bitcoin and cryptocurrencies

Posted: December 14, 2017 in Uncategorized

(extract from my newsletter)

 

Bitcoin has been created in 2009, just after the GFC.

There are only 21 million (theoretically) Bitcoin in existence and the smallest size is one hundredth millionth of Bitcoin (Satoshi- the name of Bitcoin founder). But there are over 900 cryptocurrencies (more than the number of normal currencies). As a market cap, if it was a stock, would be 16th company in the world. Within the currency world it is so small it is not funny. And there are more than 900 cryptocurrencies. Adn yes the bubble, in value, surpassed the famous Dutch Tulip bubble.

To buy bitcoin you need to have a wallet or a vault – different level of security (none as secured as a bank).

The recent volatility in the value of cryptocurrencies is a warning. The primary function of any currency, crypto or otherwise, is to be a reliable store of value. With rampant speculation and competition from alternative cryptocurrencies having a large bearing on the setting of value, cryptocurrencies are far from being a reliable store of value.

While it is over $10,000(!!) a few investment companies found a way to short Bitcoin. I am not predicting doom, but I remember in 2007 a few investment professionals found a way to short the US real estate market just before the top. In a Bloomberg article I read that US hedge funds are building capacity in their AI machines for Bitcoin. If you read my previous letter “The rise of the Machines” you should be scared -but the machines probably will start a trap first. It all starts Monday 11 December at 11am AET.

Although I cannot advise on it – due to rules, it can be bought in the SMSF and it is subject to normal ATO taxation.

Any investment should be treated as a “frontier market”. Invest only what you can afford to lose.

In my opinion, you should treat it like Amazon 2000 – in 2000 if you bought the top 10 NASDAQ stock pre-crash you would have remained with just 1 stock by 2002. But that stock was Amazon.

In November 2018 – 80% of crypto-currency transactions occurred in China, Vietnam, South Korea, Taiwan and Japan. Typically these populations behave in a “momentum fashion” (everybody copies everyone). In effects Bitcoin and the rest is behaving much more like a commodity than a currency. If so, what commodity is it? Lack of trust in Government? That would explain why it is so high. But can “lack of trust” be a commodity? Philosophically Interesting.

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