Gold News

Bitcoin: Lighter Than Air

So the perfect 'asset' for this bubble in everything...

BITCOIN blew by another milestone, writes Bill Bonner in his Diary of a Rogue Economist.

Last week, the world's first cryptocurrency hit a new record above $10,000.

It started off the year trading at just $997.

"I can't believe what happened," said a friend.

"I bought $1000 worth in 2012. Bitcoin was trading at about $8 at the time. Then one of the big cryptocurrency exchanges, Mt. Gox, was hacked and almost $500 million worth of Bitcoin was stolen. I got out.

"If I had just held onto my stake, it would have been worth more than $1.2 million today."

You hear stories like that all the time now. They are bull market stories. The hero regrets having sold too early.

Later on come the bear market stories when he regrets having sold too late.

But let's enjoy the bull stories now...while we can.

The typical story has its hero...and its villain. The hero bought Bitcoin when everyone told him not to. Now he's regarded as a genius. Even his father-in-law is asking his opinion on everything from politics to cocktail recipes.

Last week, the geniuses multiplied...

From what we can tell, Bitcoin is headed to the moon. Or to Hell.

Weightless...frictionless...why not?

If it hit $9,000...why not $90,000...or even $900,000?

Bitcoin is a perfect "investment" for the fake-money era. Lighter than air. Not here; not there. Neither animal, vegetable, nor mineral.

Immaterial. Implausible. Imponderable. And immeasurable. There is nothing to hold it back.

Almost all assets are overpriced or fraudulent – usually both. Something was bound to soar to the top of this gassy heap. Why not Bitcoin?

Stocks have been bid up to the sky by fake money from central banks.

Management teams took the Fed's super-low-interest-rate loans and pretended to be investors – buying back and canceling shares in the corporations they run to boost earnings per share.

Unbelievably, the only net buyer of US stocks since 2009 has been corporations themselves!

Earnings were faked, too, using "non-GAAP" adjustments to make it look like they were more profitable than they really were.

The third quarter of this year may have set a new record. Of the 30 Dow companies, 14 reported "adjusted" earnings, rather than using the old-fashioned Generally Accepted Accounting Principles (GAAP).

And those 14 companies reported adjusted income 26% higher than the GAAP numbers would have shown.

One case, drug maker Merck, stands out. It took a loss of 2 cents a share and turned it into a profit of $1.11.

How did it do that?

We don't know exactly, but the usual magic depends on declaring certain expenses "one-time-only outlays that might give investors a misleading picture of the regular and usual earnings of the business."

That gets you through one year. Then, the following year, you find other mistakes that you swear you will not repeat.

In smaller companies – especially in the tech sector – the practice is even more extreme.

Twitter, for example, showed a loss of $21 million in the third quarter. But with a little hocus-pocus on the ledgers, it was able to turn that into non-GAAP earnings of $78 million.

Bitcoin is perfect for this kind of market. It doesn't have to deceive investors about its profits. It has none.

And, of course, the statistics and metrics we use to keep track of the economy have also been faked.

The feds claim full employment when there are more working-age men without jobs than ever before. Consumer price inflation is seriously miscalculated – as everyone who goes shopping knows.

We don't shop often. But the other day, we bought a pomegranate. It cost $2.50. The lady at the checkout was appalled. "Do you still want it?" she asked.

"Real" (inflation-adjusted) GDP is still rising modestly, but only if you adjust it by the fake inflation number. If you applied a more realistic figure, it would show the US economy in recession for the last 10 years.

Meanwhile, the world's governments go further into debt on the fake premise that they will pay it back.

Bitcoin has no debt problem, either. Nor does it have any of the fake qualities of other investments. It is 100% real...or at least 100% not fake.

It has no sluggish, greedy management to mess up the company's rising material costs to squeeze its wages to bonuses to pay...none of the things that pinch profits.

And it doesn't have to tell lies. The truth is strange enough.

One new crypto "coin" was called UET. Its promoter explained the investment thesis as follows: "You're gonna give some random person on the internet your money."

UET stands for Useless Ethereum Token – a reference to the second-largest crypto asset by market value, Ethereum – and has a logo with someone giving you the middle finger.

Nevertheless, it still trades...for approximately nothing.

Here at the Diary, we've been skeptical of Bitcoin...but ready to be impressed.

Our sons think it's the real deal – le dernier cri in money circles. They took some of the family money and invested it in cryptos in June. In less than five months, we're up more than 200%.

There's nothing like success to stop the learning process. You don't ask questions when prices are rising.

Still, we can't help but wonder. Maybe the mysterious creator of Bitcoin, Satoshi Nakamoto, was a genius. But it's unlikely that there are so many others.

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals