Bitcoin

Climbing the Bitcoin Volcano

“Yeah, we’re probably safe,” my Czech friend Voltech said in his soothing peace-filled voice as we hiked Volcan Tunguahua outside the town of Banos in Ecuador.

He had this almost sing-songy tone, smoothly undulating up and down as he talked.

His words reminded me of what a tour guide once told me, “We always say the Volcano is sleeping, not dormant, because she can always wake up.”

Hiking up a volcan, versus a regular mountain I’ve found can be more steep because of the way it was created. Instead of tectonic plates pushing against each other, tilting each up at angles, the internal combustion of the volcano creates a steep cone. And this one had that sand at the top from the volcanic dust that made for a one step forward, two steps back sliding.

And there’s always a chance, while slim, of the “dormant” volcano erupting and killing us where we stand.

And every time bitcoin erupts, whether that’s from .10 to 1.00, or $10 to $100, there are simultaneous shouts of “heading into bubble territory!” And: “This is how it all ends!” Comparing charts between the tech bubble and now bitcoin.

I understand the reasoning behind these comments and fears, and am conscious of the gambler mentality that says: this time it’s different — saying anything to justify the rise.

But really: this time it’s different.

Let me explain.

Bitcoin has been described mainly as two things:

  • A storage of value, like digital gold
  • A digital currency

But there are some differences inherent in Bitcoin that really say, “This time, it’s different.”

  • The only currency not backed by a Government. Decentralized.
  • Worldwide market. Koreans as well as South Americans, as well as Americans can buy and use the same bitcoin.
  • Acts both as a store of value (gold), as well as a currency (dollars).
  • The supply is fixed at 21 million. There are an estimated 4 million lost forever.
  • Currently it is not simple to purchase. Without a simple purchasing mechanism, like an ETF, many people cannot buy in yet.
  • Still relatively unknown
  • Institutional money has just started to enter in the form of futures.
  • ETFs will bring in huge sums of money from people with pent up interest (FOMO)
  • Other altcoins exist which build upon prior generations, moving the tech forward, as well as diversifying

Bubble What?

I want to explain something to you, and I want you to listen carefully:

The cryptocoin “bubble” is often compared to the tech bubble, because the tech prices were not based on the valuations of the companies that were inflated. The companies had fake, or to be more kind, “aspirational” valuations.

But the bitcoin price rise is not solely because of the value, or aspirational value it provides, rather it is rising in comparison to the value of the currency and stores of value it is replacing.

There is a wholesale replacement of value, where people are shifting from a devalued fiat currencies with fake “backed by the faith…” value, into a digital currency with real value.

It’s the realization of value away from something that has nearly none.

People believe in the value of crypto, while simultaneously disbelieving in the present and future value of their fiat currency, and even to the inflated valuations of their houses, mortgaging and second mortgaging the inflated value of their homes to buy into bitcoin.

Mania, right?

Wrong.

They’d rather hang their hats on the first fixed resource in existence, something that never increases supply, and that actually has already decreased by 4 million. A digital currency that decreases every day with stories of investors losing their bitcoin keys, or sending to incorrect addresses, or dying without disclosing their wallet passwords, never to be seen again.

A diminishing deflationary currency with actual utility.

People buy and sell things for bitcoin, from cars on craigslist, to clothing and furniture on overstock.com.

Mining bitcoin puts food on the table and keeps the lights on in Venuzuela, and is more real than Venuzuela’s own wheelbarrow money. Meaning you need a wheelbarrowful to buy even the most insignificant of things.

In Columbia, a 2,000 pesos note is worth about 0.69 USD. While the older currency has the full 2,000 listed on the side, the new version of the 2,000 pesos note I noticed deletes the three zeroes, instead showing just “2 Mil.”

But, the currency didn’t actually become disinflated. It’s purely cosmetic, and a mental game. Eventually, they’ll get rid of the “mil” and just leave the “2.”

Voila: magical disinflation!

More with less!

Dollars and pesos and other fiat money are the real “virtual” currencies, not bitcoin. Backed by “faith”, a spiritual money, ghost money if you will. It’s akin to magical thinking, not unlike a child saying “Mama, look, I’m an astronaut!” — while lacking all the training, education and work it takes to be an actual astronaut.

And, historically, the eventual value of every fiat currency is zero. For the first time in the history of the world we have money not backed by anything.

Except faith.

The 2,000 Columbian peso note barely exists at all, not even worth a coffee. And artificially disinflating it by gradually removing any reference to the zeros won’t actually allow you to buy more with less.

Only bitcoin will.

The Potential Transfer of Value

Here’s the potential: The total amount of money, or I should say monetary instruments collectively worldwide is around 75 Trillion dollars. Of that, only about $5 Trillion is in actual paper dollars and coins, the rest is in money market funds, long term deposits, other financial instruments, what have you.

The dollar has lost over the years 90% of it’s value — we’ve all been told this. And at 3% inflation, it sounds so low we don’t worry about it. What they don’t tell you is that at 3% inflation you’ll lose half your savings in 20 years.

Bitcoin with its fixed/diminishing supply is unnaturally disinflationary — by design.

With money like that, who wouldn’t exchange dollars for bitcoin?

What other way can I convince you?

There are a lot of smart people saying bitcoin is this, and bitcoin is that. If it looks like a bubble and quacks like a bubble, then?

Well, they sound right, they’ve sounded right, and prudent, and smart, and justifiably correct in their assessment every year they declare bitcoin dead.

You’d be silly to buy into this hype!

I can only say you could have bought bitcoin in June 2017 when it was only $2,500, and sold it in December at $18,000 .

Like the in/famous line in Market Wizards says: Would you rather be “right” or would you rather make money?

It took us two days to climb Volcan Tunguahua in Ecuador. One day got us to the refugio shelter, and we attempted the top the next day.

It was a tough hike, and I was completely knackered by the end of it. But it was real, and it added real experiential value to my life. And I look back and am glad I did it.

Funny, weeks before everyone told me that you couldn’t climb it on your own, that you needed a guide. Locals who should know better told us that even the trail was not clear, and if you didn’t know your way you could get lost, or worse. Another was robbed of everything, and it was not safe. Someone even told me a person lost their life on the Volcan last year. And that there was not a whole lot we could do if it suddenly exploded.

Well, we just knew the trail led up, and if we followed it we would get to a mindblowing view of the valley below. And while possible, it wasn’t likely that the volcano would decide to blow that day.

We knew that with just a little investment of our planning, effort, and knowledge of our abilities, we would make it to the top.

And we did.

…Or

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Originally published at gripandclip.com on December 17, 2017.




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