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A Pretty Good Bitcoin Interview

by Trace Mayer, J.D. on September 17, 2012 · 9 comments

Reading time: 7 – 11 minutes

For those who took my advice in December 2011 they are up about 400%.

The money printers are in full throttle mode with the databases whirling! Like I wrote in 2009, QE will fail but those with access to the copy-paste function for FRN$, Euros, Yen, Argentine Pesos, etc. will use it for all its worth.

All of this is just The Great Credit Contraction playing out. Those who have properly positioned themselves are having wealth transferred to them in ever increasing amounts.

BITCOIN BREAKOUT

In December 2011 with bitcoins around $3 I wrote about a solid Bitcoin breakout with the prognostication “But I would take a bet for BitCoins to hit $7.50 by June or July at around a 50-70% probability.” Once again, like with platinumoil majors versus gold and the recent dollar downleg; I was right. Bitcoin hit about $7.00 in July and has powered higher to $12 currently.

For those who took my advice in December 2011 they are up about 400% in FRN$ terms and about 350% in gold terms. The market is telling the gold bugs their purchasing power is moving to bitcoin holders. Wealth transfer at work, baby!

Bitcoin is actually pretty simple; it is just math. But then math can seem like mystery magic to some.

BITCOIN INTERVIEW WTIH FUTUREMONEYTRENDS

Mr. Casey has a keen economic and financial mind and always seems to have something entertaining to say so I wandered over to the recent Casey conference and ran into the guys from Future Money Trends. We did an interview on Bitcoin which, to toot my own horn, I think turned out pretty well. Our interviewer showed one of the most important traits an investor can have: skeptical humility.

The irony is not lost though that Doug Casey, like David Kramer, gave an opinion last year on Bitcoin which betrayed a complete lack of technical understanding. It seems there are clear divisions within the sound money niche on Bitcoin.

For some Bitcoin may seem complex. Let me assure you that just like with email or Internet browsing you do not need to understand how this magic Internet money, the Bitcoin Protocol, works at its core to derive value from using it just like you do not need to understand how Internet Message Access Protocol or Hyper Text Transfer Protocol works. You know, iPhones, text messages and movies are magic also. Bitcoin is actually pretty simple; it is just math. But then math can seem like mystery magic to some.

But if you do not comprehend or understand an XOR cipher functionElliptic Curve Digital Signature Algorithm and some basics of Classless Inter-Domain Routing then it may be best to sit down, shut-up, listen to some people who do understand, ask what questions you can formulate based on your limited understanding, do some study and then try to form an opinion based on facts instead of facile intelligence where one thinks they have a talent for monetary science, economics and finance but do not see the need to undertake the hard labor of learning how such arguments are constructed when applied to the Bitcoin Protocol. After all, do you want to be the guy that asks, “How big is yellow?” or worse ignorantly pronounce the statement, “Yellow is really big.”

BITCOIN PRICING POTENTIAL

To be honest, I am having a very difficult time attempting to value bitcoins and prognosticate a price. Plus, there could be some type of attack on the network or other issue that could make all the purchasing power of bitcoins completely evaporate.

Nevertheless, there are number of wallet users, connected nodes, merchants that accept itnumber of transactions, etc. By some estimates the Bitcoin economy GDP is about 10% the size of Uruguay or about 1% the size of Argentina.

As Mr. Shrem recently told Federal Reserve and Brazil central bank officials, “BitInstant was processing 1/5th of the monthly payments of Chile’s internal payment system. I was thinking, Bitcoin might become a real currency before anybody even realizes it. Mark my words, sometime in 2013, the Bitcoin economy will be larger than that of a few small nations.”

But you are dealing with a community of secret keepers so getting accurate numbers is difficult if not impossible. Some people have tried to distill various metrics down and have come up with a current growth rate around .46% per day with a growth decay of .024% per day. This is what a log 10 scale chart looks like extrapolating based on actual metrics.

DISINTER-MEDIATE FROM THE FINANCIAL AND MONETARY SYSTEM

MF Global misappropriated customer segregated funds and the regulators have just twiddled their thumbs. Then PFG Best did the same thing and regulators have just continued twiddling their thumbs. Can anything be more ergerious than deeply captured regulators idly, or perhaps complicitly, allowing such nefarious behavior? How can you trust the traditional banking, financial and monetary system?

But, in a way, you have to trust it. Until now you have had no alternative or substitute. You have had to bear counter-party and performance risks. As The Great Credit Contraction continues its relentless grind these risks become ever more pertinent.

CONCLUSION

The Great Credit Contraction is in full force. Those who have moved into safe and liquid assets are having wealth transferred to them at an ever increasing rate. While I continue to be a big proponent of gold and silver I have also becoming increasingly trusting of the Bitcoin Protocol where one’s bitcoins just sit there secured by the laws of mathematics and cryptography backed by petaflops of processing power and verifiable so long as you have Internet access.

The liquidity of bitcoins is ever increasing with a debit card due in a few months. With only exchange rate risk, bitcoins make a great addition to one’s portfolio in The Great Credit Contraction, which if you have not read you can buy with bitcoins. Go ahead, get some bitcoins and give it a try. What do you have to lose, really?

I told you my thoughts. By all means, please leave your thoughts in a comment. Thanks!

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9 comments

ABOUT THE AUTHOR: Trace Mayer, J.D., author of The Great Credit Contraction holds a degree in Accounting, a law degree from California Western School of Law and studies the Austrian school of economics. He works as an entrepreneur, investor, journalist and monetary scientist. He is a strong advocate of the freedom of speech, a member of the Society of Professional Journalists and the San Diego County Bar Association. He has appeared on ABC, NBC, BNN, radio shows and presented at many investment conferences throughout the world. This is merely one article of 240 by .
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{ 8 comments… read them below or add one }

1 Bron Suchecki September 17, 2012 at 6:29 pm

“try to form an opinion based on facts instead of facile intelligence where one thinks they have a talent for monetary science, economics and finance”

Agreed. A good example are discussions at mises.org where the close mindedness of some Austrians was amazing, who seemed to be particularly hung up on the regression theorum (eg http://mises.org/Community/forums/t/25411.aspx) which I’ve never been so convinced about – http://www.monetary.org/a-refutation-of-mengers-theory-of-the-%e2%80%9corigin-of-money%e2%80%9d/2010/12

I suspect a bit of old fartism is involved as well and suspect bitcoin is virtual step too far, particularly for baby boomers who’s formative experience was of pinball machines, not video games.

While not taking the conspriatorial angle The Daily Bell does (http://www.thedailybell.com/4294/Elites-Promote-Pure-Fiat-Currencies-Mutual-and-Social-Credit-for-Traceability) I am a bit concerned about bitcoin’s inherent lack of anonymity, which could hamper its wider uptake.

2 Dookie September 18, 2012 at 6:20 am

BTCs are in a way changing the definition of money. Now we see that money doesn’t have to be tangible, at least not in the 21st century information society. It certainly isn’t fiat since can’t be produced from thin air, and yet it’s much more sterile and transferable than gold. You’ve noticed yourself, wealth is even going from gold to btc, and it’ll stay that way for a long time. As Charlie Munger said, gold is kind of a barbarous, maybe this is what he meant (of course not).

Time for new money indeed. :)

3 Trace Mayer, J.D. September 18, 2012 at 12:14 pm

Dookie, I the idea of tangibility and Bitcoin have been rattling around inside my head. I have still not come to a conclusion but here are some of the thoughts articulated:

The word tangible means ‘perceptible by touch’ or ‘cear and definite; real’ but the etymology for tangibility has more to do with mental sense than corporeal status. It appears to be used to connote realness as opposed to fantasy, delusion or illusion.

I have been thinking a lot about tangibility and how it applies in monetary science in an attempt to formulate a rule or theorem.

In the Information Age I think organized information, information objects, can have properties of tangibility just as clear and definite, or real, as physical objects. Thus, for something to be real it does not have to be corporeal.

The Bitcoin Magazine exists in both a corporeal (paper) and incorporeal (PDF) form. Both are both clear and definite thus they are equally real. One is an information object the other a physical object. But this distinguishment does not go to tangibility as they both exist in the real world and are not figments of imagination, fantasy, delusion or illusion. We would agree that the Bitcoin Magazine Issue #1 is tangible, regardless of of paper or PDF form, and flying fire breathing black dragons are not tangible.

A bitcoin is real because it has clear and definite organization of information therefore making it an information object in the real world and is not a figment of imagination, fantasy, delusion or illusion. Therefore, a bitcoin is tangible.

4 Trace Mayer, J.D. September 18, 2012 at 12:21 pm

Bron,

As I understand the Regression Theorem it applies to explain how something could become valued currency but is not a prerequisite, which some Austrians seem to try to make it, for something to become valued currency.

As far as bitcoin being a virtual step too far; perhaps as mentioned in The Good Wife episode about Bitcoin, “Real is going to change. Just watch.

The anonymity issue does seem to have a trade-off. What Bitcoin does is have the balances and transactions public while the holder of the private key is unknown which is the opposite of the traditional system where the balances and transactions are private (except with 1099′s, FACTA, etc.) and the holder is known (titled on the account). Thus, with bitcoins a user could have as much anonymity as they wanted; particularly if they use a Brainwallet.

5 Dookie September 19, 2012 at 2:28 am

Thanks Trace for reply, I really appreciate it.

We could say then that the tangibility is rendered from a human perspective through ages. Before it was only corporeal due to carbon bodies ‘perceptible by touch’ limitations. Now we’re carbon bodies with silicon extensions which allow us to perceive ‘other than touch’ stimulus.

Yup, I take it back, no need to change the definition of money, BTCs are tangible. Cheers

6 Trace Mayer, J.D. September 19, 2012 at 12:17 pm

Dookie, precisely. We are all cyborgs now.

7 Anonymous October 7, 2012 at 5:24 am

Good interview Mr. Mayer. Mr. Wenzel can be tough when he senses someone is full of ****. Obviously you are not.

I’m happy to see that you are speaking to the “tangibility issue”. Although I recognize its virtual tangibility, it seems to be the real cognitive hiccup for most people regarding the regression theorem.

To me it appears that bitcoin is simply a digitization of privacy. Humans value privacy to varying degrees, the fact that scarcity has been hardwired into the bitcoin to provide this digitized privacy with value to me satisfies the regression theorem (albeit with some mental contortions).

Anyway, one thing I would watch out for would be linking the bitcoin’s value to the “efforts” or “capital” that goes into creating it. That would be the labour theory of value as opposed to the marginal theory of value. Would it not?

Great interview though. Im happy that Wenzel introduced me to you and you work this morning.

take care.

8 Jimmy November 4, 2012 at 7:04 pm

oes it, I need to start putting together a mining rig. I don’t want to be left behind when the decentralized, distributed currency saves the world from Central Bank tomfoolery!

$10k can build a fairly decent SLI setup. I tend to find things just before they get big; I’m not passing up being my own CB in 2016 (as history has illustrated…). Hell no. Hyper deflation here we come! Besides, its not really currency yet because its just experimental math, right? ;) That should satisfy the gubermint.

Although, I do think most politicians and governments will be against the idea because it destroys their basic power dynamic. I’m not too worried though; I’m sure they’ll find a way to adapt.

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