[ExI] bitcoin

Fri Dec 15 20:10:10 UTC 2017

Some of you may be interested in this - bill w

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From: Moon Capital Management <marsha at mooncap.com>
Date: Fri, Dec 15, 2017 at 1:59 PM
Subject: David Moon MarketView 12.17.17
To: foozler83 at gmail.com

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*Bitcoin: reasonably risk or gamble?*

*December 17, 2017*

The mounting interest in digital currency such as Bitcoin has
understandable impulses in an era of prolific money printing by central
banks. How strong is the public interest? For the first week of December,
Google searches related to the digital currency outpaced searches on Donald
Trump.

Because virtual currencies are tracked and maintained by vast networks of
computers, no government or bank is in control. Call it the “idealist’s
currency”, a beneficiary of the well-deserved diminished confidence in
paper money.

While the U.S. dollar is no longer backed by gold, it is backed by the
largest single financial asset in the history of the world: the taxing
authority of the U.S. federal government. By contrast, bitcoins are lines
of code generated by algorithms, accounted for as entries in a ledger
(called a blockchain) and backed by nothing other than the price at which
the next speculator is willing to pay for them.

To be a currency, an asset must be both a medium of exchange and a safe
store of value. Bitcoin fails both tests.

Few retailers accept bitcoin; if you can’t use it at Walmart or a gas
station, it isn’t a medium of exchange. Despite a 2,900 percent increase in
price over the past two years, the only increase in bitcoin transactions is
among computer hackers and online drug dealers.

When a person receives a paycheck, he is storing the value of his work into
currency for later use. When you convert the value of your work into
something that fluctuates 30% on a daily basis, you are betting the value
of your work on the changing demand for a computer algorithm you don’t
understand and can’t explain. That’s a massive failure of the store of
value test.

While bitcoin doesn’t meet either test of a currency, it is the definition
of a speculative bubble: sharp price increases, public excitement, both a
business and general media frenzy, and envy-inspiring stories of others
making fortunes from their trading. For similar characteristics, look no
further than residential real estate in 2007, dot-come stocks in 1999,
tulip bulbs in the 1600s and beanie babies in 1997.

Bitcoin is by definition speculative. Most people are buying them for no
reason other than that they expect the price will go up. When the clerk at
my favorite Pilot station and my brother-in-law ask me about a new hot
investment concept, it is almost certainly a speculative bubble.

The fear of missing out is a powerful emotional motivator, but like dot-com
stocks and Beanie Babies, it’s usually advisable to completely avoid
frenzies. As Warren Buffett notes, "What the wise man does in the
beginning, the fool does in the end."

     *If you would like to learn about David's award winning collection of
daily devotionals, Thoughts Are Things, visit davidmoon.com
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*Did you miss a previous week's column?  Click here
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*David Moon is president of Moon Capital Management. This article
originally appeared in the USA TODAY NETWORK.*

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