Hedge fund warns White House is inflating crypto bubble that could wreak havoc
ft.com
ft.com
A bubble means prices are historically high relative to fundamentals -- that the part of the price explained by speculation is much higher than usual.
But crypto has no fundamentals. Its price is determined entirely by speculation. It doesn't pay dividends or interest that you can model a price on.
So the idea of an "inflating crypto bubble" seems conceptually incoherent. Sure you can say that crypto is only bubble, but that doesn't really add any information. The bubble can't be "inflating" since there's no ratio to a non-bubble version.
Here are some use cases that give it a non-zero value:
It competes with Western Union for money transfers.
It provides ways to transfer money to places and for things the US government doesn't approve of.
They aren't fundamentals, e.g.:
https://en.wikipedia.org/wiki/Fundamental_analysis
Money transfers aren't setting the value of crypto. They don't meaningfully affect the supply and demand, since the goal of a transfer is generally to hold the crypto for as short of a period as possible, to minimize price fluctuation risk -- so supply and demand are balanced without changing the price.
You can just say “facilitates crime”, it’s easier and isn’t doublespeak
Gold isn't a good investment, simply because gold miners keep making more, devaluing your holdings.
Bitcoins promise is that that cannot happen.
There is a finite amount of Bitcoin, and the amount of Bitcoin that will be injected into the market is deterministic by algorithm.
(Note that there are several old bitcoin wallets with "dead" bitcoins that could one day suddenly become active, which I suspect would have the same effect as finding a new goldmine)
The numerator for Bitcoin has an upper limit, but the denominator does not; it is functionally infinitely divisible with no loss of value. This doesn’t negate the argument, but mitigates it some.
This makes it a deflationary currency: your holdings should** become worth more over time due to the limited supply: as more people enter the market there are few coins to buy due to more people holding them and due to those that are inaccessible due to lost keys.
So, in the early days, the people running Bitcoin miners originally earnt money both on the fees on the few transactions but also on minting new coins. The algorithm was designed such that "miners" would transition to earning revenue entirely on transaction fees once all the Bitcoin had been mined, by which point the economy should be up and running. In both cases this encourages them to actually run the proof-of-work nodes that provide the distributed ledger.
* assuming there is no successful change to the algorithm, which would require concensus by those running the nodes.
** this assumes people want to buy it – that a better investment vehicle has not materialised – and that Bitcoin has not been outlawed or had cripling taxes applied to it.
Or a nation state that can outspend you on compute (or seize your compute for "national security" reasons).
When you buy gold, you are exchanging currency; when you buy Bitcoin, you are buying merchandise. It’s no different from buying limited-edition gorilla images.
the world is formed by a society, not by a block chain
btw
> because gold miners keep making more, devaluing your holdings.
do we live in the same world?
The US government holds ~200,000 bitcoins. Market value: $20,981,980,000
The US government holds 261,498,926 troy oz of gold. Market value: $11,041,059,957
So the US already has more 'value' in bitcoin than gold.
by what i know, the US reserves the most golds in the world, could be even more if you count IMF's also
but, once if the US reserve more btc than golds and use it for exchanges, surely and fastly, btc will become the new dollar, as soon as the US is still the hegemony
I think you may have gotten the wrong row when you looked up gold prices to calculate that value. That value divided by that quantity gives $37.88/oz. Prices that low have not been seen since around 1970.
Today's price is around $2800/oz, giving a value of $732,196,992,800.
This is just wrong. Ethereum for instance is fully self supporting in that the network collects enough in fees to pay its stakers without having to mint new coins over time.
This means Ethereum has income and pays out dividends, which means it has fundamentals as you can measure its income and money going out.
It most certainly has fundamentals in this regard. I encourage you to take a deeper dive into crypto if you think there is no fundamentals for all coins
If you holding that data means something, that's a whole other question though.
And yes we could easily destroy Bitcoin on a pure gov level.
I mean, there's nothing physically stopping someone driving on the wrong side of the road but laws punish people who do.
This is just engineers believing the world runs on technical possibilities not legal consensus.
Otherwise some bytes of my website are potentially stored on some tapes in a mountain.
The core point is that there is (essentially^[1]) nothing keeping the price up besides speculator interest. That means the price can collapse catastrophically. Saying crypto is a bubble is useful because it has the defining traits and dangers of a bubble.
[1]: The big exception here is that a lot of the price is also kept afloat by the absolutely ridiculous amount of financial fraud in this ecosystem. Most of the "dollars" chasing Bitcoin are fake, and it's still unclear how insolvent the big stablecoins are.
The little exception is that there is a minimum floor; Cryptocurrencies have some utility as a payment system, which would give them some value. But the market rate for consumer payments is effectively if not literally zero, well below the amounts required to operate the mining/staking systems these currencies require.
The original meaning of the word "bubble" (in the 1700s) was as a synonym for "scam".
(It now generally means over-inflated prices, which then 'pop' / deflate.)
the difference is, central banks are buying golds, but not bitcoins
I think it’s more like “an investment whose cash inflows are primarily driven by a feedback loop of higher prices and greater investment” — that is, investors’ motivations are detached from any NPV-like evaluation of the investment.
We really only know it’s a bubble after it pops. Before that it’s maybe less prejudicial to call it a speculative market.
This is the quintessential "we're in a bubble" red flag. (If you haven't lived through a bubble as an adult yet, you may be tempted to disagree. No judgement. I've been there.)
Irony notice: This comment contains irony.
I am not sure. Bitcoin mining has costs. So you can assign a price to this.
Gold mining has costs. Gold has some applications in industry and health, but mostly it is used as a "storage" of wealth and for jewelry.
Bitcoin, or any cryptocurrency, is built on the ashes of burnt electrons. The cost of burnt electrons to make a Bitcoin is slightly variable as the blockchain puzzle gets harder and new minting engines come online. Therefore, the cost of Bitcoin should not fluctuate as it does. This leads me to the conclusion that price fluctuations are solely driven by speculation.
I believe the same principle applies to stocks. A stock's fundamental value is the sum of all the company's assets divided by the number of shares. Every price variation is a psychological projection of fear or desire. It has nothing to do with reality.
The expectation of a x percent increase in the market over time is similarly based on projections rather than reality. Yet, we base our retirement funding on such insubstantial speculation.
Many people think of the stock and cryptocurrency markets as casinos. I think of them more like three-card Monte. You play, you get fleeced.
Anything can be priced and the price can be modeled.
Crypto valuation is what doesn't make sense because it is not a cash producing asset.
I don't know though if the price of crypto is more ridiculous than the price of an original Francis Bacon painting or a PSA 10 Michael Jordan rookie card.
The main issue for me with crypto is we haven't had a recession that was more than a blip since the bitcoin white paper. The price of Francis Bacon and Michael Jordan have been through some tough economic times. We will see how crypto does. Not something I want to find out with my own money.
https://en.wikipedia.org/wiki/Michael_Burry
https://fortune.com/2021/03/01/bitcoin-bubble-michael-burry-...
https://nymag.com/intelligencer/2021/10/why-the-big-short-gu...
Elliott Investment Management has previously called Nvidia's stock "overhyped"
https://en.wikipedia.org/wiki/Elliott_Investment_Management
Elliott is the hedge fund source for this FT article
https://finance.yahoo.com/news/hedge-fund-elliott-says-ai-13...
https://news.bloomberglaw.com/esg/elliott-says-nvidia-is-in-...
I guess maybe they shorted a little too much and now trying to save their own ass
I really don't think this is the correct way to view the 2024 elections. Incumbents did a bad job globally of addressing their constituents concerns (sure US has less inflation; that's like losing less limbs, still undesirable amount) and so lost to non-incumbents. It's not that non-incumbent had any great ideas for people to rally behind; it's that the incumbent had a proven poor record.
I'm struck by how the groups of young men, and gamblers, and vapers, and crypto bros are all a venn diagram that is mostly is just a circle, while even 5-ish years ago, that wasn't so much the truth.
A lot changed in America to its young men, not a lot of it good. Young men broke for Trump very highly in 2024, they also seem to be garnering these addictions and long term problems by the armload. And most of these addictions seem to be more 'private' than they used to be. I don't know what to make of it, but I just get a bad vibe for young men.
As with the air crash the other day, the problem with the system going down in flames is how many people it takes out along the way.
We're all susceptible to this "it won't affect me, because <insert-reason-here>" kind of thinking. Dimensions like "level of education", wealth, etc. don't really factor into it.
Exhibit A: https://www.bbc.com/news/articles/c79zxjj0j55o
excerpt below (Gabriela is an undocumented immigrant):
Some, like Gabriela, believe it won't impact them at all.
"I'm not scared at all, actually," she said. "That's for criminals to worry about. I pay taxes, and I work."
"In any case, I'm undocumented," she added. "[So] how would they even know about me?"
> The main argument for a Strategic BItcoin Reserve seems to be that Bitcoin holders worry about an impending shortage of greater fools and need the US government to act as the greatest fool of last resort.
The modern sovereign credit monetary system and the rise of financial innovation products have led most people into the illusion that "commodities are money." However, the truth is quite the opposite.
A very simple perspective: Bitcoin prices are highly correlated with the stock market.
However, this does not mean that cryptos are not worth investing in. It just means they are not inherently more magical than other virtual financial products—at least for now.
Stocks give you a legal right to the assets and future profits of a company - a legal right enforced by the government (i.e. men with guns).
Crypto gives you no such right. In crypto you just hope someone else will pay more for it later. In that sense crypto is similar to baseball cards, and slightly similar to gold (gold has some industrial “actual” uses, but its high price is really driven by cultural perception of value.)
If people lost faith, it would lose value.
Mild inflation (say 2-3pct a year) is considered generally good by economists. It’s an incentive to go and invest the money productively or spend that money on goods and services (which is good for growing the economy). Deflation in contrast would create an incentive to hoard money (just keep little papers with no productive value).
That’s a funny phrase and one that I think deserves ridicule.
Society should value savings, in fact historically prosperity is the result of savings and every fall from prosperity is accompanied by artificially low interest rates and low saving rates.
I don’t see how people would differentiate savings from hoarding when infinite compound debasement is supposedly the “smart” policy.
To be clear, I think people that say "hoarding" is bad, really mean to say that they think "saving" is bad and that they should identify as champions of consumerism.
If a company wants to expand and build a new factory (say to provide more, cheaper pharmaceuticals to more people), it needs capital. If you have cash but there’s deflation, you might just keep your cash under your pillow because it’s worth more every year. If instead we have an inflation, and so you have a disincentive to leave the cash under your pillow, you invest it (give to that company to fund its factory). That’s good for society.
There's a lot of "ifs" here with little evidence they're true or necessary.
Without examining all of the "ifs" let me just characterize the argument as fundamentally pro-corporation. I think it's better for society that corporations justify the money invested in them rather than artificially structuring the money such that people are forced to hand their money over to corporations as a form of wealth preservation because Paul Krugman said we'd have a Great Depression otherwise.
Financial derivatives such as options would be a better analogy, although I don't think anyone is currently buying stocks for the reason you mentioned.
Additionally, BTC and gold have fundamental differences, i talked abt it here and in other comments
People are most definitely buying stocks for the reason I mentioned. There’s a reason why the pension fund of the teachers of California, the pension fund of the teachers of Texas, and your 401k holds stocks. It’s not because they are collectibles with a lot of hype. It’s because they get a claim on future profits at (expected to be, on average, over the long run) a discount. Of course there are people who have no clue what they’re buying or why it works and just buy something… but that doesn’t mean the thing they’re buying doesn’t have a fundamental value connected to reality.
Want to reward your oligarch supporters? Pump bitcoin and AI and infiltrate the government organizations with the blockchain.
The oligarchs want data centers in Greenland (and feel like in a Tolkien novel, which is the whole scope of their education)? Threaten EU vassals to take it.
The EU needs to decouple from the dollar, get a strong nuclear arsenal and end taking instructions against its own interests. Block the large US tech companies, which are largely for entertainment anyway and trade with China, which produces real things.
Do people en masse suddenly decide they will never buy or sell crypto, because the price has gotten so high any % gains are going to be way smaller than other investments so what’s the point?
Will birth rates fall so much that the population of naive young people, who are the main buyers of crypto, won’t be enough to sustain the whole scheme?
One such scenario would be if crypto suddenly became a real threat to whatever fiat a country uses. If BTC became a legit threat to USD, you can be sure the gov. would do everything in their power to remove BTC.
Maybe a realistic example would be if, say, BRICS countries suddenly colluded to stop using USD, and only use BTC as a currency.
https://en.wikipedia.org/wiki/Pyramid_schemes_in_Albania
Crypto is different from things like housing (where the "bubble" is merely artificially restricted supply driving the price up, so it's a real price increase) or the stock market (Where the fundamentals are real enough that a crash in e.g. AI-stocks will hurt, but not be systemically-destructive. Nvidia, microsoft, etc are all still going to exist as very profitable companies)
Crypto bubbles aren't as bad as housing bubbles because everyone treats crypto as a kind of gambling but many rely on their property investments.