Monday 11 January 2021

Bitcoin gold rush

Bitcoin Price Chart Today - Live BTC/USD - Gold Price
Being 2021, everything has to be that bit bigger than 2020. Even the price of bitcoin, which last week hit new highs and although it has come off from $40,000 per coin to $38,000 per coin, it is still a huge ramp up. 

The real action is not in bitcoin, but the variety of other dodgy tokens that have been created in the crypto-world which are sometimes going up (and soon down) thousands of percent a week. 

It really is the wild west, but bitcoin has been around for over 10 years now so we are used to it. 

Why the ramp up then?

I can think of a few reasons, the biggest clear one is the huge use of the Federal Reserve balance sheet to create more money to aid the pandemic relief. This money has to go somewhere and it flows into assets. We see shares go higher, property, anything that is not cash. historically this would mean large levels of inflation, but with the economy destroying money very quickly on main street, official inflation remains low.

Bitcoin and brethren have become assets, as hedge as much as say Gold (also riding high, at near historic highs). Bitcoin itself is becoming ever hard to 'mine' so in a way it is increasing its own value - what a genius creation it has proved to be for creating its own success. 

I think too, the whole QAnon type crowd who are very anti-reality have also flocked to something they see as anti-institutional. 

For now, I don't yet see the big crash. The issue of a huge ramp and market crash, a la Tesla, is only a matter to time, but it feels to me there is a little further to go yet until there are no more buyers. 


Thud said...

I bought and sold some ethereum a good while back and did well out of it but the whole thing left me feeling uncomfortable so I'll leave it to those braver than me to navigate the virtual sea.

Old BE said...

There’s bound to be a point when all the new money and debt combines with a “real” rebound and stokes some inflation. We have to hope the authorities know when to start easing off the gas. The good news is that the story after 2007-8 was that we didn’t really have inflation, so the gas can probably be pushed down harder and longer now than might have been estimated otherwise. But I’m quite worried what might happen to my cash savings. However on Bitcoin I remain highly sceptical. Unlike gold/housing there is nothing to hold onto - every so often they cut Bitcoin in half or have a dispute over how it works or whatever. Wallets get stolen, hacked whatever. There is no way I would do any more than bet on it, expecting to lose everything.

andrew said...

"but with the economy destroying money very quickly on main street, official inflation remains low."

In what sense?

If I buy £10 of food, it is an investment in keeping me alive(*) and so has a value post being eaten

An £10 lottery ticket - value to me is £0 once the draw is made but someone else has that £10

£1000 in innovederma yesterday is now worth £700 today (**) and the money has truely disappeared - gone to 'money heaven'

I see your point in (c) but do not see big falls in asset prices.
Is there a (d)

Unless there is a short term disconnect between asset prices and underlying values

(*) my ex may not see this as an investment, more a waste
(**) if she knew about this, pay provide evidence for (*)

Matt said...

A fool and his money are soon parted. Yes, stocks are not guaranteed but you have "something" to show for your hard work.

Anonymous said...

2% own 95% of all BTC. It’s Canned Air.

Anonymous said...

"the story after 2007-8 was that we didn’t really have inflation"

Inflation in goods was suppressed by making everything in China.

Inflation in services was suppressed by the 2006 influx of people for whom a minimum wage job was a fortune.

But that printed money had to go somewhere.

Real house and land prices. Gold.

And if people can create money out of thin air, why not do the same with votes?

Timbo614 said...

The money is destroyed by debts that can't be paid and therefore won't be paid. There are a lot of these building up.

Bitcoin - 3 years ago I as mining and up until the 2017 crash from $18K to 3K. I was doing OK especially in the final ramp up weeks. Mining for amateurs like me is now almost impossible without investing about £3,000 in equipment and here I agree with Thud - that makes me feel uncomfortable.

Anonymous said...

Nick Land on twitter relied to this

"Twitter & FB ban accounts. “It’s not censorship, you can create your own app.” Then Google & Apple ban apps. “It’s not censorship, create your own website.” Then Amazon bans web hosting. “It’s not censorship, create your own...” What? Your own internet? Just so you can tweet?"

as follows

... 15th C. version: "What? You're saying we're going to have to create our own churches and fight a whole bunch of wars of independence?"

CityUnslicker said...

timbo I was thinking of you as i wrote this and wondered how your mining had done.

Andrew- Debt is real, Debenhams and others going bust is real money not being paid back - bank taking write-downs is real money being destroyed. There is quite a lot of this at the moment. ALso, to come, real rents being reduced in future, forcing retail and commercial rents lwoer - decreaing asset values - not inflation per se but asset destruction too.

Go speak to some people who lease planes for a living...

Anonymous said...

The big question on that, CU, is whether the collapse of retail property, and the covid-produced lack of demand for commercial property will at all impact residential (I think not, everyone needs to lay their head somewhere and we've just done a deal to let several million EU people stay who won't be happy with four to a room forever).

Covid remote working is a boon for some - all of a sudden the employees, on the same wages, are paying for heating, lighting and power for the computers, all expenses an employer would normally bear.

Anonymous said...

That graph - is it theCovid second wave?

Charlie said...

Old BE, this isn't 2008.

The money mostly sat on bank balance sheets.

What did leak out went into property. There was no inflation in goods because manufacturing moved entirely to China.

This time, the CBs are funding government spending and have been very explicit about that. The money is going into the economy.

Inflation at 4 or 5% by year-end or I'll eat my hat. The FED have even explicitly abandoned the 2% target in the short term (which will of course become the long term).

Old BE said...

Yes thanks Charlie I do turn the tv on occasionally. At the moment the printed money is replacing part of the lost demand. Hence my comment about when a recovery starts the authorities will need to be careful. My point was that after the GFC lots of people (including me) feared massive inflation automatically as a result of money printing. It didn’t happen, so maybe we can be more generous now than we might have been without that previous experience. As for free money going to China, yes, but if all of it swept out quite as easily as you say we might have expected the currencies of the printing countries to collapse. The pound has drifted down but there wasn’t enough to make us go full Argentina. That is my point: the limits are not as close as maybe our guts tell us they might be. Goodness you really have to work on this site.

lilith said...

I have a bitcoin and some virtual shrapnel. I just like watching it move. It isn't real to me and cost me nothing (gift), but one day it might be useful.

Anonymous said...

Bitcoin is peak capitalism - the ability of a few to remove real wealth from many others in return for an ultimately worthless token.

The S&P 500 is just as detached from reality at the moment.

Old BE said...

“Scam capitalism” yes. That’s why capitalists and free marketeers can support consumer protection and competition law, etc. It’s noted that the central banks and regulators are all saying BE CAREFUL! but they can’t stop people falling victim - how could they?

Nick Drew said...

Charlie @ Inflation at 4 or 5% by year-end or I'll eat my hat

Watch for a big surge in energy prices in the next few weeks

anon @ 11:02 - it's fun to get a marxist to explain bitcoin vis-a-vis the labour theory of value! The answers get very theological

Lilith - Like a sailor's gold ear-ring!

Anonymous said...

BTC may be a fiat currency, but it has the advantage over other fiat currencies that while it's not backed by a government, it also can't be printed a l'outrance by governments (if the clever clogs have got the maths right).

Anonymous said...

Forgot to say - Deutsche Bank have now pulled the plug on Trump. That's about 20 institutions.

It's like the Corporate State of 20s fascism, but with the Deep State replacing the de jure state, and of course with very different ends.

I'd never actually read any documents of original Fascism, but this sounds remarkably like China to me

"Corporate system, will lay down the limits within which individuals and interests may operate. Those limits are the welfare of the nation – not, when all is said, a very unreasonable criterion. Within these limits, all activity is encouraged; individual enterprise, and the making of a profit, are not only permitted, but encouraged so long as that enterprise enriches rather than damages by its activity the nation as a whole."

Why Jack Ma has gone missing (imagine that happening to Zuckerberg or Bezos!) or why Berezovsky was exiled.

"Governments are elected on the strength of their appeal to passion or to sentiment. Once in office they promptly resign their effective power in favour of the great interests within the State, but yet superior to the State, who exercise their power in secret."

That does sound a bit like the Trump administration. Only those policies acceptable to the Deep State allowed to be implemented. No Wall, but tax cuts for the rich. No troop withdrawals, but an embassy in Jerusalem.

Like all right-thinking people I believed the Deep State was a paranoid fantasy, until former deputy and acting CIA director McLaughlin fessed up.

Charlie said...

You have to work hard, OBE? The FED isn't even trying to sound hawkish right now. They've stated that they are going to run IRs behind inflation. There's no chance we'll get away with the last nine months without inflation, because that's the only thing that's going to save fiat. It doesn't matter how generous you think CBs can be, because they've promised to be more generous even than that. I expect they are about halfway through what's going to be printed.

Bond holders are going to pay for Covid. Which means pension funds. Which means ordinary people who don't have a SIPP, but are in a crap NEST scheme (just sold out of big oil at generational lows).

There is no comparison with 08.

ND - I do hope so (discl: I'm very, very overweight the big integrated oil and gas companies)

Anonymous said...

@nick drew

How so on the energy prices ?

Is this an artificial increase or restriction of availability

Surely can’t be increased demand?

Nick Drew said...

Far East. Gas prices there going through the roof - demand strong, and very inelastic. Will divert LNG cargos away from Europe. US shale production much weakened through 2020 and, although some of the producers need to keep pumping at any price (attempting to service gigantic debt) they deffo won't be drilling for more. And shale well have notoriously short lives. In the long run they will fall into stronger hands - but that doesn't happen quickly. Let's see what Biden does on shale.

If the Beast turns up again across N. Europe in the next few days ...

Sinik said...

Don't worry. When the Chinese decide they no longer feel enthusiastic about being counterparty to the Federal debt, they US government will be in need of all that printed money.

The US is about to fail.

Matt said...

Aren't a lot of Gilts index linked so inflation won't work as well as it did in the 70s.

Charlie said...

Only about 15% of gilt sales are linkers.

Lucien Modo said...


lilith said...


Matt said...

@ Charlie


"The UK’s stock of index-linked debt stood at around £426 billion at the end of 2018, making up 26% of the government’s debt portfolio"

Might be more recent numbers but that's a fair bit more than 15%.

Anonymous said...

"A man who threw away a laptop hard drive containing bitcoin he believes is now worth about £210m wants his council to let him search for it in landfill.

James Howells had 7,500 bitcoins, a virtual currency, on the hard drive, which he mistakenly threw away in 2013."

Should have hid it under his mattress.