What The Mainstream Doesn't Get About Bitcoin

Authored by Charles Hugh Smith via OfTwoMinds blog,

The real demand for bitcoin will not be known until a global financial crisis guts confidence in central banks and politicized capital controls.

I've been writing about cryptocurrencies and bitcoin for many years. For example: Could Bitcoin Become a Global Reserve Currency? (November 7, 2013)

I am an interested observer, not an expert. As an observer, it seems to me that the mainstream--media, financial punditry, etc.--as a generality don't really grasp the dynamics driving bitcoin and the other cryptocurrencies.

What the mainstream does get is speculative frenzy. New technologies tend to spark speculative manias once the adoption rate exceeds the Pareto Distribution's critical threshold of 4%, and opportunities to buy into the new technology become available to the general public.

Just as radio and the Internet sparked speculative manias in their boost phase, cryptocurrencies have sparked their own speculative frenzy.

Where the mainstream goes wrong is assuming that's all there is to bitcoin: a speculative mania. The Establishment often dismisses transformative technologies as fads or gimmicks; thus the infamous rejection of photocopy technology as only of interest to a dozen large corporations, personal computers belittled as being of limited utility (storing kitchen recipes), and so on.

New transformative technologies develop in an unpredictable fashion, and early-phase critics and prognosticators often end up looking foolish on both ends of the spectrum: by dismissing the transformative potential of the new technology (Paul Krugman's famous obituary for the Internet in the late 1990s) or by making fantastic claims that exceed the reach of the current technology.

The mainstream also misses the core driver of bitcoin and cryptocurrencies: the current financial system is doomed, and some other arrangements will emerge. Those who get on board alternative arrangements early will likely preserve more of their wealth than those who believe the current system is permanent, and some may earn great wealth as capital flees the sinking ship of central banking/credit for more secure climes.

The inevitable collapse of the fully financialized exploitive Empire of Debt is verboten in the mainstream, for obvious reasons. The herd is already restless, as it intuits the present faux "prosperity" is fragile, and so the mainstream's job, as it were, is to maintain the delusion that the exploitive Empire of Debt is permanent and the only possible financial system.

The herd also intuits that an Elite that lies when it gets serious cannot be trusted. As all the internal contradictions and excesses of the present financial system weaken its foundations, financial and political Elites must obfuscate, lie and manipulate via gamed statistics, false narratives and media spin lest the increasing instability panic the unsettled herd.

The third dynamic the mainstream misses is the potential role of bitcoin in preserving the wealth of the very Elites who best understand the weaknesses of the present financial system. A number of very smart people assure me the U.S. government can (and will) shut down bitcoin overnight by restricting or outlawing exchanges' access to the banking systems' payment platforms that enable people to exchange bitcoin/ fiat currencies.

My response is this question: what will best serve the interests of the wealthy and super-wealthy? If this sucker's going down, to quote former President G.W. Bush, those with wealth and political power are not going to allow regulators to seal an escape hatch that might serve their goal of wealth preservation.

The current interest of hedge funds and other managers of wealth in bitcoin suggests this is precisely how bitcoin is being perceived. This interest will only increase as the seams of the current financial system start unraveling.

If bitcoin is perceived as a threat to Elite wealth preservation, the Elites will deploy their political power to suppress bitcoin. But I consider this unlikely, for a reason rich in irony: bitcoin's independence from the fiat/central bank credit system that has enriched the few at the top of the pyramid at the expense of everyone else is the very reason it offers more stability than the doomed-to-devaluation credit-bubble currencies.

Given bitcoin's tiny share of global wealth, how much of a threat can it pose to the super-wealthy elites?

I suspect the big wealth managers are only beginning to get interested in bitcoin; the Early Adopters tend to be small players with larger appetites for risk than the institutional players.

I've marked up a chart of bitcoin to suggest there may be a fractal pattern in play: notice the previous two periods of volatile upswings and downdrafts. The 30+% swings appeared monstrous at the time, but looking back, they look more like blips.

What will the current dramatic run-up, sharp decline and new high above $3,400 look like from the heights of $10,000?

As I have said before, the real demand for bitcoin will not be known until a global financial crisis guts confidence in central banks and politicized capital controls. Only then will we know for sure how the financial and political Elites will view bitcoin: as a threat to their wealth or as a lifeboat with precious few seats.

Of interest:

Projecting the Price of Bitcoin June 2, 2017

The Path to $10,000 Bitcoin January 11, 2017

An Everyman's Guide To Understanding Cryptocurrencies June 13, 2016

Understanding the Cryptocurrency Boom (and its Volatility) June 30, 2017

Why Don't the U.S. Dollar and Bitcoin Drop to Their Tangible Value, i.e. Zero? January 9, 2017

Where Will All the Money Go When All Three Market Bubbles Pop? October 13, 2016


tmosley nope-1004 Fri, 08/11/2017 - 08:45 Permalink

>A number of very smart people assure me the U.S. government can (and will) shut down bitcoin overnight by restricting or outlawing exchanges' access to the banking systems' payment platforms that enable people to exchange bitcoin/ fiat currencies.Hahaha, yeah, I'm sure they can. They just have to shut off their entire economy, which is now based almost completely off of the internet.Shitholes like Bolivia can supress Bitcoin adoption in their countries only because no-one is interested in it there. You don't need centralized exchanges to trade fiat for bitcoin. Further, once it takes off in other countries where it WASN'T shut down, the lack of convertability will cause a panic in YOUR country as people dump their dollars for bitcoin at any price, going through any intermediary possible to get it (yes, including buying gold and silver).You can't stop a digital currency from taking over with physical force, any more than you can force sand to stay in your hand with a tight grip.

In reply to by nope-1004

The Cooler King (not verified) tmosley Fri, 08/11/2017 - 09:01 Permalink

"You can't stop a digital currency from taking over with physical force" That part of it is 100% acknowledged. ESPECIALLY if it's the government, or the cartels that are secretly running the system from behind the scened (which NOBODY, not even yourself prove or disprove in this moment). I'm simple making a theoretical assertion here. Screw the price action(s). MOST people around bought gold & silver bullion because they wanted to keep 'money' out of the banking system. If, in fact, that it turns out that BITCOIN, or others, are actually controlled by governments or the banking system, then all you & your friends here are doing is encouraging people to run full speed ahead in that direction.

In reply to by tmosley

tmosley The Cooler King (not verified) Fri, 08/11/2017 - 09:06 Permalink

That's not a theory, it's counterfactual speculation by a no information biased person.Just because YOU don't know how it works doesn't mean that other people don't. It is OPEN SOURCE. There is no method by which ANYONE can control it "from behind the scenes". They can attack it, or they can propose changes not in the interests of the market (which the market will promptly reject because it is filled with educated and persuasive people), but they can't CONTROL it. They have no lever! There are thousands of exchanges!All they can do is buy and sell, like everyone else. Or spam transactions and make the miners rich until segwit activates.

In reply to by The Cooler King (not verified)

The Cooler King (not verified) tmosley Fri, 08/11/2017 - 09:24 Permalink

"it's counterfactual speculation by a no information biased person" If it's counterFACTual speculation, then produce Satoshi for me right here & now IN THE FLESH. Then I'll bow down to your FACT FILLED narratives. "but they can't CONTROL it. They have no lever!" This is absolutely false. You yourself TRIED to prove this the other day by linking a site that showed the TOP 100 bitcoin wallets or some such. On the surface, it would seem that you were right. But instead, if your friend (who you can't produce IN THE FLESH), & his friends, actually owned 10's of thousands of bitcoin wallets (which were accounts that they started early on), NOBODY would know about it. But then, theoretically, if you aggregated all those 'tiny' little account wallets over time, you COULD CONCIEVABLY own leverage over the system. What would be beautiful (for them), in that scenario, is that people like yourself would continue to go on believing that nobody was exerting leverage because the transactions weren't coming from the large wallet holders, but rather, an aggregate of teeny tiny account holders, which, on the surface, might just look like 'speculators' who came in & got out. Now, in that same scenario, if you still can't produce Satoshi, try producing IN THE FLESH 10's of thousands of Satoshis.

In reply to by tmosley

J S Bach T-NUTZ Fri, 08/11/2017 - 09:43 Permalink

"The real demand for bitcoin will not be known until a global financial crisis guts confidence in central banks and politicized capital controls."  Or… until someone discovers a way to hack into the bitcoin “vaults” and either steal them or counterfeit them to infinity. 

In reply to by T-NUTZ

Simeon ben Gam… The Black Bishop Fri, 08/11/2017 - 10:38 Permalink

The day the electricity stops is the day all the Bitcoin holders will realize that they own worthless cyber junk.Gold and/or silver, or possibly US Dollars is what will buy you what you need to survive.Gold, Silver a few high quality firearms and a food supply are what you and your family will need.Bitcoin is a joke with a with a punch line that falls flat on its face.

In reply to by The Black Bishop

illuminatus (not verified) The Black Bishop Fri, 08/11/2017 - 11:17 Permalink

Being right and sitting tight isn't always the correct thing to do. As for myself I kick myself in the ass for buying a roll of silver eagles in 2009 when an eagle sold for 10 bucks instead of buying 200 bitcoins when they sold for a buck a coin. Go ahead and argue all you wish or downvote, maybe you are so rich that you can blow off a difference in dollar value of six hundred and ninety nine thousand dollars and change. Fiat or not. Granted bitcoin may at some point crash or be made to crash or be made illegal, and silver may have its moon shot, but meanwihile I'm missing out on a lot of hookers and blow, or whatever, and so are you. At some point one should be able to admit that they were wrong. I do.

In reply to by The Black Bishop

Dsyno tmosley Fri, 08/11/2017 - 11:11 Permalink

Tmosley says: "There is no method by which ANYONE can control it 'from behind the scene'."How quickly memory fades. Remember that 11 days ago Bitcoin split in two because a group of people couldn't agree on how they wanted to change Bitcoin...Read that again and let that sink in...A group of people (including a lot of Chinese miners/entities) deciding how to change Bitcoin, almost causing it to implode.Bitcoin is controlled by a few big players (China being a big one, dominating the mining with their cheap electricity and cheap server farms). Bitcoin can and will continue to change based on the choices of those groups.

In reply to by tmosley

The Cooler King (not verified) T-NUTZ Fri, 08/11/2017 - 12:16 Permalink

"I have never seen the .gov do anything brilliant." At face value, I agree with you. I HAVE NEVER SEEN THE .GOV DO ANYTHING BRILLIANT either. But then think about it. THE US FEDERAL RESERVE & other central banks were BRILLIANT maneuvers (even though they're totally evil & diabolical, it's hard to deny the GENIUS). Now, apply the fact that over the past century, the CENTRAL BANKS have wormed their way into being 'hand & glove' with GOVERNMENTS by way of extortion, war, murder, genocide, usury, human trafficking, and most other evil things you can think of. So in my humble opinion, .gov is simply an extension of the private banking cartels. As for this "what is your obsession with knowing who Satoshi is?  he is a genius." I'm not obsessed. I simply would like to be able to put a face & accountability on what I do with the wealth I've earned. Let me ask you something. What if we weren't talking about money here. Instead, pretend we're talking about YOUR KIDS. Wouldn't you be a little more curious as to the identity of the BABYSITTER than just other peoples 'word for it' that the babysitter was a 'GENIUS'?

In reply to by T-NUTZ

Xavier Doe The Cooler King (not verified) Sun, 08/13/2017 - 13:24 Permalink

I have to admit, I am pretty curious about the whole Satoshi identity story - and I do get a chuckle out of it every now & then.  Especially the fact that the CNN mockingbirds of the world (and other ill-wishers) aren't able to expose 'him' quite as efficiently as, say, the poor dude who pasted a dancing "CNN" logo on top of Vince McMahon's head and reaped a virulent attack in response by the Establishment media mafia.But beyond curiosity value, it makes no difference to me who 'Satoshi' is, as appeal to authority is a logical fallacy in the first place that I never felt obligated to chase down the rabbit hole (quite as diligently as you seem to need to do? Correct me if I'm wrong).Nor was appeal to authority ever promoted as the basis of trusting cryptocurrency as a store of value.  I don't imagine the Bitcoin development team felt the urge to print up life-sized Satoshi cardboard cut-outs for distribution to all the major retail financial centers of the new crypto-banking economy, to reassure granny it's okay to put your hard-earned shekels into this new computer-thingy that you can't quite see, feel or touch... but trust me, this black-and-white Japanese-guy-in-the-picture says it's-gonna-be-all-right.  As much as they, say, felt the need to publish the SOURCE CODE so that its merits could be known by the most skeptical and curious minds in the world, who could then render their verdicts and concerns, which could then be adopted and folded into the next release of the code, and so on and so on, until the trust consensus could be built through voluntary rather than forced adoption.I don't think it's productive or safe to depend on someone's alleged reputation when you're evaluating the merits of a particular store of value anyway.  The benefits (if any), flaws (if any), and security/privacy concerns (as they are) of Bitcoin, Ethereum, Litecoin, Monero, Dash, and the whole kaboodle are out there for anyone with a brain and some patience to evaluate for themselves.  So are the opinions and concerns of just about everybody who has reviewed the various blockchain-based platforms.Will most people read the Satoshi white paper, or review the codebases themselves?  Probably not.  But if you choose not to, and if you ignore the evolving technical consensus-based trust being formed (with all of its ups and downs), simply because you want to point to a guy in a suit and say "he's good enuf fer me" then you don't really need to know Satoshi's identity do you, because what difference would it make?  You're already dead meat in the hands of a sufficiently prepared con artist.

In reply to by The Cooler King (not verified)

Planet Israel (not verified) tmosley Fri, 08/11/2017 - 09:34 Permalink

All they need to do to bring BTC down is:- IRS can force complete compliance for any business or persons involved in converting real property into BTC using AML, FATCA and other statutes. - Make a few John Doe summons to exchanges.  The IRS knows from their FATCA experience that they will all fall in line.- prosecute a few BTC speculators and throw them in prison for willfull tax evasion.- Make a few painful audits and make sure their media cronies talk about it alot.

In reply to by tmosley

Blue Steel 309 tmosley Fri, 08/11/2017 - 12:20 Permalink

This may be news to you, but with the Americans, the entire global economy and all of its currencies (including America's) comes crashing down like has never been seen before.

Which means BTC is worthless without the Federal Reserve propping up global finance. Which means the IRS (which has compliance of most banks in the world) can shut it down.

You are a tard.

In reply to by tmosley

Nolde Huruska tmosley Fri, 08/11/2017 - 12:45 Permalink

You can't stop a digital currency from taking over with physical force,No, but they can order the TBTF ISPs to block port 8333 it's game over for 99% of bozos out there.Remember, like with Egypt, when you heard news reports saying "the government shut down the internet." They don't shut down the internet, they just block DNS and that's all she wrote for the masses. It's kind of like that for Bitcoin if they want.By the way, if no one ever explained this to you. Copy and paste it into your browser. This will bring up zerohedge. Bookmark it. Ditto Then do for the Drudge Report and you can get by a DNS kill.

In reply to by tmosley

silverer androkles Fri, 08/11/2017 - 09:09 Permalink

Keep in mind with PM's, the prices are low only because the price is manipulated to be low to preserve the value of the dollar. If the price of gold and silver were allowed to rise without interference, the price would be higher. If the western financial system really falls hard, I don't see how futures can continue to hold the price of the metals down. The winners will be, likely in this order, Bitcoin and some other crypto currencies such as ether, silver, then gold. Interestingly, the rush to Bitcoin and its rise in price will be the catalyst that causes silver and gold to rise as well. I think you wouldn't get hurt holding silver and Bitcoin. I just don't see how you can lose. Bitcoin may be volatile, but I think the average price will continue to rise.

In reply to by androkles

Creepy_Azz_Crackaah (not verified) crazytechnician Fri, 08/11/2017 - 09:29 Permalink

"Haters and 'tards Triggered in 3,,2,,1.."

Too late. Your comment already displayed plenty of hater and 'tard that has been triggered.

Personally, I hope that the desperate ZHers banking on YUGE Bitcoin gains for their food and shelter do well. But that doesn't make Bitcoin currency, or money. It's simply speculation/gambling tool just like the hundreds of other crypto "currencies.". Good luck with your continued success.

In reply to by crazytechnician

CNONC crazytechnician Fri, 08/11/2017 - 10:29 Permalink

I don't need balls at all to understand that, by definition, money must have a stable value.  If it is a medium of exchange, as money must be, then any transaction requires one side to be "short" the currency, while the other side is "long."  It does not matter, therefore, whether the instability in the value of the currency is from a rapid fall or a rapid rise.  The instability requires the transactors to speculate on the direction and magnitude of the value change.  If the risk of the trade, as determined solely by the judgement and risk tolerance of either party, is too great, then the transaction fails, and the benefits of the trade arfe not realized.  Bitcoin and the other cryptos are not money.  They may become money in the future, once they display a long term stability in value, but they cannot, now, by definition, be considered money.Invest, speculate, and transact as you desire.  Blockchain will be a part of all of our economic futures, I suspect.  But if you think your Bitcoin is money, you have accepted more risk than you realize.

In reply to by crazytechnician

Michigander The Cooler King (not verified) Fri, 08/11/2017 - 09:23 Permalink

Just keep that head in the sand. You have no idea what you're missing. Let me put it in terms that even a simpleton such as yourself can understand.I forewent buying 25 oz of silver...yes, a whole 500 dollars...and bought the crypto ANS (Now NEO) in MAY. I, unlike you, did my due diligence. My 500 dollars has turned a 28,606 dollar profit as of today. Yes, that is a 5,655% return...in 3 months. The thing you Neanderthals don't get is it doesnt take a lot of money to make alot of money.  Cut your hooker and blow budget back just a little and thats all it would take to get in.

In reply to by The Cooler King (not verified)