December 26, 2017
Even bitcoin must follow basic economic rules
Never invest in a business you do not understand.
If something appears too good to be true, it probably is.
Those are two wise and important rules to live by, and if you follow both, you’ll stay far, far away from cryptocurrencies like bitcoin, including the new bitcoin futures market.
This is a column I’ve tried to avoid because it takes time to understand blockchain technology and how immutable, distributed ledgers will eventually revolutionize commerce. Thanks to some basic cryptography classes from my Army days, I even understand how bitcoin is mined and its integrity is maintained.
Bitcoin does not, however, void the basic laws of economics. Strings of computer code will never become a true currency capable of holding value over time. And just as gravity holds us to the Earth, economics will bring bitcoin’s perceived value crashing down.
Proponents of cryptocurrencies love the fact that no government regulates or controls them. Bitcoin exist only as pieces of computer code stored on a ledger shared by thousands of servers around the world, and it only has value because those users say it does, not because a government guarantees it.
Unlike the dollar, which the central bank can print or take off the market as economic needs require, bitcoin are released at a standard rate per week. New bitcoin are awarded to the owners of the servers that maintain the ledger and perform difficult mathematical calculations, a process known as bitcoin mining. The bitcoin supply is determined by an algorithm.
Anyone in the world, meanwhile, can spend real money to buy bitcoin and anonymously trade it with other owners of bitcoin without anyone tracing it. That’s why bitcoin is popular among criminals, particularly extortionists, embezzlers and money launderers.
The value of bitcoin is determined solely by how much the owner of a bitcoin wants for it and how much a buyer is willing to pay. Prices vary widely based on which exchange is used, and most transactions take place in China, South Korea and Japan.
Some say bitcoin is the new gold, but you can’t bury bitcoin in the backyard, and there are no industrial uses for it. Bitcoin only exists on the shared ledger, where hackers can and have stolen it.
Others have compared bitcoin to the tulip bulb bubble of 1636. But that’s unfair, because you can store bulbs in the backyard, and if they lose financial value, you can still enjoy the flowers in the spring.
However, if a government, such as China, bans bitcoin, or everyone wakes up tomorrow and decides it is a fad, then it becomes worthless instantly.
There is no rational explanation for why bitcoin traded at 6 cents in September 2010, reached $3,025 in June and hit $17,513 at noon last Tuesday, according to Coindesk.com. That’s a lot for something that exists solely as a mathematical equation in a market that no single person or institution controls or regulates.
Traders also need to explain this: Why bitcoin and not one of the 800 other crypto-currencies that use the same technology? Why not litecoin, etherium, crypterium, titcoin or potcoin?
Human greed and ignorance are the only explanations.
Remember the late 1980s, when everyone said real estate could only go up? That led to the savings and loan crisis and the 1991 recession.
Remember the late 1990s, when everyone said dot-coms could only go up? That led to the telecoms-led recession of 2001.
Remember the late 2010s, when analysts said bitcoin would hit $100,000 in 2018? That was this week, after an unknown number of people already had $285 billion invested.
No sane person can look at bitcoin’s 1,600 per cent price increase this year and deny that speculators have taken over something that was supposed to be an alternative to official currencies for international transactions. The only way 15 per cent daily price gyrations happen is when investors are making huge bets and cashing in huge profits.
Some proponents believe Cboe’s decision to start trading bitcoin futures this week marks bitcoin’s entry into mainstream financial markets. The opposite it true.
The federal Commodity Futures Trading Commission regulates these markets, and Cboe, and beginning this week the Chicago Mercantile Exchange, must adhere to government oversight. Bitcoin exchanges that settle the futures contracts will also need to conform.
Widespread bitcoin adoption would also introduce unmitigated risk into global currency markets because you have to buy bitcoin with an existing currency. If central banks see bitcoin as a risk to the global economy, they will regulate it, shut it down or replace it.
South Korea’s prime minister, a deputy governor of China’s central bank, and regulatory officials from Japan and the U.S. have all warned investors and markets about cryptocurrencies, signaling their anxiety over what happens if the bubble gets any bigger. Of course, if they step in, the bubble will definitely burst.
So are people making money from trading bitcoin? Absolutely. Do we know when the bubble will burst? No idea. Should you try to ride the wave before it crashes? See above.
Related Stories
Latest News
Top news around the world
Coronavirus Disease

Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus.

Most people infected with the COVID-19 virus will experience mild to moderate respiratory illness and recover without requiring special treatment. Older people, and those with underlying medical problems like cardiovascular disease, diabetes, chronic respiratory disease, and cancer are more likely to develop serious illness.

Around the World

Celebrity News

> Latest News in Media

Watch It
Julia Fox defends viral ‘Uncut Gems’ interview moment: ‘I was stoned’ | Page Six Celebrity News
February 17, 2022
4m-p0_-ePd8
Alexia Echevarria pushed ‘RHOM’ producers to show more of son Frankie’s recovery | Page Six
February 17, 2022
E-wTaN9NfkI
Pete Davidson rejoins Instagram amid Kanye West drama | Page Six Celebrity News
February 17, 2022
SsC3dmsI6t4
Aaron Rodgers And Shailene Woodley Reportedly Break Up | TMZ LIVE
February 17, 2022
FoErdRE8Qe4
Chet Hanks Done Talking About Famous Parents, Becoming Personal Trainer | TMZ
February 16, 2022
5_UrULOkQ6o
Woman Stabbed at Foot Locker During Nike Shoe Release
February 16, 2022
TfuXMs1JdVg
Steph's Freaky Side, "Summer House" & "Love During Lockup"
February 17, 2022
9W_raO0zlA8
Tay or Nay, Offset's Sushi Anxiety & Nick on Monogamy
February 17, 2022
PauYHpJRA6o
Kim Kardashian & North West TWINNING in Matching Pajamas | E! News
February 17, 2022
b-_Oib6R108
Adam McKay - Hollywood Walk of Fame Ceremony
February 17, 2022
tYtzsHoOZzo
Tom Holland, Mark Wahlberg, and the Cast of 'Uncharted' Talk Most Challenging Stunts
February 15, 2022
d3ksX-SKi8c
Ryan Reynolds and Walker Scobell on ‘The Adam Project’, ‘Deadpool’, and Possible ‘Star Wars’ Role
February 16, 2022
5TxJsbJr9Dk
TV Schedule
Late Night Show
Watch the latest shows of U.S. top comedians

Sports

Latest sport results, news, videos, interviews and comments
Latest Events
04
May
CONCACAF CHAMPIONS LEAGUE: Playoffs
Seattle Sounders - Pumas
04
May
USA: Major League Soccer
FC Cincinnati - Toronto FC
03
May
ENGLAND: Championship
Bournemouth - Nottingham Forest
02
May
ENGLAND: Premier League
Manchester United - Brentford
02
May
ENGLAND: Championship
Fulham - Luton
02
May
SPAIN: La Liga
Getafe - Real Betis
02
May
GERMANY: Bundesliga
Bayer Leverkusen - Eintracht Frankfurt
02
May
GERMANY: Bundesliga
Borussia Monchengladbach - RB Leipzig
02
May
ITALY: Serie A
Atalanta - Salernitana
01
May
ENGLAND: Premier League
Tottenham Hotspur - Leicester City
01
May
SPAIN: La Liga
Barcelona - Mallorca
01
May
ITALY: Serie A
Roma - Bologna
01
May
ENGLAND: Premier League
West Ham United - Arsenal
01
May
ENGLAND: Premier League
Everton - Chelsea
01
May
ITALY: Serie A
Udinese - Inter Milan
01
May
ITALY: Serie A
AC Milan - Fiorentina
01
May
ITALY: Serie A
Juventus - Venezia
01
May
SPAIN: La Liga
Rayo Vallecano - Real Sociedad
30
Apr
GERMANY: Bundesliga
Mainz - Bayern Munich
30
Apr
GERMANY: Bundesliga
Borussia Dortmund - Bochum
30
Apr
ENGLAND: Premier League
Newcastle United - Liverpool
30
Apr
SPAIN: La Liga
Athletic Bilbao - Atletico Madrid
30
Apr
ENGLAND: Premier League
Leeds - Manchester City
30
Apr
SPAIN: La Liga
Real Madrid - Espanyol
30
Apr
ITALY: Serie A
Napoli - Sassuolo
28
Apr
ENGLAND: Premier League
Manchester United - Chelsea
27
Apr
CHAMPIONS LEAGUE: Semifinal
Liverpool - Villarreal
27
Apr
ITALY: Serie A
Bologna - Inter Milan
26
Apr
CHAMPIONS LEAGUE: Semifinal
Manchester City - Real Madrid
25
Apr
ITALY: Serie A
Sassuolo - Juventus
24
Apr
SPAIN: La Liga
Barcelona - Rayo Vallecano
24
Apr
ITALY: Serie A
Lazio - AC Milan
24
Apr
ENGLAND: Premier League
Liverpool - Everton
24
Apr
ENGLAND: Premier League
Chelsea - West Ham United
24
Apr
ITALY: Serie A
Empoli - Napoli
23
Apr
ENGLAND: Premier League
Brentford - Tottenham Hotspur
Find us on Instagram
at @feedimo to stay up to date with the latest.
Featured Video You Might Like
zWJ3MxW_HWA L1eLanNeZKg i1XRgbyUtOo -g9Qziqbif8 0vmRhiLHE2U JFCZUoa6MYE UfN5PCF5EUo 2PV55f3-UAg W3y9zuI_F64 -7qCxIccihU pQ9gcOoH9R8 g5MRDEXRk4k
Copyright © 2020 Feedimo. All Rights Reserved.