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Bitcoin's Costly Lesson

The Mooch is in? Time to bail, no...?
 
HERE at the Diary, we know nothing, writes Bill Bonner in his Diary of a Rogue Economist.
 
Our ignorance, of course, makes us humble. And our overweening modesty gives us an insufferable edge...
 
What follows is the tale of how it got sharpened.
 
Among the distractions last month was this from MarketWatch:
"Anthony Scaramucci, founder of SkyBridge Capital, and newfound investor in cryptos, predicted that Bitcoin would hit $100,000 by year-end, but suggested that investors be cautious about buying digital assets. The SkyBridge Bitcoin Fund LP has about $500 million in Bitcoins, Scaramucci said."
What does the former White House mouthpiece know about cryptocurrencies? Probably about as much as we do.
 
But Bitcoin seems to be entering its lunatic phase. And who are we to argue with it?
 
Backing up...here's dear reader, James F:
"Bill, as I recall, some time ago, at least some of your offspring were pushing Bitcoin. You poo-pooed the idea. They must now be gloating. I've never understood Bitcoin – seems like some sort of fairy dust to me. But I sure wish I'd bought some a few years ago."
Okay...here's what happened.
 
The boys wanted to use some of the "family capital" to invest in cryptocurrencies.
 
Were they convinced that cryptos were the currency of the future? Not necessarily. It seemed like a long-odds bet, even to them.
 
And your editor tried to talk them out of it. But the amount of money was relatively small...and we thought we might all learn something from their sandbox experiment.
 
Longtime Diary (formerly The Daily Reckoning) sufferers might recall that we were way ahead of the curve on cryptos. Back in 2012, our colleague, Tom Dyson, gave us a coin.
 
"What's this?" we asked.
 
"It's a crypto coin...a Casascius."
 
Hmmm...This was a puzzlement. Because there it was. Hard metal. It lacked the unbearable lightness of being that was supposed to characterize cryptos.
 
But we took the coin – then worth about $7 – in good grace, and thanked Tom.
 
Since then, we've lost track of the coin.
 
Which is a damned shame. Because it's now worth about $55,000.
 
It was around this time, too, that another of our colleagues – then living in Buenos Aires – decided to get into the business of mining.
 
Once, working late, we noticed a low hum...a whirring noise...coming from a room at the front of the office building there.
 
Opening the door, we found wires running across the floor to a bank of computers...with two fans blowing air on them to cool them down.
 
What were they doing?
 
"Oh," explained the colleague, a bit sheepishly, the next day, "we're mining Bitcoin."
 
Hmmm...
 
By that time, we had caught on to Satoshi Nakamoto's – the alleged founder of Bitcoin, who remains stubbornly anonymous – handiwork, at least in theory. But we were still very ignorant about how Bitcoin might be put to use.
 
A year or so later, we found ourselves in Paris, along with an Australian colleague, Vern Gowdie. Neither of us knew much about Bitcoin, but we were curious.
 
We had both suggested that our readers might want to buy a Bitcoin – then about $10 – or two, just to better understand the new money system.
 
To that pedagogical end – for us...and for them – we decided to video ourselves buying Bitcoin. "If we can do it," Vern commented, "anyone can."
 
Perhaps, he was right.
 
But buying Bitcoin was not as easy then as it is now. Even with the help of our young French assistant, Claire, the two of us stumbled over the instructions and, on camera, gave up.
 
My colleagues have helpfully kept the footage in the archive for all posterity to laugh at.
 
If only we'd been able to master the technical details, we might have bought a few coins. And for the price of a single dinner in Paris – with canard à l'orange, for example – we could have paid for our children's college expenses!
 
But while the nouveauté and complexity of navigating the crypto clouds was a setback for us, it proved no problem for Bitcoin.
 
And so it was...about three years ago...when the boys finally dragged us aboard the BTC Rocket, its price had already increased about 25,000%.
 
They bought Bitcoin at about $2500...as we recall...along with a few other cryptos we had never heard of.
 
We wrote off the investment as an educational expense...figuring that money was gone for good.
 
The future, we thought, was predictable. The boys would be humbled. The old man would say "I told you so," without moving his lips.
 
This was a sure thing, in our opinion...an easy case of old age and treachery triumphing over youth and skill.
 
But lo! Here we are with Bitcoin at $55,000 – and our crypto portfolio is up more than 20 times.
 
So naturally, pater familias – although proven wrong since the takeoff – is now quite sure this plane is going down. So he called the pilot.
 
"Shouldn't we bail out? Sell at least half. We could buy a nice farm in Virginia with that money."
 
A hen that appears out of nowhere should be grabbed and put in the pot before it gets away, we argued.
 
"Are you kidding?" came the response from the cockpit, or words to that effect. "These things are going crazy. Our Chinese crypto doubled this week."
 
We are all learning together. But so far, it seems to be one of those lessons that is best not learned at all.
 
Like learning how to get drunk and fly an airplane in a thunderstorm, it is a skill we might some day regret.

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, 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 more recently the election of President Trump.

See full archive of Bill Bonner articles

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