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For
those who took my advice in December 2011 they are up about 400%.
The money printers are in full throttle mode with the
databases whirling! Like I wrote in 2009, QE will fail but
those with access to the copy-paste function for FRN$, Euros, Yen, Argentine
Pesos, etc. will use it for all its worth.
All of this is just The Great Credit
Contraction playing out. Those who have properly positioned
themselves are having wealth transferred to them in ever increasing amounts.
BITCOIN BREAKOUT
In December 2011 with bitcoins around $3 I wrote about a solid Bitcoin breakout with
the prognostication “But I would take a bet for BitCoins to hit $7.50 by June
or July at around a 50-70% probability.” Once again, like with platinum, oil majors versus gold and
the recent dollar downleg; I
was right. Bitcoin hit about $7.00 in July and has powered higher to $12
currently.
For those who took my advice in December 2011 they are up about 400% in
FRN$ terms and about 350% in gold terms. The
market is telling the gold bugs their purchasing power is moving to bitcoin
holders. Wealth transfer at work, baby!
Bitcoin is actually pretty simple; it is just math. But then math
can seem like mystery magic to some.
BITCOIN INTERVIEW WTIH FUTUREMONEYTRENDS
Mr. Casey has a keen economic and financial mind and always seems to have
something entertaining to say so I wandered over to the recent Casey
conference and ran into the guys from Future Money Trends. We did an interview on Bitcoin
which, to toot my own horn, I think turned out pretty well. Our interviewer
showed one of the most important traits an investor can have: skeptical
humility.
The irony is not lost though that Doug Casey, like David Kramer, gave an opinion last
year on Bitcoin which betrayed a complete lack of
technical understanding. It seems there are clear divisions within the sound
money niche on Bitcoin.
For some Bitcoin may seem complex. Let me assure you that just like with
email or Internet browsing you do not need to understand how this magic
Internet money, the Bitcoin Protocol, works at its core to derive
value from using it just like you do not need to understand how Internet Message
Access Protocol or Hyper Text Transfer
Protocol works. You know, iPhones, text messages and movies are
magic also. Bitcoin is actually pretty simple; it is just math. But then math
can seem like mystery magic to some.
But if you do not comprehend or understand an XOR cipher function, Elliptic Curve Digital Signature Algorithm and some
basics of Classless Inter-Domain
Routing then it may be best to sit down, shut-up, listen to some
people who do understand, ask what questions you can formulate based on your
limited understanding, do some study and then try to form an opinion based on
facts instead of facile intelligence where one thinks they have a talent for
monetary science, economics and finance but do not see the need to undertake
the hard labor of learning how such arguments are constructed when applied to
the Bitcoin Protocol. After all, do you want to be the guy that asks, “How
big is yellow?” or worse ignorantly pronounce the statement, “Yellow is
really big.”
BITCOIN PRICING POTENTIAL
To be honest, I am having a very difficult time attempting to value
bitcoins and prognosticate a price. Plus, there could be some type of attack
on the network or other issue that could make all the purchasing power of
bitcoins completely evaporate.
Nevertheless, there are number of wallet users, connected nodes, merchants that accept
it, number of transactions,
etc. By some estimates the Bitcoin economy GDP is about 10% the size of
Uruguay or about 1% the size of Argentina.
As Mr.
Shrem recently told Federal Reserve and Brazil central bank
officials, “BitInstant was processing 1/5th of the monthly
payments of Chile’s internal payment system. I was thinking, Bitcoin
might become a real currency before anybody even realizes it. Mark my words,
sometime in 2013, the Bitcoin economy will be larger than that of a few small
nations.”
But you are dealing with a community of secret keepers so getting accurate
numbers is difficult if not impossible. Some people have tried to
distill various metrics down and have come up with a current growth rate
around .46% per day with a growth decay of .024% per day. This is what
a log 10 scale chart looks like extrapolating
based on actual metrics.
DISINTER-MEDIATE FROM THE FINANCIAL AND MONETARY SYSTEM
MF Global misappropriated
customer segregated funds and the regulators have just twiddled their thumbs.
Then PFG Best did the same thing
and regulators have just continued twiddling their thumbs. Can anything be
more ergerious than deeply captured regulators idly,
or perhaps complicitly, allowing such nefarious behavior? How can you trust
the traditional banking, financial and monetary system?
But, in a way, you have to trust it. Until now you have had no alternative
or substitute. You have had to bear counter-party and performance risks.
As The Great Credit Contraction continues
its relentless grind these risks become ever more pertinent.
CONCLUSION
The Great Credit Contraction is in full force. Those who have moved into
safe and liquid assets are having wealth transferred to them at an ever
increasing rate. While I continue to be a big proponent of gold and silver I
have also becoming increasingly trusting of the Bitcoin Protocol where one’s bitcoins just sit there
secured by the laws of mathematics and cryptography backed by petaflops of processing
power and verifiable so long as you have Internet access.
The liquidity of bitcoins is ever increasing with a debit card due in a few
months. With only exchange rate risk, bitcoins make a great addition to one’s
portfolio in The Great Credit
Contraction, which if you have not read you can buy with bitcoins. Go
ahead, get some bitcoins and give it a try. What do you have to lose, really?
I told you my thoughts. By all means, please leave your thoughts in a
comment. Thanks!
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