In Search of the Perfect Investment

A reader wrote:

Harry, As pure speculation I bought about $1000 worth of Bitcoin about a year ago. It went up about 500%. I overlaid the tulip bulb bubble on top of the Bitcoin chart. I sold. I am waiting to see what happens. The only argument against Bitcoin being simply a bubble that makes sense to me is related to the ultimate limit on the number of coins. But still timing is everything on bubbles.

Here’s the latest chart on bitcoin pricing. It’s from BusinessInsider. Click here.

I opened an account with Coinbase.com this morning and, despite not sending them any money I received some good news:

I’m having trouble figuring the “logic” of bitcoin. I found this on Quora.com in answer to the question “Why does bitcoin keep rising in price?” It comes from Robert Doell, a young computer “technologist.”

1. More people are becoming aware of what Bitcoin is; it is leaving the realm of techie hobbiest and entering in to the mainstream conciousness. Not only as a viable currency, but what it means to ‘store value’ outside of normal methods, e.g., cash, banking, investments, stocks.
2. The technology it rides on (blockchain) is the enabler of digital transaction transparency. Blockchain based technologies outside of digital currency are validating what Bitcoin is by proxy. With more understanding of how blockchain can be used to promote future technology solutions, Bitcoin and other currencies naturally fall into the conversation as examples. (If I had to describe Blockchain in one sentence it would be: Blockchain is a technology that establishes trust across anonymous parties by subscribing to it thus enabling integrity of transactions of data across third parties.)
3. Competition for ‘leap-frogging’ Bitcoin is not succeeding (other crypto-currencies) yet they are also being used for storing value as an alternative. Part of the natural evolution of Bitcoin’s adoption tends to be related to its decentralized, non-regulated, and open source development consensus. Bitcoin developers and the community have faced security challenges, implementation and scalability challanges, and adoption by traditional banking challanges. Facing all of these challanges, Bitcoin remains to be the most stable and viable ‘future-reaching’ currency.
4. Like any technology, it can be used for good or evil. In Bitcoin’s infancy, it faced usage as a way to launder money, a way to purchase illict goods and services that was untraceable, and of course corruption by early providers of services that would exchange money for Bitcoin. Bitcoin has lived through that phase, not that those things can’t happen anymore – but because people begin to realize that all of those things can happen with any currency or exchange, and when it becomes a mainstream method of payment all of these ‘scary’ events that threaten it are actually free advertising for it. (e.g., refer to last week’s ‘Ransomware’ attack that made mainstream news media headlines. The creators of the malware that holds your data hostage, used Bitcoin payment as a method to ‘unlock your attack’. The security community is suggesting that it is cheaper to pay than to throw other resources at the problem. So you get two things out of this: 1. many more people becoming aware of Bitcoin and 2. Companies scrambling to figure out how to obtain Bitcoin and actually use it to avoid nuisance.)
5. Finiancial institutions (and Governments) around the world have been and are aware of Bitcoin and are currently trying to figure out a way to ‘buy-it-out’ and establish thier own controlled replacement crypto-currency. While efforts to do this havent yet succeeded, the fact that they havent yet is a good indicator that an ‘open-source’ non-regulated digital currency still wins. Many finiancial institutions are starting to offer services that interface with Bitcoin (see Fidelity & Bitcoin IRAs news this week). As more and more big players whether they be financial, retail chains, or even governments (see how countries around the world that face hyper-inflation risk with their current money systems are letting Bitcoin into thier midst to help solve the problem of instability.)
6. Bitcoin is Bitcoin. The original crypto-currency. No matter how many competitors show up to play, they have to compare or relate to the main brand.
7. People want to believe in a safe investment, a new technology that replaces banking, a method of exchanging value for goods or services that offers integrity and reliability in a time where our privacy is disappearing.

You’ll notice that my successful bitcoin speculator (above) overlaid bitcoin prices on tulip prices. This led me to Wikipedia on Tulip Mania. An excerpt:

As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the virus, and prices rose steadily. By 1634, in part as a result of demand from the French, speculators began to enter the market.^[29] The contract price of rare bulbs continued to rise throughout 1636, but by November, the price of common, “unbroken” bulbs also began to increase, so that soon any tulip bulb could fetch hundreds of guilders. That year the Dutch created a type of formal futures market where contracts to buy bulbs at the end of the season were bought and sold. Traders met in “colleges” at taverns and buyers were required to pay a 2.5% “wine money” fee, up to a maximum of three guilders per trade. Neither party paid an initial margin nor a mark-to-market margin, and all contracts were with the individual counter-parties rather than with the Exchange. The Dutch described tulip contract trading as windhandel (literally “wind trade”), because no bulbs were actually changing hands. The entire business was accomplished on the margins of Dutch economic life, not in the Exchange itself.^[30] 

By 1636 the tulip bulb became the fourth leading export product of the Netherlands, after gin, herrings and cheese. The price of tulips skyrocketed because of speculation in tulip futures among people who never saw the bulbs. Many men made and lost fortunes overnight.^[31]

Tulip mania reached its peak during the winter of 1636–37, when some bulbs were reportedly changing hands ten times in a day. No deliveries were ever made to fulfil any of these contracts, because in February 1637, tulip bulb contract prices collapsed abruptly and the trade of tulips ground to a halt.^[32] The collapse began in Haarlem, when, for the first time, buyers apparently refused to show up at a routine bulb auction. This may have been because Haarlem was then at the height of an outbreak of bubonic plague. While the existence of the plague may have helped create a culture of fatalistic risk-taking that allowed the speculation to skyrocket in the first place, this outbreak might also have helped to burst the bubble.^[33]

Here’s Wikipedia’s price chart:

Like moths to lights, Wall Street is climbing all over bitcoin.

Here’s a May 23 piece by Sumit Roy writing in ETF.com.

Bitcoin Flying As ETF Gets Second Shot

Would-be bitcoin ETF investors are in wait-and-see mode as the Securities and Exchange Commission reconsiders whether to allow the first bitcoin exchange-traded fund to come to fruition. To the dismay of many, the SEC rejected the Winklevoss Bitcoin ETF (COIN) in a March 10 decision, citing a lack of regulation and surveillance-sharing agreements between exchanges.

Bats Global Markets, operator of the exchange on which the ETF would trade and which is owned by the same parent company-CBOE-as ETF.com, responded to the SEC’s verdict by filing a “petition for review” of the disapproval on March 24.

Bats argued that the commission’s initial conclusion “is clearly erroneous,” “inconsistent with prior ETP [exchange-traded products] approval orders” and that “the manipulation concerns … are overstated and largely theoretical.”

Bats urged the SEC to approve its proposed rule change, which would open the door to the listing of the ETF and “provide investors access to bitcoin through a regulated and transparent investment vehicle.”

On April 24, the SEC agreed to consider Bats’ petition for review, and asked for public comments on the original disapproval order. The last of those comments was submitted on May 15, setting the stage for a new round of deliberations by the commission.

High Bar For Approval

Though hopes are high that the bitcoin ETF will eventually be approved — public comments on the fund have been largely positive — analysts aren’t confident the SEC will turn around so soon after its previous negative ruling and suddenly give it the green light.

Spencer Bogart, managing director and head of research for Blockchain Capital, is skeptical that the SEC will change its tune on the bitcoin ETF.

“Their reason for disapproval was the underlying markets for bitcoin, which haven’t changed in the weeks since they made their decision,” he said. “One of the issues was that Bats hadn’t set up surveillance-sharing agreements with the major exchanges on which bitcoin is traded, with the purpose of identifying and stomping out market manipulation. Even if they did, a lot of those exchanges reside in jurisdictions that don’t have much of a regulatory body that can go and take action against people that are doing something bad to the market.” ….

For the full article click here.

Will Harry Newton buy some bitcoin?

My answer: Not now.

I do find bitcoin more intellectually fascinating than gold.

Don’t Do Stupid, again

+ A close relative walked in his dark yard last night, tripped, hit his head on the ground and ended in hospital, on morphine and with a plastic surgeon visiting today. He’s a mess. Next time, he’ll carry a flashlight.

+ Another friend tripped on a slippery floor in her home and ended in hospital also.

My intelligent friends walk slowly when they can’t see. They also hold the staircase’s handrail.

My intelligent friends also wait a few seconds after their red light has changed to green. Just in case some moron runs the read light. A remarkable number do.

Wonderful cartoons

Harry Newton, who spent all day yesterday being deposed by he SEC. I came away with the loud and clear message: Before you think of doing something stupid — something you’re sure you won’t get caught on, think again. These guys are serious and professional. I’m not being investigated.