Is This Why Bitcoin Is Surging?

Tyler Durden's picture

Bitcoin, an online-only currency scarcely four years old, is breaking out to new highs this week and now sports a total value of $2.8 billion.  Just a few months ago, it looked like this economic experiment as the world’s first decentralized technology-based form of money would crash and burn.  Since then, ConvergEx's Nick Colas points out that the U.S. government has shut down a large drug website which accepted bitcoins and promised further scrutiny of its uses; and omputer science experts have warned that bitcoin is neither especially private – one of its notional values – or especially well constructed.  The market doesn't seem to care, with incremental demand from U.S. citizens (through Second Market) and Chinese nationals leading the path higher. Could bitcoin still fail? Sure.  But, as Colas notes, its success to date speaks to how much the world is changing...  Technology – properly packaged – can engender enough trust to develop a new asset class. 

Bitcoin will eventually have to develop a lot more infrastructure to be a useful global currency, to be sure.  But there’s close to $3 billion of real money to help back that transition.

Via ConvergEx's Nick Colas,

Bitcoin - The Lazarus Currency

Every great religion, or company, or country, or rock band has a dramatic ‘Creation myth’ – the story of its birth.  The Judeo-Christian tradition has the story of God creating the world in seven days.  Google has the grad-student thesis story.  American culture is still informed by the Revolutionary War.  And where would the Rolling Stones be if Keith hadn’t chatted up Mick on the train, just because he holding some new R&B albums from the States?

Bitcoin, the online-only stateless currency, has its own creation myth and it is purpose-made to appeal to exactly the kind of people who would find value in it.  The highlights are:

The original design for bitcoin comes from a 2008 paper published by a person named Satoshi Nakamoto.  Who, by the by, doesn’t actually exist.


Bitcoin’s basic architecture is decentralized – no one is “In control.”  People with fast computers and some coding skills compete to solve a puzzle created by the algorithm described in Satoshi’s paper.  Simultaneously, they track all the transactions in the bitcoin universe – people and businesses exchanging value for goods and services.  Every ten minutes, on average, some lucky coder – or group of coders – solves the puzzle, gets a few new bitcoins, and validates the transaction list.  Then the whole thing resets and everyone gets to work on the next puzzle.


In principle, this process leaves everyone exchanging or “mining” (cracking the code gets you 25 bitcoins currently) anonymously in the system.  Everything in bitcoin is identified with a nearly-impossible-to-crack coding of letters and numbers.  No names, phone numbers, or addresses needed.

Now, who do you think would find this creation story appealing?  A few candidates:

Tech savvy people, who by their nature and high-functioning professional skills tend to have a few shekels lying around? Yep – classic early adopters.


Then there might be independence-minded older white males in the U.S., ticked off by the Federal Reserve and government in general.  Yes, they like the story as well.


And then there are the criminals – drug dealers and so forth – who might not know a creation myth from crystal meth, but appreciate the potential for secrecy.


Offshore millionaires from essentially anywhere in the world, looking for classic diversification and a liquid investment.  All you need to access your bitcoins is that long alphanumeric key and a local bank account which links to a ‘Wallet’ – an online repository to hold the currency.  Deposit money in China, write down the key, fly to Monaco and go into an Internet café.  Easy-peasy.

The basic appeal of this “Genesis” creation story lit a fire under bitcoin, starting at the beginning of 2012 at around $5 and ending up in a spectacular bubble top at $240 in April 2013.  The cause of that peak – overwhelming tulip-bulbish demand for bitcoin – was its undoing.  Exchanges where people went to trade dollars or euros for bitcoin couldn’t keep up with the volume.  Accounts froze or moved very slowly, and confidence in the currency dropped, along with the price.  Just a few days after the $240 high, bitcoin was trading for less than $60.

Creation myths are great anchors for a belief system, but there have to be other parts to the narrative; bitcoin is safely into its own “Exodus” – the second book of the Old Testament.  That fall from the highs was just the beginning of its problems.

The U.S. government made it clear that they expect all currencies and their users to adhere to anti-money-laundering laws, including know-your-customer statutes which eliminate the notional secrecy of bitcoin.


The Feds also went after the druggies, shutting down Silk Road – a widely known website for the purchase of illicit substances.


In an odd twist of fate, the U.S. government now owns about 174,000 bitcoins, with a current value of $42 million thanks to the Silk Road bust and other actions.

If bitcoin were a company, the class action lawyers would be circling, fighting for air with the bankruptcy experts.  There is simply no way so much legal action, let alone several ongoing problems with security in the system, would have left Satoshi Nakamoto’s creation as anything but roadkill on the world’s economic superhighway.

But here’s the beauty part: bitcoin is making a new high this week, breaking through the spiky bubble levels of April in a pretty controlled and orderly manner.  What gives? A few points:

The biggest bitcoin exchange is now in China, displacing Japanese, American and European sources of demand.  That enterprise is called BTC China, and its CEO Bobby Lee hails from Yahoo! and Walmart China. Oh, and he graduated from Stanford with a degree in Computer Science.  In short, an apparently pretty clever fellow.


Our sources in the bitcoin community also agree that Second Market, the New York based business best known for trading pre-IPO company stock, has become a major player in demand for bitcoin.  Earlier this year they started the Bitcoin Investment Trust, an open ended product to buy and hold bitcoins.  There’s no way to know how much Second Market has purchased on behalf of its clients, but it must be a popular offering – the banner ad on their site for the trust occupied the top third of their front page.


It’s not all been roses for bitcoin, even in this recent run-up. Back in September computer science researchers from UC – San Diego showed that it was actually fairly easy to track individual transactions in the bitcoin transaction ledger.  Just this week, academics at Cornell proposed that bitcoin could eventually be coopted by a handful of “Miners” who could hijack the system.

So why is bitcoin seemingly minted on Teflon?  Limited supply, for one reason.  There will never be more than 21 million bitcoins, and there are only 12.0 million currently.  In the 4-ish minutes it has taken you to read this far, the most new bitcoins that might have been issued is 25, or $6,250.  In the same timeframe, the Federal Reserve has pushed another $7.8 million into the financial system with Quantitative Easing.  And then there is the undeniable creation-story appeal – a technology based sort-of-secret store of value.  If James Bond, Sergey Brin and Paul Volcker all got together and designed their ideal currency, it might look a lot like bitcoin.

At the same time, the story isn’t over yet.  If the “Exodus” analogy is to fit at all, then bitcoin is still in the wilderness.  It has clearly withstood many challenges, and there are probably more to come.  The end of the journey actually has little to do with how much bitcoin is worth, but what it might be good for.

That’s the piece some investors – many made quite wealthy by the incredible increase in bitcoin’s value – are working on now.  A few final thoughts here:

Bitcoin is a more efficient method of transferring money than the current global banking system.  The transaction ledger is essentially kept for free by the mining community.  Want to send $100 to someone in England and have them redeem British pounds? It will likely cost you $5 or more.  A bitcoin transfer is essentially free.


Merchants can accept bitcoin payments without paying the typical credit card fees of 1-5%.  That’s one reason for the growing acceptance of bitcoin in China – online merchants are starting to accept this online currency.


Bitcoin could become a country’s ‘Second currency’.  One of the more interesting conversations with one of our industry sources is the thought that one or more sovereign nations would entertain making bitcoin a parallel currency to their existing monetary system.  Keep in mind that our source owns a lot of bitcoin personally….  But it is an intriguing thought nonetheless. 

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lemonobrien's picture

why in the fuck would i do this... program my computer all day to solve a puzzle for bitcoins? fuck you. i'll buy gold and let you program.


oh... and i love the "reset" "new puzzle" bullshit.

DoChenRollingBearing's picture

Zero Hedge member "One World Mafia" earlier today (sorry, I do not have the link) warned about "Bitcoins" that .gov might make or track.  I do not have the computer skills to properly comment, but it would seem to be a warning to be careful about putting too much FIAT$ into Bitcoin vs. gold.

I'll take the gold.

CH1's picture

Why is Bitcoin rising?

Umm... because more people want it?

Econ 101.

lickspitler's picture

Increment Bitchez



fonestar's picture

Tyler seems to like to go on about supposed security problems with Bitcoin but never gets into them.  The "selfish miners" idea is being addressed.  Bitcoin is pseudo-anonymous.  If you have an IQ over 60 and wish to be anonymous that's pretty easy to do using VPN, TOR + disposable wallet.  Bitcoin does not have any security flaws and 40-50% retracements for a new, thinly traded currency are to be expected.  

Bitcoin is by far the world's most elegant, secure and advanced payment system and currency.

More FUD, just BTFBitD!!

Bunker Boy's picture

One reason it's surging, perhaps the main one, is bc it's used as the untraceable method of payment for ransomware across the globe. Essentially the hacker encrypt the targets data files with 2000 bit encryption- essentially breakable- and demand payment in bit coins for the encryption key.

Richard Chesler's picture

Bitcoins, Bozo bucks, what difference does it make?

Hard assets bitchez!

fonestar's picture

I can't think of a harder asset than mathematics.

If you can't hold it, you can't seize it.

James_Cole's picture

Bitcoin was never in doubt bitchez, oh the days of arguing pms vs. BTC


akak's picture

I don't know about you, but I'll take bitcoins over PMS any day.

James_Cole's picture

but I'll take bitcoins over PMS any day


Gazooks's picture

...until grid blackout


no whining in the dark, please

Gief Gold Plox's picture

"Bitcoin does not have any security flaws"

I generally read all you posts and know that you're not stupid and a big fan of bitcoin, but claims like that will come back to byte you in the arse.

lickspitler's picture

Why is gold falling.

Umm... because less people want it?

Econ 101


TheTmfreak's picture

This is actually a really terrible comparison. Bitcoin's price is not "regulated" or controlled quite like the global commodities market is. There are no HFT and none of that bullshit. That is actually one good reason for having a crappy exchange infrastructure.

Sean7k's picture

There are a couple of interesting trojan horses stalking the world of currency: One, bitcoin, a digital currency that is making people very comfortable with the idea of a global currency and the elimination of cash- be very careful what you wish for. It does not have the attributes of money and it would be easy to hijack or replace with a statist model (Not to mention the bubblicious properties).

Two, the concentration of gold into a few nations hands, which could make all other gold worth little to nothing. Remember, current generations don't understand what money is nor how gold could function as a currency. If it all held by China, Russia and India, THEY will determine what it will be used for or all the other nations that no longer have it could outlaw it or marginalize it. 

In a world that has played fast and hard with debt and money, the power elites have strong hands, to forget this would be fatal.

nmewn's picture


Winner winner, chicken dinner!

"One, bitcoin, a digital currency that is making people very comfortable with the idea of a global currency and the elimination of cash- be very careful what you wish for. It does not have the attributes of money and it would be easy to hijack or replace with a statist model (Not to mention the bubblicious properties)."

Some youngun's seem to think an EBT or a credit card is "money" because it allows ACCESS TO money. Its the very same concept as calling a car "money" because you use it to drive to the bank to get money out.

Its ridiculous.

That said, using bitcoin as a transfer mechanism for money, away from the prying eyes of anyone is, a good thing IMO. Just as long as everyone understands its not money. 

The wino on the street corner or bushman or nomad will all agree, no internet-no money ;-)

Amagnonx's picture

BTC IS MONEY - sheesh - surely on ZH people have been learning what money is and isn't?  Until something changes, and BTC can be proved to not be a store of value - then it is money and has all the properties of money in spades.  In all characteristics of money it surpasses gold, except for the very critical store of value (durability).  This is yet to be determined - and no doubt gold will continue to be superior to BTC, however BTC is no lightweight regarding durability - able to be copied multiple times - you can store the same BTC on flash dfrives in a dozen places, even on different continents - BTC is hard to kill.  Of course it requires the existence of the net, or something similar - still, losing the net is a fairly catastrophic scenario.

TheTmfreak's picture

Ding. Definitely. Triple book accounting. I mean it's quite ridiculous to call it "getting hijacked" and all these other ridiculous claims.  One property of money as you're stating is a store of value (surplus productivity saved so that it can be translated into something else when needed/desired). Bit coin's value is in its limited number based off of a mathematical formula. "Its backing" is triple book accounted, mesh networked, limited supply. The best part in my opinion about bitcoin is it DOESN"T HAVE TO BE USED BY EVERYONE. Its an alternative currency that doesn't have to BE "THE currency". Why in the hell do we keep expecting EVERY currency to be the ONLY currency in circulation?

My own state, hell even my own Parish (I live in Louisiana) should mint their own currencies. Or shit, fuck them, I would run my own currency. I don't give two shits who is going to replace the US currency. I've already been around the world and seen that people can operate with distributed and multiple currencies, and even find value in them EVEN IF THEY"RE FIAT. Still hold gold, still hold silver. Shit is heavy as hell and if shit hits the fan, try and walk across the border with gold.

Sean7k's picture

One, depends on the internet, which is in the hands of the government. Two, who was it created by? We don't know, it is assumed to be some wonderful, philantrophic netizen like ourselves ( how could that go wrong). Three, assumes the government is not involved and can't crack the code. Four, its' value is not derived from a natural resource or through production of goods. 

It is a faith based currency, which is not money. Yes, you can use it for money now, but that is not the true test of money. It must have value outside that faith and bitcoin doesn't. Faith in technology and individual supremacy in the face of thousands of years of Overlord control is dangerous and reckless. 

Good luck, I wish you the best, but prepare for the worst.

TheTmfreak's picture

Right, except that statist must control the increase of money. You couldn't be more wrong if you tried. Name one government that EVER sought to create less money (that would be the only control a government could have, to take bit coins out of the system, not create more).

I'm not saying bit coin is everything, but you're claiming its easy to hijack (its not, its decentralized nature makes this the opposite) and "bubblicious properties" is quite a stretch. If you looked around the globe you might see failing currencies, and locked down currency controls and out right trade restrictions (See gold in India). I'd say people diversifying in bitcoin or looking for a way to push their money into non-centralized controls and "in the cloud" is far from in a bubble.

Sean7k's picture

Really? What about tier 1 assets? What is collateral? Who controls bitcoin redemption? And my personal favorite: the government can't break the code. We have no idea what the government can break or not, whether it is a government program from the start, hell, people actually thoght (some still do) that the government is a war against drugs. They believed 9/11 or Boston Marathon or any number of false flags. 

Bubblelicious? Did you read about tulipmania? If you want to invest in bitcoin or the S&P or gold, fine, because no one knows how this turns out. I would have never thought you could change the definition of money, but here we are. I like gold and silver, but the actions of the Illuminati/Zionists/etc are moving along as planned and NO ONE IS STANDING UP-WORLDWIDE. 

People still think China and Russia are enemies of the US. They still think there are real terrrorists, not manufactured mercenaries run by controllers. You really think money is an issue to these characters?  People trade their life's labor for paper. They believe governments are helpful and necessary. They believe in justice and freedom and America/Britain/France etc. People eat GMO food and like it. 

Humans are the stupidest creatures on the planet. At least every other creature is true to it's self, we are so arrogant, we are a genetically culled slave class with delusions of grandeur. Bitcoin? The toxins in your house are killing you and you keep living there. Hell, you buy a carcinogenic couch to sit on while smoking a carcinogenic cigarette because somebody convinced you its good for you because it releases water vapor! We are quietly watching nuclear catastrophe unleashed. We kill innocents with impunity. The police torture the citizens. The doctors drug the hell out of us and we drink toxic water so alcoa doesn't have to pay to dispose of waste. 

Sorry, if people want to believe in fairy tales, who am I to say differently? Will we all compare our "money" stashed in fema camps over our soylent green? Yeah, we''ll show those overlords, we'll sell our bitcoins in black markets for things we don't need and not pay sales tax! Or, Or in real markets, like Alibaba. Then we'll sing a chorus of "jimmy crack corn, but I don't care" and giggle about how the boss man is so stupid to not understand we be slammin' him!


aminorex's picture

the definition of money is PQ=MV.  anything else is an ideological hobbyhorse.  and that is why BTC is going to 27,000 USD2013 by 2024.

Gief Gold Plox's picture

I agree that the .gov sector can only expand and grow. For this they absolutely love monetary inflation.

But that doesn't mean that bitcoin can't be hijacked. All that's needed is to allow the people to become comfortable with the idea of a digital only currency., than after a little while start screwing with the bitcoin network via the most-nodes-in-the-network attack method, which the .gov sector can easily afford. Once people are getting adequately inconvenienced trying to spend their bitcoins, introduce a .gov issued AltCoin that the government issues (does not have a 21mio limit) and requires for tax payment. They also allow a short timeframe and a "fair" exchange rate for bitcoin to GovCoin conversion. Float a few fake bitcoin "counterfeiting" stories, a few "old couple with ten adopted babies looses all their money due to a glitch" and it can be outlawed with minimal resistance from the sheep.

I do own some bitcoin, but tangible assets are what I stack for my grand-children's sake.


Radical Marijuana's picture

Researchers Say 'Bitcoin Is Broken' And Could Collapse

By Julie Bort, November 5, 2013.

The problem is with how people "mine" bitcoins. Mining is how bitcoins are created ... it is so difficult and time consuming for a computer to create new bitcoins that some miners have banded together in pools, using multiple computers that work together ... when too many miners gang together ... this can lead to a monopoly over the whole system. ... the problem is intrinsic to the entire way Bitcoin works ... a minority group of miners can obtain revenues in excess of their fair share, and grow in number until they reach a majority. When this point is reached, the Bitcoin ... the currency ... is no longer decentralized; the controlling entity can determine who participates in mining and which transactions are committed, and can even roll back transactions at will.

My macabre sense of humour was tickled by the IRONY of Bitcoin being destroyed by powerful monopolization! The only thing "new" is the apparent speed with which that process developed. The rise and fall of empires HFT version 2.222 ...

wintermute's picture

If a minority group could take control of Bitcoin it would have done so. There is $3b sitting there - not enough for hackers? No, they can't break it - that's the real situation.


Radical Marijuana's picture

That remains to be seen, wintermute.

I expect that eventually basic progress in computing power will surpass Bitcoin mining by orders of magnitude within a few more of Moore's law doubling times, IF civilization survives that long ... Possible breakthroughs in quantum computers, or whatever, may be able to break the encryption methods that are now relied upon ???

The article that I linked above was about the emerging accumulation of computing power, not already accomplished. Of course, I understand that Bitcoins are supposed to stop being made when there are 21 million of them, which means that there is a strange race taking place. The more that the value of Bitcoins goes up, the more than the miners are motivated to capture more control or dominance over the computing power that can make new coins.

I would expect that the difficulty of that mining will decease in the future, which may require a new generation of some kind of similar basic idea ???

Lets Buy The Dip's picture

one world mafia haha +1. 

This market is never going down again. if it does it will go down faster than monica on bill clintons nutsack back in the day :=)

I have noticed a dislocation between the RUSSELL and SPX. The RUSSELL geting smashed and the SPX holding very well. SEE HERE => Eventually you will see this stop, one of these is wrong and needs to catch up.

sgorem's picture

too spooky for this dude. i'll just hunker down in my cave with my guns, my gold, my food, and of course lots of toilet paper.

sgorem's picture

and BTW? what happens when the threshold of 21 million bitcoins is reached. also, if it was developed for the internet, it can, and will be corrupted sooner or later. way too much trust in this scene, ie., Chinese, .gov, NSA, fucking crooks.................

TheHound73's picture

Shall I roll a boulder over the mouth of your cave, help to increase your camoflage?

Idiocracy's picture

bitcoin is already eminently trackable through the blockchain.  No need for Big Brother to reinvent the wheel there.  For the grunts at the NSA and the CIA to mine the data and associate a certain public bitcoin address to a person, for them should be relatively easy.  Bitcoin is not anonymous, it is pseudononymous (and the bitcoin community openly admits that).  The lack of total anonymity will not significantly devalue bitcoin in the long run.  It's virtues in other respects are groundbreaking and numerous

RmcAZ's picture

My biggest question with Bitcoins is I would LOVE to know how much money and resources have gone into creating these Bitcoins... Including how much electricity (and cost of said electricity) to "mine" these things out of thin electrons. All seems like a waste to me. By the time all of them are "mined", if there was millions of dollars spent on computers, video cards, and electricity just to get them, will it have been useful? Will it have benefitted society in any way? At least with gold, silver, etc they are tangible objects, that have other real-world uses and unique properties. Bitcoins are just 1's and 0's at the expense of all the resources wasted to get them.

Bangin7GramRocks's picture

If a Bitcoin is $280 and I want to buy a $10 movie, do they "break it for change"? So you then have virtual glass jars of Bitcoin bits? Food for thought!

CH1's picture

Food for thought???

It "breaks" to eight decimal places!

Bangin7GramRocks's picture

Just bustin' balls. I just find it silly. It's a neat little fad investment like beanie babies and baseball cards. Good for everyone who makes real money playing that game, but I'll pass.

StacksOnStacks's picture

There is so much hate for Bitcoin on ZH... why is that?  Isn't ZH about learning, finding ways to not use the Government, and ways to protect ourselves against the Government?  I DO own BTC AND Silver (way more in Silver... Physical Bitchez) because I want to make sure I have a way out of this mess.  Why not discuss instead of just trash?  OR gtfo of here.

ebworthen's picture

Discussion is fine, learning is good.

I love the idea of Bitcoin, love it. 

Problem being, it is intangible and over the Internet.

TheHound73's picture

Also one of its main selling points. For physical you have gold and other commodities, why would you want another competitor in the physical realm?  But how do you transfer that physical money cheaply and quickly to somebody on the other side of the planet?  Say for some silly reason you read books.  You wish to read the works of an author who lives in Tasmania.  This author refuses to play with the big publishing houses but will sell you his book directly for silver or bitcoin.  Which payment method would you choose?

Urban Roman's picture

Increasingly true of the dollar these days.


Or any other 'asset' you would care to mention.

mccoyspace's picture

that was zerohedge from two years ago, not today.

fockewulf190's picture

I just have a hard time trusting bitcoins.  The Feds will be waging war against it eventually, especially now that another Silk Road has popped up.  Next you are going to hear about terrorists using them to finance operations. 

One And Only's picture

Why bother getting onto a device that requires 1's and 0's to come to the internet that requires 1's and 0's to type a message that relies on 1's and 0's to talked about the lack of utility in 1's and 0's?

TheHound73's picture

Why bother with Google, Apple, Microsoft, IBM, and Oracle when we could all just sit around a campfire and sing Kumbaiya while polishing the tarnish off our silver.

New World Chaos's picture

BitCoin helps the little people to evade all kinds of legal ripoffs including capital controls, inflation, taxes, bank fees, Cyprusing, Corzining, civil forfeiture, etc.  The benefit to society is well worth the few hundred thousand dollars per day spent on power.  Just watching TPTB crap their pants will be worth it.

RmcAZ's picture

Downvote all you want... to add, I just came across this site:

This site states there have been 4,150 bitcoins "mined" in the last 24 hours. At current market value this is $1,103,900.

Lower on the page it states 65,771 megawatt hours were used in the last 24 hours, which they estimate is $9,865,775.88 at $0.15/kwh. This is a deficit of $8,761,875.88 from the value of the 4,150 bitcoins that were mined. Or in other words, a deficit of 58,352 megawatt hours of electricity has been wasted just in the last 24 hours.

This power plant near me, Diablo Canyon nuclear facility, creates 18,000 Gigawatt hours of electricity per year. This is equivalent to 18,000,000 megawatt hours per year, or 49,315 megawatt hours per day. Comparing to the numbers above, just the DEFICIT of electricity spent to mine bitcoins is wasting more than the power output of a full scale nuclear power plant. Bitcoin is literally converting energy back into a currency (from which currency was already spent to make the energy in the first place) and it does so at an incredibly inefficient pace, to the tune of -58,352 megawatt hours per day.

This is completely shocking to me... How does this make any sense?

Please feel free to correct me if my calculations are off or if the data from this web site is invalid. I may be a complete dumbass.

seek's picture

My mining equipment (which is 65nm ASICs, not the most efficient) sucks 3.6 KW and with the latest difficulty adjustment, produces ~0.5 bitcoins a day now. That's 86 KWh a day (24 * 3.6) or about $13 in electricity. If all miners were at the same efficiency, 4150 bitcoins would need 713,800 KWh -- so 714 MWh to be produced. That's a fraction of the 58,352 you're showing.

My guess is their calculator is using power estimates from old GPU mining rigs.