Ye Olde Mystery economic theatre 2014

[ewmayer]

Originally Posted by Fusion_power

I need to print this out and frame it. I think Richard just caught Ewmayer in a Faux Pas. Almost.

My bottom line was not in doubt - only the details of the post-debt-ceiling-showdown debt additions were speculative. From my OP on the subject:

Originally Posted by ewmayer

I believe much of that "frontloading" is the result of the aforementioned debt-ceiling-related accounting games, but bottom line: Either FY2013 debt addition [with debt-ceiling money games accounted for and rolled back into the FY2013 numbers] was in fact much more than $632 Bln, or FY2014 is on target to be much worse than the official estimates. You can't have it both ways.

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Bye Bye Mt. Gox: Bitcoin Exchange Website Appears to Have Been Deleted; Value of MtGox Bitcoins Plummets to $135

I am curious as to the methodology behind the $135 "valuation" - how do you assign value to something which only existed on an exchange which now appears to be shuttered?

Other major BTC exchanges are trying hard to pass this off as a "single bad actor" - if so, it was a big one, as far the BTC universe goes - but combine the inherent "purely speculative vehicle" aspect of BTC design with an almost utter absence of any form of regulation such as applies to stock and commodity exchanges, you have an ideal vehicle for fraud by folks who set things up and thus "mined" their own stashes of BTCs at effectively zero cost.

[kladner]

I look forward to LaurV's take on this.

[ewmayer]

Originally Posted by kladner

I look forward to LaurV's take on this.

Meanwhile, over at PumpAndDump-R-Us, erm I mean ZeroHedge, which like Mish only late last year began revising history to "...we were very skeptical from the start...", the crowd of BTC bagholders/pumptards are busy pushing the meme that "no one with a clue used Mt. Gox anyway." So just how did Mt. Gox become the world's largest BTC exchange, handling over 1/3 of transaction traffic before their recent "technical glitch" problems surfaced? A lot of cluelessness out there - but not among sophisticated, well-informed ZHers, thankfully.

Now, ZH was a much worse offender than was Mish on the "pump first, ask questions later" front, but Mish's above-linked post states:

"I was never at ease with the idea of bitcoins, and this fiasco certainly makes me happy I am not involved with Mt. Gox."

Here is Mish's "come to Jesus" [pronounced in proper latin fashion as "Hey-Sooss" :] moment from 29. April 2013:

Mish Interview With "Bitcoin Jesus"

Of all the topics that readers have pleaded me to write about for months but I never did until now, "bitcoins" are at the top of the list.

In private emails, I stated on many occasions "bitcoins are a scam". I now take that back, "scam" is not the correct word. Others whose opinions I highly respect, state the same thing.

For example, Geoff Turk at GoldMoney stated in an email response:

"I have spent quite a bit of time researching Bitcoins and have not found anything scam-like about them. Price volatility is another matter, and that is a result of an increasing demand for a relatively scarce resource. There may be individuals attempting to manipulate the price in some way, which we know is possible in any small (or even not-so-small) market. However, in my opinion the Bitcoin protocol itself is quite sound, and it creates an interesting hybrid of a commodity without corporeal existence that is nonetheless limited in supply."

That was not an endorsement of bitcoin, rather it was a statement that my labeling of bitcoin as a scam was incorrect. I agree, with apologies offered to bitcoin.

Here is an e-mail exchange I had with Mish about that -- I use ---- to organize the back-and-forth into e-mail pairs:

On Mon, Apr 29, 2013 at 2:16 PM, E. Mayer <ewmayer@aol.com> wrote:

Gotta disagree -
So long as there is no transparent mechanism to ensure that the fiat accrued by the initial "miners" never re-enters the economy except via reverse exchange (bitcoins pulled from circulation in exchange for fiat), it's a scam.

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On Apr 30, 2013, at 1:10 AM, Mike Mish Shedlock wrote:

What's the scam?
They disclosed the algorithm
They disclosed what they are doing and why
There are no false claims
There is no debt
No more bitcoins are lended than exist
This does not make the investment idea any good, but it is not a scam
Goldmoney agrees


On Tue, Apr 30, 2013 at 1:34 PM, E. Mayer <ewmayer@aol.com> wrote:

The scam has nothing to do with the algorithm - it has to do with how the initial issuance of any fiat currency - be it a sovereign's fiat or digital fiat - occurs. One could refer to this as the "currency initialization problem". When an existing sovereign issuer of currency (or consortium thereof, as occurred with the Euro) introduces a new currency, this is via a well-defined set of procedures involving a defined changeover period and a fixed exchange rate for said period, presumably one which leaves the total money supply as measured by the exchange rate constant (although new currencies which also represent a step-function devaluation are also possible). Beyond the end of the changeover period it may still be possible to exchange the old fiat - in fact there are many reasons to make the window open-ended - but then it will be at a floating exchange rate, and it typically gets more difficult to offload the old fiat as time goes on, except for units thereof having historical and collector value, or intrinsic metal-content value.

Now a bunch of guys construct a new "stateless digital currency" and get a bunch of folks to exchange their "soon to be worthless fiat" for units of their creation. What is to prevent them from simply spending the fiat, at the same time folks are trying to spend the digital currency it paid for?

-E

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On Apr 30, 2013, at 12:22 PM, Mike Mish Shedlock wrote:

Well

Goldmoney and the guy who taught me Austrian economics both agree it is not a scam.


On Apr 30, 2013, at 12:36 PM, E. Mayer wrote:

I care less about who-agrees-on-what than I do about the actual *reasoning* involved.

Please feel free to fwd my "counterfeiting" note to them - I'd be interested to hear their reasoning on that point.

I must correct one error on my part - I should have described the bitcoin-init issue as "one obvious scam", not as "the scam". But all the other various scams stem from the "money for nothing" initialization aspect.

[LaurV]

Originally Posted by kladner

I look forward to LaurV's take on this.

I didn't sell, if this is what you want to hear. Few coins from what I have are mined (so, got for free, except the electricity), and the rest of them were bought long ago, when the price was $13 (about Nov-Dec 2012). No big loss if it goes to zero. One of my friends advised me to sell when is was $1100, and buy back at $800 (he said it when it was 1100, not after it dropped to 800). I was dickhead and didn't listen, and I told him I will buy more at $500. I am still waiting for it, but now, with the last developments, I say to myself that I will buy more at $200, haha... I tried to buy more at 200, two weeks ago when the spike which ewmayer described** happened on the graph, but I did not succeed, due to the limited speed and time frame.

Anyhow, I see it stabilizing somewhere at $600 for a while. And I am still not selling.

Sorry to disappoint you.

I still see bitcoin as the "destroyer" of the current banking system. He or one of his children will succeed in doing that. Hopefully, we may not see this, but our children will. Yes, we agreed that bitcoin is not perfect, it has many problems, it has many enemies, who may lose their control in a bitcoin-controlled society, those enemies are heavy loaded and well armed, and they may succeed to kill the bitcoin on the way, but some of his children (other electronic currencies) are already better adapted, and we believe in evolution law. Which is good, in my opinion. It would be very difficult for someone to label me as a racist, but if someone would have to do it, than the sub-race of bankers is the one I hate most, inside of the bigger race of thieves.

** for clarity: there was a "spike" to $110 or so on Feb 10, for 5 minutes or so, and after that, the price went back in charts. I see this as a good move. I repeatedly stated that bitcoin is not for speculators, and idiots wanting to get rich overnight do not help the coin. Contrarily. Now they got what they deserved (spikes like those are common in forex, for example, not so high, but in both direction, after a NFP anouncement, it is nothing magic in it, only to give fuel to nay sayers; bitcoins can't be sold short, so here is more difficult to have upward spikes, but down spikes are good, to sweep away the speculators who want to take advantages of bitcoin)

[kladner]

Originally Posted by LaurV

I didn't sell, if this is what you want to hear. Few coins from what I have are mined, and the rest of them were bought long ago, when the price was \$13 (about Nov-Dec 2012). No big loss if it goes to zero. One of my friends advised me to sell when is was \$1100, and buy back at \$800 (he said that when it was 1100, not when it dropped to 800). I told him I will buy more at \$500. Still waiting for it, but now, with the last developments, I say to myself that I will buy more at \$200, haha...

Anyhow, I see it stabilizing somewhere at \$600 for a while.

I had no particular expectations. I just remember that you have some involvement. You often have interesting viewpoints, so I wondered.

[LaurV]

I (heavily) edited my post during the lunch break. You may want to have a look again.

[kladner]

Originally Posted by LaurV

I (heavily) edited my post during the lunch break. You may want to have a look again.

Sorry to disappoint you

.

No disappointment here. You explain some very interesting things for me. Thanks!

[cheesehead]

Originally Posted by ewmayer

But all the other various scams stem from the "money for nothing" initialization aspect.

Yes, "money for nothing".

Suppose that ownership of a bitcoin entitled one to exclusive knowledge of the mathematical result associated with it. Further suppose that this knowledge were deemed valuable enough by a few collectors for them to pay more tangible money for that ownership. Then there would be a slender connection between a bitcoin and something real (knowledge), even though the knowledge itself were materially insubstantial compared to, say, a gram of gold. We certainly think some kinds of knowledge are valuable enough to, e.g., pay tuition to a school in return for that school's imparting that knowledge to a student.

I've heard nothing about anyone's thinking that the mathematical result associated with a bitcoin is valuable enough knowledge to be worth offering more tangible money for one.

OTOH there have arisen markets in which one can purchase various real items in exchange for bitcoins. The sellers seem to think that bitcoin ownership has some material value. As long as the latter exist, there can be a monetary value associated with bitcoins. However, there is a legal cloud over this, and it's conceivable that the bitcoin value will collapse as a result of some governmental entity's attack.

I'm reminded of a situation somewhat similar, but where the "money" is for something slightly more tangible than the "cost of electricity and time to produce a certain mathematical result" that bitcoins represent.

The Hollywood Stock Exchange (hsx.com) has been operating since 1996. It freely hands out "HSX$" which can be used to play at buying and selling "MovieStocks" (and other "financial" HSX entities) by folks interested in the movie industry, or just interested in playing a game. For folks who enjoy that game, the exclusive possession of the combination of a registered user name and its associated password has entertainment value because it allows access to the game. But one can obtain those for free by registering as a new user and receiving the standard amount of HSX$ 2 million that HSX gives each new registrant.

However, some players have, after perhaps a few years, accumulated a net "worth" of hundreds of millions or even billions of HSX$ by trading in the MovieStocks and other HSX financial entities. This HSX value represents a lot of effort by the player. So, there have been transactions (outside HSX) in which a HSX player with a high "net worth" has sold his username+password combination to someone else in return for regular money. The purchaser then got to play with far more HSX$ than the measly standard initial HSX$ 2 million, but expending no effort to acquire the hundreds of millions of HSX$ that the seller had built up by long game-play. (Of course, the purchaser is advised to immediately change the password!) That time-and-effort was something tangible.

If bitcoin ownership enabled one to have exclusive access to something that represented real personal effort (rather than merely a computer's chugging away for a thousand hours), then that would give it a more stable basis of value.

Suppose HSX offered to sell, to its bitcoin-owning players, bonuses of several millions of HSX$ beyond the standard starting amount in exchange for bitcoins that HSX would promptly delete. That would cost HSX practically nothing, and take bitcoins out of circulation. But other players might disapprove, and HSX lawyers might object -- not to mention that Cantor Fitzgerald L.P., owners of HSX, might actually prefer to see bitcoins continue circulating.

[Nick]

Having "money" in the Bank of San Serriffe is directly related to knowledge!

[CRGreathouse]

Originally Posted by ewmayer

Mish's "come to Jesus" [pronounced in proper latin fashion as "Hey-Sooss" :]

IESVS would have been "YAY-soos" in Classical Latin, no initial aspiration. I think Vulgar Latin would be closer to "YAY-sos" (the vowel from "so" rather than "glue").

[xilman]

Originally Posted by CRGreathouse

IESVS would have been "YAY-soos" in Classical Latin, no initial aspiration. I think Vulgar Latin would be closer to "YAY-sos" (the vowel from "so" rather than "glue").

And probably closer to Yeshwa or Yeshuwa in the Aramaic (almost certainly) spoken by the guy in question.