Is This Why The Status Quo Disdains Bitcoin? - The "Wrong People Are Getting Rich"

Authored by Charles Hugh Smith via OfTwoMinds blog,

The wrong people--rebels, outsiders, nerds and techies-- got on the cryptocurrency boat while their insider/rentier "betters" blew it and are now raging bitterly onshore.

The psychology of money, wealth and speculative manias is endlessly fascinating. Most of what's written on these subjects focus on the process of building wealth as if it were a quasi-science rather than a psychologically driven process. Only speculative manias attract a psychology-based analysis, usually characterized as some variant of the madness of the herd running off the cliff en masse.

But money and wealth are nothing but more sedate reflections of the same dynamics that drive speculative manias. Much has been written about cognitive biases and thinking fast and slow, but these explorations do not exhaust the psychology underpinning money, wealth and speculative manias.

Few things have unleashed the Monster Id of wealth and money quite like bitcoin and the cryptocurrencies. Compare the speculative manias of the dot-com era (1995 - 2000) and the housing bubble (2002 - 2007) with the crypto-mania: in the first two manias, the status quo embraced the mania as rational and justified: the Internet would continue growing for decades, housing never goes down, etc.

But the status quo has not embraced cryptocurrencies with the same ardor--why? Instead of endless justifications for valuations, the status quo is filled with reports that 97% of all economists view bitcoin as a bubble, and endless articles decrying the bitcoin bubble as a fools game that will deservedly burst, and soon.

Why did the status quo embrace irrationally exuberant bubbles in the 1990s and 2000s, but views the exuberance of cryptocurrencies with disdain? I think this is a fruitful topic to explore, largely because nobody seems to be asking this question.

Here are my suppositions:

1. The status quo reviles cryptocurrencies because the wrong people are getting rich.

2. The status quo reviles cryptocurrencies because the usual insiders (Wall Street and its politico leeches) didn't get on board early, and they're deeply offended that they missed the boat.

3. Until the advent of bitcoin futures trading, the usual insiders had no means to skim profits from the exuberance.

To me, these dynamics go a long way in explaining the 97% of the status quo's visible loathing of bitcoin and the cryptocurrencies.

In other words: why embrace some manias but not all manias? Answer: some manias make the usual insiders filthy rich, others don't. The dot-com mania generated billions of dollars in profits for Wall Street and the rest of the financier-politico leeches (i.e. the rentier class) via IPOs (initial public offerings), insider deals and vast fees generated by trading the mania with other peoples' money.

The housing bubble generated billions of dollars in profits for Wall Street via the issuance of mortgage-backed securities (MBS), CDOs and other exotic financial instruments based on mortgages and related securities, and realtors (and the rest of the housing industry) banked billions in commissions, fees and other skims.

In both cases, Average Joe and Jane reckoned the manias were their ticket to untold wealth. A relative few Average Joes and Janes did strike it rich, usually by being early employees of companies that went public, and a few others managed the impossible, i.e. buying low and selling high and then exiting the casino with their winnings.

But the vast majority of the Average Joes and Janes were fodder for the chipping machines of Wall Street and the FIRE (finance, insurance, real estate) insiders and elites. Far more people lost money in the period between 1997 and 2003 than won big and kept their winnings. Millions of people gambled on the housing bubble expanding forever and lost everything.

Now compare that to the cryptocurrency mania: Wall Street and the rest of the financier-politico leeches (the rentier class) have virtually no insider skims in the cryptocurrencies--is it any wonder they hate bitcoin with a passion that correlates to their inability to rake in billions of low-risk fees from the mania?

The psychology of FOMO (fear of missing out) is well known; the indignation of those who didn't get on board before the ship sailed is less well noted. The financier/rentier class has a very high opinion of its own moxie and intelligence, and the fact that they missed the boat entirely on bitcoin et al. is like a knife of wounded pride plunged directly into their greedy hearts.

Those who can see past their own wounded pride are busy investing in blockchain applications and cryptocurrency funds, while those who cannot let go of their wounded pride are raging daily against the bitcoin bubble, and praying nightly to their evil gods for its collapse, to prove themselves right after all.

Every day that bitcoin doesn't crash to zero is a day of pain for those whose pride was wounded by missing the cryptocurrency boat.

Even worse--if that's possible for those whose greed is insatiable--the wrong people have gotten rich--techies, nerds, outsiders, rebels, etc.

It's as if the crypto-rabble rebels just blew up the Financial Empire's Death Star and got away with it.

Interestingly, few balk when privileged insiders mint fortunes for doing essentially nothing but exploiting their privileges. The corporate media heaps fatuous praise on insiders who reap billions of dollars from others' labor and ideas via IPOs, leveraged buyouts, etc. because of course these rentiers are our bosses and overlords.

It's dangerous for a mere peasant in the Corporate-State Feudal System (i.e. the status quo) to speak truth to power against the Financial Aristocracy that issues the paychecks.

You can bet that if a Wall Street insider had bought bitcoin in size for $100 each, said insider would be justifying today's valuations and arguing for higher valuations ahead, just as he/she did in the dot-com and housing manias.

So it all boils down to this: the wrong people--rebels, outsiders, nerds and techies-- got on the cryptocurrency boat while their insider/rentier "betters" blew it and are now raging bitterly onshore, not just resentful but indignant that this mania didn't enrich insiders like it should have.

So sorry about your Death Star. I guess this doesn't bode well for your bonus and promotion in the Imperial hierarchy.

*  *  *

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falak pema Wed, 12/27/2017 - 18:17 Permalink

In the land of manifest destiny capitalism there are no wrong and right people : just rich and poor.Thats what being American means. Its the American dream.Questioning it on ethical terms makes it European and "socialist"...Now dat is very unamerican.

RAT005 falak pema Wed, 12/27/2017 - 18:27 Permalink

To me, the difference is differentiating between the blockchain aspect of the currency, vs. speculation in Bitcoin.  I think there will be blockchain2.0 that will begin to make the whole thing more real, and as a consequence make BTC somewhat worthless....unless they somehow transfer BTC into the new thing.

In reply to by falak pema

Bumpo Pinto Currency Wed, 12/27/2017 - 19:52 Permalink

Is Bitcoin any more or less than a Treasury bond, digital stock certificate, or a printout from your ATM screen? If there is an EMF to take down the system, its more likely that Central Banking will go down than all the nodes world wide for Bitcoin. Fewer and fewer Bitcoin are created as time goes by. Can Fiat say the same thing? I have way more gold and silver than Bitcoin, but that doesn't mean they all don't represent the same thing.

In reply to by Pinto Currency

zebra77a aloha_snakbar Wed, 12/27/2017 - 20:11 Permalink

There are 1300 cryptocurrencies all vying to replace the aging crypto-king - Bitcoin. Bitcoin Cash with Seg Wit or Segregated Witness has instant transfer times. Many others offer flavors of functions as in greatly increased anonymity, 20,000 transactions per second etc. As long as money flows into the exchanges the exchanges can ghost inventory their crypto and inflate fake crypto balances. Only when people withdraw their crypto is the exchange forced to re-legitimize your account balance to the blockchain.. Thus on every major crypto drop the exchanges go offline. They as the fiat banks can never have there balances audited.China banned exchanges only to see direct peer-to-peer software pop up.. Bitcoin is an escape mechanism from fiat depreciation bar none just make sure to pick an exchange which has realtime instant withdrawal. If they take 5 days to pay you your own money they be camping. 

In reply to by aloha_snakbar

RAT005 RAT005 Wed, 12/27/2017 - 18:32 Permalink

BTC wealth is priced at the margin.  Almost none of this BTC paper wealth is real.  BTC has no value.  Some people will succeed in getting other people's assetts.  But most BTC holders will loose.  The market has no liquidity relative to its value.  Very possible it's being gamed by BTC elite trading back and forth with each other just to have a price published.  There is no exit for the majority of people.

In reply to by RAT005

HillaryOdor Spaced Out Wed, 12/27/2017 - 19:24 Permalink

Yes I'm sure Dimon and Blankfein cry themselves to sleep every night that they didn't buy into bitcoin early enough.What a ridiculous article.  This is a great example of the cult-like beliefs of bitcoin enthusiasts.  People don't like bitcoin just because they are jealous of you and your brilliant foresight.  Whatever you have to tell yourself.

In reply to by Spaced Out

RAT005 HillaryOdor Wed, 12/27/2017 - 19:49 Permalink

When people think have gotten rich, they are pricing BTC in $$.  No way all of the rich people can go back to $$ as they suggest with anywhere near the value they are excited about.  BTC is not being used enough to threaten any other currency.  Even the limited use of BTC is slowing down the blockchain too much.  The mining cost to support the slow blockchain is too high.  Soon the conflict of low velocity, limited number of coins, slow blockchain, cost to mine and support the chain, etc. is going to come to a head.  At the basis there is no value.  The world can live without BTC and just move on to the next curiosity.

In reply to by HillaryOdor

Endgame Napoleon HillaryOdor Thu, 12/28/2017 - 17:24 Permalink

They might be jealous of the programmers who understood the math behind cryptos and the blockchain. Traders are probably mathematical, too, but since Bitcoins are created through tech, the nerds saw the significance much earlier. For the early nerds who got rich, it was a knowledge-based investment—merit-based. Some of those nerds might even have been poor programmers, making a rags-to-riches story or two. 

In reply to by HillaryOdor

kochevnik RAT005 Wed, 12/27/2017 - 19:05 Permalink

Bank wealth is priced at the margin. Almost none of this Bank paper wealth is real. Bank has no value. Some people will succeed in getting other people's assetts. But most Bank holders will loose. The market has no liquidity relative to its value. Very possible it's being gamed by Bank elite trading back and forth with each other just to have a price published. There is no exit for the majority of people.

In reply to by RAT005

RAT005 kochevnik Wed, 12/27/2017 - 19:53 Permalink

Agreed, and popular notion is the banking system is a disaster.  Counter party risk, bail-ins, etc.  BTC has similar problems and no army to kill people if they try not to use it.  BTC could be a new cool currency but it isn't being used as a currency, and even at its slow velocity, the speed and cost to maintain the chain is consuming BTC and we aren't even out of BTC yet.  Some other Crypto with a better chain will render BTC nearly useless.  Then what?

In reply to by kochevnik

duo RAT005 Wed, 12/27/2017 - 19:37 Permalink

A currency that can process one transaction worldwide every 30 seconds isn't money and never will be.  A replacement for letters of credit for international shipping, maybe. Dutch sailing vessels brought Asian tulips to Holland.  People created the bubble in tulip bulbs.  Blockchain is the Dutch sailing ships of old.  Bitcoin is the first of many tulips.

In reply to by RAT005

overbet RAT005 Wed, 12/27/2017 - 19:53 Permalink

How retarded does one have to be to say something has no value that you can hit a bid on for $15k right now? I mean serisouly what the fuck goes through ones mind who says something so dumb? Theres a solid bid right now for millions of $ above 15k. The arrogance and ignorance is astounding. 

In reply to by RAT005

RAT005 overbet Wed, 12/27/2017 - 20:16 Permalink

How much BTC are you buying at $15K?  What will you do with any BTC besides sell them? What is the amount of BTC used to purchase hard goods each year compared to it's market cap?  Have you sold anything in exchange for BTC?  Would you be willing to accept 0.666 BTC for selling your $10K car if you had one?  How would your comfort level compare to receiving 8 oz of gold for the car?Do you have any friends interested to purchase any of your BTC?  Have you purchased any BTC from someone you know personally?A market with some bid/ask spread and a little bit of volume does not completely define value.  It sounds more like a casino to me.

In reply to by overbet

RAT005 overbet Wed, 12/27/2017 - 20:59 Permalink

That is not a BTC market.  That is a futures market for the future price of BTC in the real BTC markets.  None of those offers are to buy or sell BTC.  It is no different than betting on the outcome of a sporting event.  A certain score at a certain time.Futures, Options and derrivatives exist for other worthless things.  It happens.  The $US has lost some 99% of its value but we are all excited to have a big pile of $US.

In reply to by overbet

threeputting overbet Thu, 12/28/2017 - 00:33 Permalink

They've been beat over the head with the fallacy that gold has 'intrinsic value'. It's bullshit, there is no such thing.

Gold has value because we all agree to use it as a store of value. It was chosen, because of it's scarcity and resistance to counterfeiting, to be the store of value. Just like bitcoin is being chosen, to be a sort of gold 2.0. Same scarcity, same resistance to counterfeiting, but more portable and transferable instantly to anywhere across the globe.

We choose things to become stores of value based on their characteristics. Gold was the best option we had for thousands of years, and is still the ultimate hard currency/store of value. And now we have an electronic option with a few different key features, and people are embracing it. That's where it's value comes from. 


In reply to by overbet

RAT005 Bumpo Wed, 12/27/2017 - 20:17 Permalink

I don't care.  I find it fascinating. Herd mentallity by the people that criticize sheeple in other aspects of life.  It's a disaster waiting to happen.  There is no fundamental difference between BTC or any other existing Crypto or future Cryptos.  If the world is big enough for a few important Cryptos that get a lot of bugs worked out, some day they will evolve.  For sure current BTC1.0 is not it.  How does it survive when some brilliant guy 2 years from now makes something 50% better, you think he will give up so much of his fame to patronize all of the BTC1.0 holders with some discounted buy in?The distributed ledger as a way to enable some new types of global transactions is great, and improving......but it doesn't make a BTC worth anything.There is no way there is a very deep bid book for something that takes a few +30% dives.  It takes a lot of naked shorting in gold to get it to move 3% and the dirty fingerprints are left all over the place it's so obviously curropt.  BTC cannot be naked shorted and it suffers 30% falls while claiming a market cap in the billions.  There is no exit from that market cap for most people and BTC is not used enough as currency for people to not need an exit.At first BTC was magical and it seemed very powerful.  Now news of problems and limited future are popping up everywhere.  New Cryptos are desparately trying to solve the problems so they can be the next best thing.  BTC is trapped inside of itself.

In reply to by Bumpo

zebra77a RAT005 Wed, 12/27/2017 - 20:19 Permalink

All currencies are worth the gdp they represent.The US dollar is worth its circulating supply against the goods and services used for its exchange. Unfortunately circulating supply of US dollars has increased 20x vs a stagnant gdp and we see it in skyrocketing house inflation.As people black box their gdp into cryptos and become conduits of escape they will increase in value in a geometric expansion.  Considering you can buy a lambo for 10 bitcoin but $150,000 US dollars shows you which mechanism of exchange is holding value and which one is now waterdollars..

In reply to by RAT005

sessinpo RAT005 Wed, 12/27/2017 - 23:50 Permalink

No wealth is real. All is perception. 

What you describe ppertainsto all assets, not just bitcoin. 

In actuality there is plenty of liquidity as there is plenty of demand. Once that dries up, and it will some day, the liquidity will evaporate. 

Right now the game is still on. Wallstreet is getting in to then turn it over to mass retail. Same game with a new product that wil have the same result.

In reply to by RAT005

3LockBox RAT005 Wed, 12/27/2017 - 18:36 Permalink

This article is freaking hilarious. It is just plain wrong about so much trying to frame the alcolytes as being a certain way.Just another manipulative piece of BS to try to pump some more.Mama's xmas gift money and the xmas bonus have been spent so the bounce is over.It is going down but I am sure the pumpers have a few tricks up their sleeves. 

In reply to by RAT005

Bumpo 3LockBox Wed, 12/27/2017 - 20:01 Permalink

Wallstreet has to buy Bitcoin like the rest of us. Futures are a joke. You act like Crypto and Stocks play in the same sandbox. They don't. After a parabolic run, a pullback is appreciated. Look at the charts. Pullback, retrace, stabilize, fill the gap, chop sideways, move higher. You act like Bitcoin hasn't already gone through this several times this year. Enjoy your stocks and bonds, which are truly overpriced. Hoping for Precious Metals to be seen as hard crypto this year.

In reply to by 3LockBox

3LockBox Bumpo Wed, 12/27/2017 - 20:30 Permalink

Of course because it has retraced again it will always just keep going up.It is impossible to keep going down.Geez how else would I be able to do transactions with everyone all over the world because I am always sending payments to someone in Timbuktu. <s>HahahaSoon even the total gullible will be able to see it is worthless.Not backed by anything, traceable, seizable, able to be stolen, taxed, charged fees, frozen, used to buy very little. All these things that you all swore they were good for over the last few years.The only thing it is good for right now is your greed. When that changes (which it looks like it may be happening)it is over...just like any other mania.This article makes you all out to be a bunch of cool rebels...which would be cool if true...The reality is that you are either fools or just greedy. 

In reply to by Bumpo

EddieLomax RAT005 Wed, 12/27/2017 - 18:59 Permalink

The thing that will make it all different is if people can actually find a use for the things.I have no use for bitcoin today, its less efficient than current transfer methods and also has no insurance that is implicit with the current system.Until that changes I'm not interested, its just a bubble, money has no value yet people are buying this up with the idea that money=value, it doesn't, it just needs to be a stable unit of exchange.  Bit coin can never be that until its value stabilizes+it works efficiently+its insurable.

In reply to by RAT005