BitCON is funnier than an Irish joke

[7 min read]

Paddy says to Mick ‘Do ya wanna buy a token?’

Mick asks, ‘What sort of token?’

To which Paddy replied, ‘A bitcoin.’

‘How much is it?’ queries Mick.

‘$72,500’ Paddy proudly boasts.

‘Holy hell Paddy, that’s a lot of money for a token. What do ya get for it?’

‘Mick, you’ll be buying the right to sell it for even more money to a bigger idjit than you.’

‘Oh Paddy, sounds great. Where do I get one?’

‘From someone selling the tokens’ says Paddy.

‘Why would someone want to sell me a token, Paddy.’

‘Because he’s no idjit Mick.’

(Idjit in Irish is idiot in English.)

We’ve seen this ‘bigger fool’ story play out many times over the centuries.

The first (and still the best) recorded example of collective stupidity was Tulip Mania in the 1600s (emphasis added):

‘When word got out, during the 1630s, that tulip bulbs were being sold for ever-increasing prices, more and more speculators piled in to the market.

‘Tulips even began to be used as a form of money in their own right: in 1633, actual properties were sold for handfuls of bulbs.’

BBC Culture

The smart speculators were the ones who figured out how the ‘bigger fool’ game worked.

The bulbs were only worth the price of a house while people believed this to be the case…best to cash out and get your money into hard assets.

Once the bubble of baseless belief was popped, tulip prices plummeted like a stone.

In 1640 (a few years after the bubble burst) artist Jan Brueghel the Younger painted Satire of the Tulip Mania.

In it, Tulip speculators were depicted by Brueghel the Younger as brainless monkeys.

What parodies await today’s equally enthusiastic and misguided speculators?

Naïve innocents following a Pied Piper? Sheep going to the slaughter? There’s plenty to choose from.

Why?

Because we’ve been there and done this so many times throughout history.

South Sea Bubble. Mississippi Land. British Railway mania. The Roaring Twenties. Japan’s ‘miracle’ economy. Tech boom. US housing bubble.

Yet we never learn.

Assets pricing driven more by belief than substance always ends badly.

The following is a screenshot from an interview Jeremy Grantham (the 82-year-old founder of Grantham Mayo Van Otterloo & Co — a Boston-based investment firm with US$120 billion in funds under management) did with Bloomberg in late January 2021:

History (repeatedly) tells us the answer to the question posed by Jeremy Grantham.

The only people who make money out of manias are the ones who are in on the joke…they laugh all the way to the bank…with the dollars they made from selling something they convinced people was more valuable than cash. Ah, the irony.

The others…well, in the cold light of day, they become the objects of satire.

What’s bitcoin worth?

This was a question pondered by the February 2021 issue of The Gowdie Letter.

Here’s an edited extract:

‘In 1992, Laguna Quays Resort (located between Mackay and Airlie Beach) was opened to great fanfare. The Japanese owners had spent $250 million developing the luxury resort and golf course.

‘To promote the development, Greg Norman, Ian Baker-Finch, Nick Price and Craig Parry played (at the owner’s expense) in an internationally televised tournament.

‘This is an extract from an article on Melbourne property developer, David Marriner, in The Age on 22 February 2003…

“…his latest project is a gargantuan 2400-hectare north Queensland ‘gateway to the Whitsundays’ development that he bought for $25 million after a Japanese banking consortium had spent $250 million on infrastructure there and gone broke.”

‘Over a decade after the resort opened, it sold for one-tenth of its development cost.

‘Having lived in North Queensland and, on occasion stayed at Laguna Quays, this lesson in cost versus value has always stayed with me.

‘What’s this got to do with the price of bitcoin?

‘The latest line of reasoning as to why bitcoin is worth X thousands of US dollars is…because of what it costs (in electricity usage) to “mine” new coins.

‘To quote from tradeblock.com:

“Using our above assumptions and the current network hash rate of (~113,000,000 TH/s) and the number of bitcoin mined per block (~12.73, which includes transaction fees), the gross cost to mine one bitcoin at current levels with current device types would be US$6,851.

“Our breakeven price estimate of US$6,851 is in line with similar break evens calculated in other reports: Cost to breakeven US$8,000 (11/11/19); Cost to breakeven US$7,600-3,600 (12/5/19).”

‘These are the assumptions used to calculate the “mining” cost…

‘I wonder if the environmentally conscious millennials who are buying bitcoin realise how much additional CO2 their responsible for creating?

‘Hmmm.

‘Using the “cost to mine” as a floor in the price, makes about as much sense as the original developer of Laguna Quay’s saying “well that’s what it cost me to develop, so that’s the price.”

‘The market couldn’t give a flying fig about your cost…it’ll offer a price based on prevailing supply and demand.

‘And at present, for bitcoin, demand exceeds supply.

‘The only reason these coding whiz kids are spending serious money on high tech computer “rigs” and paying eye-watering power bills, is because crypto cult members have made it well worth their while.

‘But what if that demand wanes?

‘I can hear the howls of protests now…that won’t EVER Happen.

‘Really?

‘Can you state with absolute confidence that in the next year or two or 10 that someone else won’t come up with an even better computer code or that government won’t intervene to regulate the market or that some hacker/s won’t penetrate the firewalls and destroy the value?

‘Ray Dalio (founder of Bridgewater Associates) recently published an article titled “What I really think of Bitcoin”

‘Here’s a teaser (emphasis added):

“Although Bitcoin is limited in supply, digital currencies are not limited in supply because new ones have come along and will continue to come along to compete so the supply of Bitcoin-like assets should, and competition will, play a role in determining Bitcoin and other cryptocurrency prices. In fact I assume that better ones will come along and displace this one because that is the way the evolution of everything works—i.e., new ways of doing things and new things always have and always will replace old ways of doing things and old things. Since the way Bitcoin works is fixed, it won’t be able to evolve and I presume that a better alternative will be invented and pass it by. I see that as a risk.”

‘Whereas, gold is gold...it cannot be replaced by a process of evolution. Gold has remained gold for many thousands of years…and will continue to do so.

‘What’s the price of bitcoin?

‘Whatever Ponzi-scheme members decide to push it to before someone finally starts laughing at the “naked Emperor”.

‘But more importantly, what’s the value of bitcoin?

‘Not a lot.’

Don’t let the bitCON joke be at your expense.

Happy Saint Paddy’s Day.

Regards,

Vern Gowdie,
Editor, The Rum Rebellion

PS: Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.

An Alternative History
Bill Bonner

‘Enlightened statesmen will not always be at the helm.’

James Madison

‘We need to remember,’ says Joe Biden, ‘that the government isn’t some foreign force in a distant capital. No, it’s all of us. All of us.’

We don’t recall ever making any decision for the government…nor ever having the slightest influence over any decision the government ever made. Nobody ever asked our opinion, and our vote was inconsequential. Apparently, ‘all of us’ does not include us.

Instead, decisions are made by others — lobbyists, legislative aides, bureaucrats, hacks, and cronies. They are the ones, for example, who wrote the latest 600-page American Rescue Plan.

How could you expect them to neglect rescuing the people most important to them — themselves?

Every penny of that $1.9 trillion will go into somebody’s pocket. Ordinary taxpayers will get some. But so will the scientists at the National Science Foundation, the artistes at the National Endowment for the Arts…the people (whoever they are) who take care of environmental problems in poor areas…the folks who run Amtrak…

…the people at the Bureau for Indian Affairs…firefighters…minority farmers…the Corporation for Public Broadcasting…and so on.

A billion here. A billion there. And pretty soon, you’ve taken care of most everyone who matters to the government. For all the coins tossed to the hapless mob, the real money still goes to the insiders.

In the American Rescue Plan, for example, $520 billion goes to the 90% of the eligible public. The rest — $1.4 trillion — is shared about among those with good lobbyists.

All of us? Not by a long shot.

And here, Dear Reader, is the lowdown.

Wealth and privileges

Government has one major purpose and one only — to help the elite keep its wealth and privileges. Everyone else is a pawn…a statistic…or a useful idiot. Fortunately for the feds, there are millions of them.

And in this Bubble Epoch, Americans are ready to believe that they can all live at someone else’s expense.

Some 70% of the American public is said to approve of the latest something-for-everyone giveaway, perhaps not realising that the something must also come from someone — most often, themselves.

There is no other source. Even printing-press money must be reckoned with some day. What the government giveth, in other words, it must taketh, too…and in larger amounts (in order to have a fat margin for those who control it).

This is not to say that a government cannot perform useful functions. But all that it does, all the time, is subservient to its major role: to keep the rich and powerful becoming richer and more powerful.

That is the secret to understanding the last 20 years. The feds did foolish things…but they were not foolish for ‘all of us’. Only most of us.

Alternative history

Herewith an alternative history…

Imagine that the US enjoyed three especially wise and courageous leaders…who looked the American people in the eye at critical moments and levelled with them. Three simple, short presidential speeches might have changed the course of history.

George W Bush:

‘Some bad guys blew up a couple buildings in New York…and struck the Pentagon, too. We have joined with the police from countries all over the world to bring the people behind this to justice. Don’t worry. We’ll get them.’

And by the way, we’re withdrawing all our troops from the Mideast. That was a mistake from the get-go.

No War on Terror. No invasion of Iraq. No chaos in the Levant. No $7 trillion bill. No 800,000 dead. No 37 million displaced. No ‘warrior culture’. No ‘see something, say something’. Just old-fashioned gumshoe work…at trivial cost.

Barack Obama:

‘Yes, we are seeing a shakeout on Wall Street. But no way am I going to ask Americans making an average of $40,000 per year to bail out guys who have been taking in million-dollar bonuses. Wall Street can take care of itself.’

No need for former Federal Reserve chair Ben Bernanke’s ersatz ‘courage to act’. No TARP. No TAF. No TALF. No TSLF. No GM rescue.

No AIG, Bank of America, JPMorgan, Citi, Wells Fargo, Chase, Goldman Sachs bailouts. No quantitative easing. No $3.6 trillion in additional money printing and $4.6 trillion in extra expenditures.

No suppression of interest rates. No big bounce in the stock market. No new bubble.

Donald Trump:

‘We face a potential health crisis. At risk are old people and those with compromised immune systems. We’re going to make every effort to protect them, using every resource available to our medical care industries.

‘Approximately 5% of the population is in danger of dying from the disease — the old and weak, who are vulnerable to COVID-19, just as they would be to any new flu strain.

‘The risk to the rest is not enough to make a federal case of it. Of those who get the virus, outside of the most vulnerable groups, apparently, 99.7% survive. So, let’s keep our wits about us…and do our best to protect those who need it. But let’s not panic and make this thing worse.’

No lockdowns. No mass unemployment. No supplemental employment benefits. No $733 billion Payroll Protection Program. No $2.2 CARES Act. No Response and Relief Act for almost $1 trillion more. And no American Rescue Plan for nearly $2 trillion on top of that.

No bankrupt restaurants, hotels, gyms, or movie theatres. No millions of people, unemployed, waiting for their stimmy cheques.

No hordes of young traders bidding up prices for companies that have never made a dime and are probably worthless. No zero interest rates.

No borrowing spree by families, businesses, and the government — bringing total US debt to $80 trillion…where it can’t possibly survive normal, market-set rates.

Money spared

Imagine that. No big words. No bold new programs. No promises. No fantasies. No claims. No lies.

And $15 trillion spared.

But how then would the rich have gotten so rich? What would have driven up stock prices? Who would have paid all the Pentagon suppliers?

And what about the big banks…what would have happened to the million-dollar paydays? And poor Dr Fauci would be a nobody!

Oh, Dear Reader…it’s just too horrible to imagine.

Thank God we found the leaders who could rise to the occasion. These were the men James Madison foresaw. Weaklings, cowards, and nincompoops…they destroyed the country, but they kept the money flowing!

Get with the program

George W Bush was ready and willing to go along with the Deep State’s forever war program.

Barack Obama kept the wars going, bailed out Wall Street, and twisted the entire economy into a grotesque new shape (but made the rich richer than ever).

Donald Trump…unable to stop the wars…unable to stop the financial damage…unable to understand the real threat of the COVID-19 crisis…but willing and able to take the economic buffoonery up to a whole new level.

And now…what more could the mischievous gods ask?

Joe Biden.

Fool? Knave? Hack? Ready to bring more big paydays to all of those insiders…the elite who really are ‘the government’…

…while pretending to help ‘all of us’.

Regards,

Bill Bonner,
For The Rum Rebellion