Bitcoin is a Faith-Based Religion

Mish

Bitcoin is a free market construct. But it is primarily based on faith.

China Crackdown

In Bitcoin Sinks Below $7000 on China Crackdown I posed this issue.

If and when central banks crack down on digital currencies it will be lights out. People keep asking me what can central banks do. The question should not come up as the answer is obvious: ban transactions in Bitcoin.

If the US banned bitcoin transactions, people would still have their digital coins, but they would effectively be worthless. One could not buy anything with bitcoin other than barter transactions. There would be no way to get money in or out, at least in the US.

To that I have countless replies along the lines that Bitcoin is decentralized so my idea is preposterous.

If governments ban transactions in Bitcoin does one get money in or take it out? OK you still have your Bitcoins, but what the hell can you do with them?

No one has answered my questions. They just tell me it can never happen.

I have been asking simple questions for years. None off the bitcoin true believers has given a satisfactory answer.

Question of the Day, Month, Decade

Peer-to-Peer

So far, peer-to-peer is the only answer.

OK but that presumes one can find a person willing to barter who has what you want and is also willing to hold more Bitcoin in exchange.

But how does one sell for cash?

Understanding My Message

Failure to Understand

Even if one manages to get money out via the black market in some illegal transaction, how does one get the money in a bank when they are likely going to hove to explain what they are doing with amounts of cash over $10,000.

Millennial's Fake Gold

Vitaliy Katsenelson calls Bitcoin the Millennial's Fake Gold.

Reflections on Hindsight

Katsenelson poses similar issues as mine, notably, "Governments tend to look at Bitcoin and other cryptocurrencies as a threat to their existence. First, governments are very particular about their monopolistic right to control and print currencies – this is how they can overpromise and underdeliver. "

But this is my favorite line "It is crystal clear to me, with the benefit of hindsight, that I should have bought Bitcoin at 28 cents. But you only get hindsight in hindsight."

Faith-Based Prophecies

Faith-Based Rationale

On what are those $1 million to $4 million projections based?

  1. Price Follows Hash Rate
  2. Alleged scarcity
  3. Central Banks and Governments are Powerless to Stop Bitcoin

Yet, no one has properly addressed point number three.

Price follows hash rate is a proven joke, yet it came up again today.

Hash Rate Hits Record

CoinTelegraph via ZeroHedge commented

Bitcoin Kicks Off 2020 More Secure Than Ever As Hash Rate Hits Record

Commentators, including Keiser Report host Max Keiser, have also claimed that hash rate highs will ultimately produce new Bitcoin price highs.

That's more misplaced faith. Price hasn't followed the hash rate for years.

Central Banks to the Forefront

The issue of central banks came up again today.

Please consider ECB’s Weidmann Urges Euro-Area Banks to Battle Facebook’s Libra

European Central Bank policy maker Jens Weidmann called on banks to come up with cheaper and faster systems for transferring money to combat alternatives such as Facebook Inc.’s Libra, and said there’s no pressing reason yet for the ECB to develop its own digital currency.

I’m not in favor of always immediately calling on the state” to come up with solutions, Weidmann said in an interview with German newspaper Handelsblatt published Thursday. “In a market economy, it’s up to companies to develop products that meet customer demands.”

Weidmann, who heads Germany’s Bundesbank, has long called for caution over private-sector digital currencies and his comments echo concerns among officials from Europe to the U.S. over Libra, a planned digital token backed by multiple national currencies.

Weidmann Translation

In case that was not obvious, I offer this proper translation: "I am immediately calling on the state to deal with the threat of cryptocurrencies".

ECB President Christine Lagarde and BOE Chime In

ECB President Christine Lagarde -- in common with Bank of England Governor Mark Carney -- has said central banks should consider whether it makes sense to launch their own digital coins, and she may make that question part of a wide-ranging strategic review planned to start this month.

OK, believe what you want, and you will, because if you are a true believer, Bitcoin is now an act of faith.

Meanwhile, the ECB and BOE flashed another warning card today.

Not to worry, you still have peer-to-peer bargaining.

No Faith in Fiat

Method of Central Bank Attacks

Addendum

Change the title to remove faith-based Global Warming. Created too much of a sideshow.

Mike "Mish" Shedlock

Comments (75)
Latkes
Latkes

This will trigger some true believers.

No. 1-27
Realist
Realist

I get it Mish; you want to generate some comments.

I guess putting all your faith into ONE investment could be called a religion. Though that sounds like a bit of a stretch. I suppose you could say the same thing about gold.

Global warming, on the other hand is merely a scientific fact; like gravity, or the laws of thermodynamics.

Perhaps you could also say that refusing to recognize scientific fact is like a cult or religion, because to deny the obvious, requires a strong belief system. Just like those who believe the Earth is flat, or religious groups who think the Earth is only 6000 years old. Do you also subscribe to those religions?

Anda
Anda

From what I read it is likely that central banks will co-opt crypto currency by making it permission based, as well as launching their own.

That aside, the problem for it if bitcoin is banned is that it will not have a market depth of value, as transactions will be hidden. That is to say it will not be as reliable a store of value (or investment) because there cannot be an open dollar price to it, because (open) trade into dollars for example would be banned. A new stable value might be achieved over time though as it settles into its new niche of use.

However, regulatory intervention does not mean trade in bitcoins could, or would not, happen. The value would be set by the market in terms of barter network, and therefore whatever the equivalent dollar ( or black market dollar price) bitcoin was fetching. You know how bitcoin evolved and took value, it would be a step back. Regulatory punishment for transactions including bitcoin would submerge it further. However, there is no law that requires payment in any currency except in the case of debt by legal settlement, your legal tender. Government cannot stop people sharing code, it would be ethically outrageous and trespass into so many other realms, all it can do is declare that gain from doing so be declared for the purpose of taxation and accountability - hence the move to co-opt via permission gateways.

Crypto that stays outside of that will still have its own scene, and like anything used as money, it will have the value that people choose to attribute to it. The important point is that it allows trade outside the fiat system, not what its actual fiat value is.

So for those using it as storage or investment, just realise that what you are doing is speculating on its future value, and like all speculative bets, including fiat and even gold, that value can change dramatically either way. In a purely functional (say transaction need) setting, a crypto currency would possibly be much more stable in value.

Germ
Germ

"If the US banned - GOLD COIN - transactions, people would still have their -GOLD COINS - , but they would effectively be worthless." Really?

Harry-Ireland
Harry-Ireland

Right now, it feels like a cult. You have to be totally and utterly convinced that Bitcoin is money. It's kind of sad that people just don't see that it's not real money and it could go to zero within a day. There's a real chance it will be outlawed by governments across the globe. Let's face it, it's a safehaven for criminally or illegally gained funds. I'm not shitting on the technology, the blockchain or that it's outside the conventional monetary system. I'm merely pointing out that it solely exists as digits in virtual reality, backed by absolutely nothing aside from the conviction of the holders of the crypto. And let's not forget the obscene amount of energy that is required to mine the bloody things. Better not tell that to the climate change alarmists!

Captain Ahab
Captain Ahab

How short the memory! Confederate dollars after the Civil War? Not backed by hard assets, but a promise to pay if the South won. The only value nowadays is as a collector's item. Had it been backed by hard assets, it would've had value after the war and more would remain today. How much is Bitcoin worth once China bans its use, and introduces it's own cryptocurrency? If the dollar weakens enough, be sure the US will ban Bitcoin, too.

dansilverman
dansilverman

Did I miss something?

  1. How do you get US dollars into Bitcoin.

Go to a website that sells Bitcoin, take out your cc, debit or PayPal and buy some.

2, How do you cash out Bitcoin for dollars I assume u can do step one in reverse

  1. How do you buy anything with it?

Go to APMEX, you can buy gold using Bitcoin.

Scooot
Scooot

Gold is a precious metal with intrinsic value. Fiat money is backed by the tax revenues of the government that issues it. (Although this can & does get out of balance). Cryptocurrencies rely on someone else paying as much for nothing as you did.

Axiom7
Axiom7

Mish: Anyone who says self-driving trucks won't happen is wrong. Mish: Bitcoin is based on faith.

So buying S&P500 at a 25 PE ratio, what is that? The Fed printing out of thin air $400billion in reserves to fund the REPO market since September implies the USDollar is what?

With the 4th Industrial Revolution under way (which includes self-driving trucks), settling commerce with unsecured bank liabilities (i.e. fiat currencies) is too SLOW and too EXPENSIVE. Also when those bank liabilities continue to be created via inflation of money and credit via Fed balance sheet. shadow banking conduits and growth of debt (public, private and consumer) the bank liabilities at some point will face deflation by mark-to-market event or shadow inflation.

Therefore some digital currency will have to slowly replace bank liabilities to settle commerce, especially commerce in virtual economies (right now like what is happening with some online gaming communitieis).

BTC may be the basis for those virtual monies or it might not. Pros: everyone knows it; cons: it is effectively the first generation of non-bank virtual money. If it is not the basis for Tech 4.0 settlement it is worth zero. If it is, it is worth $150k to $250k. So today's price is simply the option value that someday it will underpin the future payments settlement system.

By the time BTC gets built into enough workflows to start having real value, it will be too late for central banks to stop it.

Heran
Heran

What if government bans transactions in Bitcoin? Well government can also ban gold (or anything if they wish). This happened in China as well. In 1948, Republic of China "outlawing private ownership of gold, silver and foreign exchange, collecting all such precious metals and foreign exchange from the people and issuing the Gold Standard Scrip in exchange." (see https://en.wikipedia.org/wiki/Kuomintang) The scrip quickly became worthless and KMT (the governing party) fled to Taiwan.

tz3
tz3

Beanie Baby Bitcoin!. You can buy BitCoin, and you can buy things with it some places (overstock.com?).

Perhaps the way to think about it as a brokerage account with portfolio. You can't buy things with it, but there will be some cash, and some things can be sold to add cash, or cash converted to stock. There are no certificates anymore.

But the "faith" is also for the Keynesian god with his central bank temples. Why should any paper be worth anything? Not even paper, some electronic record on a hard drive in a server farm. The Yen cult persists. The USD is the reserve cult. The Euro has become less than uninteresting but still persists. And my favorite, Canada's aptly named Loonie, maybe I can get a bin full.

Gold only fluctuates because Fiat drives erratically. Gold and Silver will always be exchangable and have a nonzero bid. You cannot say that of much else that isn't a commodity (but others have properties that make them less useful as money - I've heard Mercury offers great liquidity).

Bitcoin as a MEASURE only works because it is algorithmically limited. Like a cheque that cannot be written as an overdraft. So there is innovation.

No one has done a Ponzi coin in Etherium (transfer value to earlier buyers as "interest"), but.

Carl_R
Carl_R

The interesting question is this: Every time Mish has done and article on Bitcoin, it has coincided with a bottom for Bitcoin. Will it happen again? Will Bitcoin rally sharply? Stay tuned.

Unicorn Hunter
Unicorn Hunter

So over the years , Mish's has stated multiple times that it will go to zero has no value and won't be around in a year or two . This has now moved on to "it may be so successful the US government will ban it". I will take that as an endorsement. Meanwhile it has been the best performing asset of the decade. I have owned bitcoin since 2013 and cash out a proportion of my holiding every year sometime into gold and stocks. I see no reason not to hold 1% of my portfolio in crypto. that holding has paid off handsomely for me. Will it go to zero some day, maybe, but when it does it has still been by far the best investment anyone could have made in the last decade.

Stuki
Stuki

Crypto currencies will survive, then thrive, as long as there is somewhere where they can be traded for other goods and services in relative safety and for a reasonable cost.

How safe and cheap, depends on the industry. Those dealing in drugs, guns, childporn and political hits (of the physical kind), tending to have higher tolerances than those buying milk, bread and tickets to the next Cheer-for-Dear-Leader rally.

As for future vs current adoption, there are two megatrends pulling in cryptos' favor:

  1. Technology getting cheaper, hence more widespread, hence becoming more available in places like Zimbabwe where the fiat alternative is even less functional than in The West. Expecting a replacement for fiat to gain primary traction in those places where fiat works the best, is, let's say, just a bit naive.... Instead, adoption will gain initial traction up where the alternatives are the weakest, then as rough edges are honed, expand outward from there.

  2. Taxation, financial and otherwise repression (as well as outright oppression), surveillance, debasement mediated theft etc... and the whole rest of the progressive shebang, is only going to get worse. The army of halfwits being spat out of government controlled indoctrination institutions believing in anything from Trump to Gaia boiling over and HAL being right around the corner, solely because it benefits a class of half literate Fed welfare beneficiaries that they believe so, aren't going to suddenly pick up on Rothbard, nor even basic literacy. Instead, they'll keep asking "how high" every time the Man on TV asks them to jump in favor of robing their neighbor even more. And the sillier this show gets, the greater the upside to cryptos. Which, even if the downsides (bans etc.) remain intact, will over time lead to its increased adoption at the margin.

Bottom line is Fiat currencies plain don't work over time. Period. Like The Lady said, eventually, you do run out of other people's money. Stealing them via debasement instead of direct taxation, is just semantics.

pairunoyd
pairunoyd

I'm 100% for making end-roads into money and currency that is not derived from the free or freer markets. I think your argument relies too heavily on assuming the omnipotence of the Federal government. Laws are broken every day. BTC is or could become of codification of law-breaking. If not BTC itself, some evolution of it or some innovation sparked by it. I don't own BTC. I'm about gold and silver. I was about to buy 100 BTC's when it was $11, but it wanted my driver's license etc, and I didn't want to go that far, and so I cancelled the transaction. :(

leicestersq
leicestersq

Can the US ban bitcoin? It would seem to me that the laws and constitution of the US mean that the ability to transact in Bitcoin is protected by the law. After all, if you are buying a bitcoin or selling one, you are doing no harm to anyone else, and pursuing your own happiness. If the US bans bitcoin transactions then it will, like China, become an authoritarian state right there.

Now if bitcoin transactions were banned, would they continue anyway? In history many bad laws have been broken or ignored as people choose to get on with their lives. Could governments enforce a ban? Well that question really comes down to resources versus the size of the community willing to defy or ignore the law. After all, you cannot lock up more than a tiny percentage of your population. And lets face it, if you locked up 10000 people say in the US, for transacting in bitcoin, how long will their sentences be? A year, two? Both seem overly harsh for doing something that creates no ill for anyone else, except perhaps the Central Bankers.

Further, if laws are enacted against Bitcoin, whilst at the same time many central bankers are trying to create their own cypto alternatives gives Bitcoin even more credibility, and bringing more to the market. The strategy of trying to ban bitcoin could cause its legitimacy to shift into overdrive. After all, people will ask why are you banning something if it is so useless as a money?

The other strategy for trying to get rid of Bitcoin is to leave it alone and let it wither on the vine. This appears to be the main approach being taken at the moment, but it looks to me like it isn't working so well. Sure, bitcoin is now worth only a little over 1/3 of its peak value, but that is still 133 billion dollars.

Mish's central point that it is an act of faith is very true though. And the more people that have faith in it, the higher its value will become. And at some point it is possible for it to reach a critical mass of faith, that even if you don't have direct faith in it, you will have to reason that there are enough with faith in it to give you the confidence to use it as well. If it reaches that point, it will be beyond banning.

Christian dk
Christian dk

Just like the "riech mark" would have been worth the 1 BILLION marks IF Germany had won the war......bugger they didnt......? any offers on my 1 billions mark bank note - medium state of wear n tear. Point is that gold and silver will be highly valued, in both/many sides of the coming calamity. China loves it, Russia loves it,,,,ok the Us fed hates it, but CLAIM to have plenty of it, with NO proof.... THAT is a ponzie scheme right in front of, because they know that kings lose their heads & power, when they run out of gold to pay their SOLDiers.

Bastiat
Bastiat

"But it is primarily based on faith."

And how is that different from fiat currency?

How do you protect your wealth if your fiat currency goes the way of the Bolivar or the Zimbabwean dollar and capital controls are implemented? At least with bitcoin central bankers and politicians have no control.

msurkan
msurkan

The same arguments Mish uses against Bitcoin can be made against gold. Governments can (and have) banned ownership and transactions in gold but that never stopped Gold from being viewed as a store of value. If anything, the very banning of transactions in a given commodity is a signal of the value in the item being banned. Moreover, the ban usually occurs as a sign of weakness, because the governments are struggling to control currency flows.

Bans in Gold transactions never ultimately worked and neither will bans in Bitcoin transactions.

All that said, I am neither bullish or bearish on Bitcoin. I am just saying that arguments regarding the impact of government crackdowns on the value of Bitcoin are weak.

Hansa Junchun
Hansa Junchun

Max Keiser has famously reiterated his claim of bitcoin going to $50,000,000. He and Stacy are not giving up on this one.

Of course, Max will NEVER talk openly about how he bragged about being a "bitcoin millionaire" back when it exceeded $100 each, but then it crashed to below $10. We have never heard him utter the phrase "I'm a bitcoin millionaire!" since, not even after it reached $20,000 and 50 of them would suffice to reach that amount.

We can only suppose he panicked when it crashed to $10 and offloaded his whole hoard with the expectation it was headed to zero. Put that into perspective: Max must have owned more than 10,000 bitcoins prior to the "first big crash". At the $20,000 price, that might have made him a bitcoin quintile-billionaire. Alas, it was not to be. And recently, he discussed the "first big crash" on his show but was very coy about the actions he took at the time.

I love Max and his show. The purpose of my bringing this up is not to libel or mock him but to give some perspective about the fragility of bitcoin and its various cheerleaders. It really is a matter of faith to insist the archaic "Ford Model T" of altcoin technology is somehow dominant to McLarens out there such as Reggie Middleton's Veritas and competitors.

Heck. If Max Keiser thought it was headed to zero at ANY time in its existence, then that means it is risky enough to head to zero again in the future.

And it will.

ThorOdinson
ThorOdinson

People in the USA don't understand Bitcoin. They have no need to. They don't need Bitcoin. They are protected by the strength of the world's reserve currency. Dollar-based investors only see Bitcoin as "funny money" or at best, a speculative plaything (I pray for it to crash in value one more time, so I can load up).

But for people in countries like Venezuela where despotic governments have destroyed the local currency, bitcoin is a life-saver. I have been sending BTC and dollars to friends in Venezuela for over a year, at their request. Prior to their request, I did not know what Bitcoin was. But in their destroyed economy, they can buy food, clean water, medicines, cooking gas, and petrol for their generator (ever try sleeping without a fan when it is 90 degrees at midnight with 90% humidity?).

Bitcoin fuels the black market economy that allows many Venezuelans to survive. And to share with their neighbors who have no US friends or relatives to send them help. Life saving. Literally.

And THIS is the purpose of bitcoin: peer-to-peer transactions outside the control of despotic governments. The VZ government cannot stop BTC without shutting down the entire Internet itself. My friends don't have to convert BTC to the local currency. The merchants accept BTC as payment.

Yes, a country can ban BTC transactions, or prohibit BTC being converted to local currency. Venezuela has tried and failed to do so. Perhaps the all-powerful and tyrannical Federal Reserve of the US could succeed. But Bitcoin is a global phenomenon. It will go where it is wanted and used. It will thrive where governments embrace it and that country's citizens will prosper. And it will continue to gain in value (expressed in local currency units) as more and more people use it as intended.

The USA risks being left behind and impoverished when the world no longer accepts Fed Reserve Notes, and they missed the Bitcoin bus due to their own hubris.

Articles like this from well-respected financial commentators like Mish actually make my heart sing. It tells me that it is still early in the Bitcoin life story. Still time to make money (as well as help friends). When tens of billions of dollars start pouring into BTC because US citizens NEED Bitcoin, THEN is when BTC goes to the moon. Not before. Until then I will accumulate. And help my friends in Venezuela.

Please, Please, do NOT buy Bitcoin today. You don't need it. (and please don't buy silver yet, either. I'm still accumulating that, too.)

Herkie
Herkie

Bitcoin is also so opaque that even the people pushing it do not really understand it well. I do remember in 2010 I saw an ad on the local Craigslist by a seller that was so disgusted with the BC "scam" that he was selling out his 5 thousand bitcoins for 5 cents apiece, how would you like to have been they guy that bought those? At their peak worth almost $100 million. Someone please tell me how an asset can go from being worth $250 in late 2010 to $100,000,000.00 in Dec. 2017?

That is not an asset, it is a scam and a mania that makes the Dutch tulip mania look like a rounding error. Nothing that can flucuate as wildly as that can ever be money for the simple reason that is not a store of value. Since it is also not a claim on assets of others it also cannot be money. Forty million percent increase in 7 years, nice work if you can get it. And to think I actually considered it because the maximum I could lose would be $250, but did not do it because I saw it as a scam that would go nowhere even then.

BaronAsh
BaronAsh

I sort of both agree and disagree with the main thrust. As it is now - some sort of alternative medium of exchange engineered to gradually increase in value over time due to the issuance method, it's highly suspect and can indeed be quashed.

But that is true of fiat currencies whose circulation can be curtailed, or savings accounts be blocked, or ATM outlets frozen etc - all that the push of a cyber button.

And hoarding or exchange gold or silver can be outlawed in an instant.

Ultimately, all currencies depend upon trust and government blessing and since unrestricted Bitcoin usage threatens big government control, it is indeed anathema.

However, what I think is probably coming fairly soon is the eradication of any sort of physical money - like notes and coins - and the entire thing going digital, both with bio-verified cards and maybe also chips under the skin. This will ensure complete control.

I had an interesting experience with Bitcoin. I bought $100 worth in May 2017 around 1600 just to see what it was. I sold at 19,500 around the top and immediately used the same exchange to buy their gold contract. I watched BC crash down to 13,000 or something quite quickly only to find out that my account value - despite holding gold contracts which hadn't changed much in value - in USD had crashed accordingly since the Gold contracts I had purchased were valued in BTC - something which I hadn't figured out! I never got the $100 back because translating the BTC back to USD in the exchange which rapidly did the other way around proved too difficult. I suspect many exchanges involved with BTC are similarly suspect.

But I learned a good lesson: not to mess around with something I have no ability to understand!

Rvrider
Rvrider

I’m a retired EE, and I have a lot of systems engineering experience with using cryptographic algorithms and other techniques to secure US secrets, as well as knowledge of the techniques used to attack US adversaries.

Bitcoin and all other cryptographic currencies are VERY SUSCEPTIBLE to:

  1. Denial of service attacks through malicious code (government or hackers).
  2. Tracking.
  3. Internet outages.
  4. Electrical grid failures/attacks.
  5. Emerging technology to replace vulnerable and dated algorithms.

CBC will never be commonly accepted for small value transitions— too slow and energy intensive. If outlawed, peer to peer transactions will be easy to detect, attributed, and prosecutions will be bulletproof. I have alway suspected that NSA has a hand in crypto currency development. If they do, it’s not for your benefit.

crazyworld
crazyworld

I agree with mish. Bitcoin and others only exist and keep some value because governments so far (except China which has had unauthorized money outflow because of it) seems no to bother about some possible loss of revenues.

I think that would not last too long if the bitcoin bubble does not implode by lack of faith and therewith keep some success for its use in the black commercial market.

Just compare the degree of freedom of the banking (governments approved) rules of 1980 (incredible bank secrecy rules) with the excessive government control of everyone decaying wealth as of today (over here in Europe) .

The main reason for that deep control of the banking system has been the perpetual government budget deficits of course.

rhouston8
rhouston8

Drugs banned : price of drugs did what? BTC banned: Price will do what?


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