrency trading, the bigger question than whether to sell may be: Can you sell?
Coinbase
limits how much money you can pull out of your account after you sell
your crypto and convert the proceeds back to U.S dollars or whichever
“real” currency you desire. So, in the event of a crash or some sudden,
sharp de-valuation in bitcoins, your ability to act fast and sell your
coins might be hampered, and selling your coins could be all but
impossible.
Think
of it as a football packed with cheering buyers, most of them unaware
that there’s only one exit—and it is the size of a doggy door. Buyer
beware. Puppies, too.
No, I won't trade gold for Bitcoin
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