Bitcoin Is a Bit of a Miracle at Any Price

That is the title of my latest Bloomberg column.  Rather than giving you the main argument, let’s instead cut to the end:

The real story of bitcoin is a heartening one of community. Less than 10 years ago, the bitcoin asset was worth virtually nothing, but a small group of people believed in it and worked tirelessly to promote it, and now the whole world is watching. It’s a tale at least as old as Christ and the Apostles. Maybe the bitcoin believers are as much of a miracle story as that of the brilliant inventor Satoshi.

The thing is, I don’t always believe in miracle stories of community, not in these days of declining governance and possibly fraying social order. Yet I’ve become emotionally involved in tracking the bitcoin price, perhaps because I realize that if one such miracle of “ex nihilo” creation can be sustained, others are on the way. I don’t think bitcoin is a bubble, but every morning I wake up doubting.

More broadly the piece considers what should be the appropriate price for Bitcoin.


A lot of startups work like this, the value going from nothing to billions of dollars after a small, tireless group of people works on it. The difference with Bitcoin is that all the struggle has been public. Pretty fascinating to see its rise.

Its value is being convertible to USD around the world.

There even is a

"The real story of bitcoin is a heartening one of community."

HAHAHA, guess who owns the largest bitcoin exchange?

Even more assuming is how studiously Prof. Cowen has avoided the GPL, with its groundbreaking design to ensure that the community's work is protected from those attempting to take without sharing.

Amusing is better than assuming.

But when is it gonna bust?

Well, one would have to be a more intelligent man than Isaac Newton to get that right - '"Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he 'could calculate the motions of the heavenly bodies, but not the madness of the people.' Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in [2002-2003's] money. For the rest of his life, he forbade anyone to speak the words 'South Sea' in his presence."'

Isn't it obvious that Bitcoin has reached a permanently high plateau?

Thanks, I knew the basic story but this provides the numbers. I also didn't know about the forbiding anyone to speak the words ‘South Sea’ in his presence.

*no ship was ever built.

"Yet I’ve become emotionally involved in tracking the bitcoin price, perhaps because I realize that if one such miracle of “ex nihilo” creation can be sustained, others are on the way."

Looking on the bright side, I suppose this could refer to more than phantom currencies and a Dow Coin Average.

Or maybe cryptocurrencies are just part of an older story of open source, community development, and Github is still underrated.

Folding At Home predated Bitcoin mining as well.

Bitcoin is a crap way to utilize a global computing network for progress. It wastes computer cycles, electrical power, and human attention.

It is the first hybrid human-computer virus.

Will Tesla be making dividend payments in bitcoin?

Aren't most collectibles bubbles the product of a small group of enthusiasts?

In this case, Chinese businessmen trying to evade capital controls...

A new SEC Statement on Cryptocurrencies and Initial Coin Offerings

Is the regret not participating in a run up from 1000 to 19,000? Not being part of a community that is emotionally invested in assets? This seems like the ultimate marshmallow test.

It's been a while since we've had a real bubble. That 1999/2007 feeling when the scale tips and the skeptics are drowned out by the evangelists of the New Economy.

Bitcoin is a fad. The price will drop 90%+.

We'll look back and be embarrassed we ever fell for it. It is useful to circumvent international currency controls and transfer money across borders though.

"It’s a tale at least as old as Christ and the Apostles." Has Cowen gone over to the dark side? What Cowen is expressing is faith in markets, not faith in Christ. Rising asset prices is not the road to prosperity, it's the road to perdition.


Rising asset prices followed by global calamity is the status quo. It's what you get with runaway printing and fractional reserve. While there's no guarantee that it will not be thwarted one way or another, bitcoin was created to solve this problem. It wouldn't exist or be worth anything at all if monetary authorities weren't corrupt and incompetent in the first place. You should be praying for its widespread adoption.

OK, you see no irony in the claim that this bubble was meant to cure past bubbles?

A bubble to end all bubbles?

Hmm—you may be on to something there. "A bubble to end all bubbles." I like it!

We'll find out when we find out, like always.

I think there's a lot of stupid, easy money chasing Bitcoin at the moment. But the technology and processes are powerful and a lot of smart, forward-thinking people are taking a hard look at them.

Judas was paid 30 bitcoins.

By the high priest which today would be high finance.

'I don’t think bitcoin is a bubble'

One cannot recommend reading economic history enough, particularly when it is not written by an economist - - but instead by a person like this -

I've been thinking about the Mackay book as well!!! Two other great books that come to mind are William Gaddis's "JR" (admittedly a very difficult read but rewarding once you get into the flow of the dialogue) and Trollope's "The Way We Live Now" (available as a free read on Project Gutenburg: ); both satirize the foolishness of investing without thinking . Let's hope Warren Buffet skewers bitcoin investing in his next letter to shareholders in the same manner he did with gold several years ago. It's difficult for me to figure out how bitcoin can be anything but the "bubble to end all bubbles" as it really cannot be used for anything practical until there is limited volatility. Ask yourself whether you would use even a single bitcoin for a purchase transaction under the current conditions.

Imagine a world where bitcoin has achieved the destiny it claims - it has successfully scaled to a stable global currency that is broadly accepted and operates alongside traditional currencies. In that imaginary world, what is the price of Bitcoin and how would you have expected its price to behave between inception and its price at maturity? How do your expectations in the hypothetical differ from what we have observed of bitcoin so far in our world?

It's a fair question. I, personally, would have expected fewer blindingly successful alt coins, for one thing. I also would've expected an event that acted in some way as the "tipping point." If someone points at late 2016 on the BTC chart and says "So, what happened there?", I'm not aware of any story except the idea of Venezuelans using it, and I don't know of any empirics on the actual extent of that.

I get that you have a story for the alt coins, but I'm just saying -- as an alternative to your thought experiment, imagine a world where Bitcoin and these other cyber currencies were in a weird, unsustainable bubble, manipulated by unclear actors. I think that would also look a lot like this, personally.

(I own Bitcoin and alt coins but I just want someone to convince me I won't lose these gainz)

This is the sticking point.

Unlike all other previous currencies, Bitcoin has no alternative use (even gold can make pretty jewelry and useful electronics). Bitcoin has no purpose except as a means of exchange, which it is useless at if everything else is constantly deflating relative to it.

Also unlike all other previous currencies, Bitcoins are not arbitrarily divisible. There is no bitquarter, bitdime, bitpenny. That means that, the more expensive it gets, the less useful it is for generic economic exchange. Since there are way, waay too few bitcoins to be a meaningful currency right now, there is a significant categorical hurdle to jump before it becomes even a possible currency.

The long-run price of bitcoin is either (a) slightly less than it was last year, aka 2% price inflation measured in a bitcoin that is a stable global currency, or (b) completely worthless. We are very far from the long run, however, and many things can happen in the meantime.

So that was a defect in the design -- it can't handle the high volume needed to be an alternative currency. Now that we know the defect and have a demonstrated first attempt, it's time to introduce MRcoin, the first reliable and stable alternative to gold.

Bitcoin is in fact infinitely divisible, to the nth decimal place. It is far MORE divisible than any currency in history. You can't possibly misunderstand this basic fact.

And I don't think it has any real use as a currency, besides illegal transactions. But as a gold alternative (store of value) it may stick.

I'm wrong on that then.

How does that work, though? I had thought that each bitcoin represented a unique solution to the underlying equation. What, then, uniquely and securely identifies one particular satoshi?

In any event, its usefulness as a store of value is inseparable from its usefulness as a medium of exchange, since it has no other use. It thus represents, more or less, a gamble on the psychological state of future humankind.

@JB: gold is a similar gamble, but with better odds (actual intrinsic value)

That greatly improves the odds. There is a lower bound to the value of gold--its industrial/jewelry use cost.

Bitcoin, over the very long term, risks reverting to nothing more than an interesting math problem.

@JB indeed that but that is only a risk not a certainty. It's pretty fascinating to be around while this thing develops.

I don't know if you would call "wampum" a currency, altho it was a medium of exchange. There is no alternative use and the value of the wampum relates to the large amount of labor investing in its manufacture.

How does the watts/$ value compare for gold mining and/or transactions versus Bitcoin ?

The advent of derivatives markets in Bitcoin mitigates the problem somewhat, but the current energy usage figures bruited about appear out of proportion to the size of the Bitcoin market - and the resulting transaction costs seem rather high.

I went looking for current advice on home mining. Long story short, people move downmarket to less popular "coins" to find a better energy ratio. This too seems a Bitcoin vulnerability.

I think the whole game would be to pick the right penny stock, as it were.

Something else on the crazy diversity out there.

If Bitcoin crashes soft (reduced accounts), not hard (vanished accounts), a Dow Coin Average seems likely.

"Also unlike all other previous currencies, Bitcoins are not arbitrarily divisible. There is no bitquarter, bitdime, bitpenny. "

there is Sathosi:

The satoshi is currently the smallest unit of the bitcoin currency recorded on the block chain.[1] It is a one hundred millionth of a single bitcoin (0.00000001 BTC).[1] The unit has been named in collective homage to the original creator of Bitcoin, Satoshi Nakamoto.[2]

The only thing I understand less than bitcoin is BLOCK CHAIN. The two together is more than I can take.

Bitcoin, Ethereum, Litecoin et all are not the "bubble to end all bubbles" because that would be a contradiction of human nature which is unchanging. That would be like outlawing greed. Not gonna happen.

There will always be another bubble.

'There will always be another bubble.'

But this just might be the first truly global bubble, or possibly the first truly digital/abstract bubble.

Bitcoin right now is using the same amount of electricity as Denmark to process transactions. In 18 months it will use as much as the US. If you look at those figures and think there isn't a crash coming, well, I'm glad you're not managing my money. Also, the transaction rate is limited, so when large numbers of people want to get out the network won't be able to process transactions fast enough - the same effect as lack of liquidity in normal markets. This tends to make crashes even worse as people panic and can't get out.

Tyler is obviously a bitcoin investor. Every day he tries to get out.
Every day he fails.

Really it is valuable is being Bitcoin convertible to USD around the world.

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