What the hell is (a) bitcoin?

[G. Keenan]

Aren’t dollars already digital?

I guess, but the Fed issued a paper yesterday on the pros and cons of making it more digital: https://www.federalreserve.gov/newseven ... 20120a.htm

Consumers and businesses have long held and transferred money in digital forms, via bank accounts, online transactions, or payment apps. The forms of money used in those transactions are liabilities of private entities, such as commercial banks. Conversely, a CBDC would be a liability of a central bank, like the Federal Reserve.

While a CBDC could provide a safe, digital payment option for households and businesses as the payments system continues to evolve, and may result in faster payment options between countries, there may also be downsides. They include how to ensure a CBDC would preserve monetary and financial stability as well as complement existing means of payment. Other key policy considerations include how to preserve the privacy of citizens and maintain the ability to combat illicit finance. The paper discusses these and other factors in more detail.

[Arthur Dent]

That was an interesting read. Thanks.

While they call this central bank digital money and make some references to crypto, I think maybe a simpler way to describe their proposal is to let everyone have a bank account directly with the federal reserve. There’s no need for crypto stuff, blockchain, or anything like that.

The distinction is central bank digital money as we already have digital money with online bill pay, Venmo, etc., but you have to use private banking services, which may charge fees and be weirdly cumbersome if the receiving party isn’t already signed up for the same service. Always seemed strange, as you can send anyone a paper check for free even though that’s clearly way more slow and costly. Everyone has a standard federal reserve bank account would be one way to solve that (though I don’t see why you’d have to go that far and why everyone can’t just be offered access to the electronic bill pay system we already have). And you can see a number of other advantages, like if the government needs to give out money, there’d be no issue of figuring out how to get it to them.

Basically, seems like a pretty good idea, though I don’t know that it exactly competes with crypto as much it does with like PayPal and Chase.

[Arthur Dent]

I did not realize BTC is supported by strategic purchases of it not with real money but “stablecoins” freely printed and backed only by false claims that they are exchangeable for reserves:

https://jacobinmag.com/2022/01/cryptocu ... ralization

[Superorganism]

My brother who worked 60 hours a week the last 20 years pulled $20k of home equity out to buy an alt-coin last week. It’s now worth $4k and seems dead. Middle class guy with 3 young kids.

Crypto is driving people to bad places.

So this story got a lot worse.

This brother confided in our other brother and myself yesterday that he was in on the GameStop and AMC craze going back a year. Rode the wave, was up big at one point, but decided not to sell because “it’s gonna be the mother of all short squeezes!” However, this was after GameStop had their first squeeze and after AMC had their gamma squeeze. So he got in late, but greedily stayed in even after he was in the black. His Dollar cost average on AMC is like $32. AMC has been on a slow descent for six months, hit $16 yesterday. So yesterday he takes a $15,000 line of credit through Robinhood to bring his average down. “A Hail Mary.”

AMC immediately goes down and they’re already emailing him about margin call. So he liquidates a few of his blue chip stocks so he has liquidity to cover a call.

he goes on to reveal that his initial $35,000 position in AMC was funded by him cashing out an old 401(k). Which he ate fees on.

So he has $50,000 in AMC now. $15,000 of which is credit.

And his wife doesn’t know about it…

We asked him over and over again how could you do this? This is so out of character. The crypto, the AMC, the risk. He said he bought into the hype. He would sit on Reddit all day reading the subreddits for AMC and crypto. He was tired of working so many hours for the last 20+ years. He really believed the “hedge funds” were manipulating the market and were over exposed by naked shorts which would lead to AMC going up to at least $1000 per share when it inevitably squeezed.

So he’s down about 15,000 in AMC as of this morning. Down a lot more in crypto. But he’s rationalizing it. “if AMC doesn’t squeeze, the market is going to collapse. The hedge funds have billions of naked shares. The corruption runs deep. It won’t matter how much debt I have because the whole thing will collapse if they don’t cover.”

It’s like the economic equivalent of Qanon. I can’t say I have sympathy, for whatever reason.

[AdmiralKird]

[heyzeus]

My brother who worked 60 hours a week the last 20 years pulled $20k of home equity out to buy an alt-coin last week. It’s now worth $4k and seems dead. Middle class guy with 3 young kids.

Crypto is driving people to bad places.

So this story got a lot worse.

This brother confided in our other brother and myself yesterday that he was in on the GameStop and AMC craze going back a year. Rode the wave, was up big at one point, but decided not to sell because “it’s gonna be the mother of all short squeezes!” However, this was after GameStop had their first squeeze and after AMC had their gamma squeeze. So he got in late, but greedily stayed in even after he was in the black. His Dollar cost average on AMC is like $32. AMC has been on a slow descent for six months, hit $16 yesterday. So yesterday he takes a $15,000 line of credit through Robinhood to bring his average down. “A Hail Mary.”

AMC immediately goes down and they’re already emailing him about margin call. So he liquidates a few of his blue chip stocks so he has liquidity to cover a call.

he goes on to reveal that his initial $35,000 position in AMC was funded by him cashing out an old 401(k). Which he ate fees on.

So he has $50,000 in AMC now. $15,000 of which is credit.

And his wife doesn’t know about it…

We asked him over and over again how could you do this? This is so out of character. The crypto, the AMC, the risk. He said he bought into the hype. He would sit on Reddit all day reading the subreddits for AMC and crypto. He was tired of working so many hours for the last 20+ years. He really believed the “hedge funds” were manipulating the market and were over exposed by naked shorts which would lead to AMC going up to at least $1000 per share when it inevitably squeezed.

So he’s down about 15,000 in AMC as of this morning. Down a lot more in crypto. But he’s rationalizing it. “if AMC doesn’t squeeze, the market is going to collapse. The hedge funds have billions of naked shares. The corruption runs deep. It won’t matter how much debt I have because the whole thing will collapse if they don’t cover.”

It’s like the economic equivalent of Qanon. I can’t say I have sympathy, for whatever reason.

God, this was a heartbreaking read. He probably is going to take a tax hit on the 401(k) withdrawal too. The AMC/Gamestop thing was rigged from the get go, especially if he's using Robinhood as his platform. But moreover, the meme investing culture has moved on. AMC and Gamestop stocks are yesterday's meme, and the share values are never coming back - just a slide towards delisting.

The crypto stuff is bizarre and an easy way to get burned because of the insane volatility of the assets. It's going to spike up and down many more times, particularly when other countries' regulatory treatment of it can change in a heartbeat.

[Leroy]

Whenever I consider risky stuff like that, I watch the Wolf of Wall Street. Not only because I love the movie, but because it reminds me how the people that make the big money don't give a crap whether I make or lose money, and they will keep raking it in. Until they get caught that is, and have to spend 5 years in a minimum security prison.

[G. Keenan]

My brother who worked 60 hours a week the last 20 years pulled $20k of home equity out to buy an alt-coin last week. It’s now worth $4k and seems dead. Middle class guy with 3 young kids.

Crypto is driving people to bad places.

So this story got a lot worse.

This brother confided in our other brother and myself yesterday that he was in on the GameStop and AMC craze going back a year. Rode the wave, was up big at one point, but decided not to sell because “it’s gonna be the mother of all short squeezes!” However, this was after GameStop had their first squeeze and after AMC had their gamma squeeze. So he got in late, but greedily stayed in even after he was in the black. His Dollar cost average on AMC is like $32. AMC has been on a slow descent for six months, hit $16 yesterday. So yesterday he takes a $15,000 line of credit through Robinhood to bring his average down. “A Hail Mary.”

AMC immediately goes down and they’re already emailing him about margin call. So he liquidates a few of his blue chip stocks so he has liquidity to cover a call.

he goes on to reveal that his initial $35,000 position in AMC was funded by him cashing out an old 401(k). Which he ate fees on.

So he has $50,000 in AMC now. $15,000 of which is credit.

And his wife doesn’t know about it…

We asked him over and over again how could you do this? This is so out of character. The crypto, the AMC, the risk. He said he bought into the hype. He would sit on Reddit all day reading the subreddits for AMC and crypto. He was tired of working so many hours for the last 20+ years. He really believed the “hedge funds” were manipulating the market and were over exposed by naked shorts which would lead to AMC going up to at least $1000 per share when it inevitably squeezed.

So he’s down about 15,000 in AMC as of this morning. Down a lot more in crypto. But he’s rationalizing it. “if AMC doesn’t squeeze, the market is going to collapse. The hedge funds have billions of naked shares. The corruption runs deep. It won’t matter how much debt I have because the whole thing will collapse if they don’t cover.”

It’s like the economic equivalent of Qanon. I can’t say I have sympathy, for whatever reason.

Man, that is really bad. I can't imagine having to tell my wife I'd squandered so much money like this. I would be murdered.

Maybe keep an eye on your brother's mental health in the coming months. Financial problems can drive people, especially men, to some pretty dark places.

[G. Keenan]

I did not realize BTC is supported by strategic purchases of it not with real money but “stablecoins” freely printed and backed only by false claims that they are exchangeable for reserves:

https://jacobinmag.com/2022/01/cryptocu ... ralization

Well that was a sobering read. I must admit I get a lot of cognitive dissonance when thinking about crypto. On the one hand, it looks to my simple mind like a total scam. Yes, for now there is money to be made for traders who thrive on volatility and have a temperamental appetite for risk, but long term I don't see how it lasts. And yet, there are plenty of very smart people who are all in. So I ask myself if there is something I'm just not getting because it's over my head.

A good friend of mine is a very sophisticated trader and oversaw risk management for a huge options trading firm for 15 years. A so-called "market maker." He left to start his own advisory practice, at first selling automated options strategies at low cost to appeal to the dollar cost average indexing investing crowd (like me), but now he is all-in on crypto and has moved to Paris in part because it's an even less regulated environment for crypto traders than the US.

I really hope he doesn't lose everything.

[G. Keenan]

P.S.

Bitcoin gets hailed as "digital gold" and therefore a good store of value because the supply is finite. I believe it's 21 million bitcoins?

So what happens when 21 million coins have been mined? Presumably they become even more valuable as a store of value? But gold at least has industrial uses in the actual world. We actually use gold to make stuff. So again, unless bitcoin gains vastly more real-world utility before 21 million coins are mined, the only thing sustaining its value at that point would be the collective consciousness of investors continuing to believe its worth something. Is there any precedent for an asset that has no actual use value, or extremely minimal use value, just staying valuable forever on hutzpah alone?

Does anyone foresee a world where we're buying a cup of coffee for .00000000001 Bitcoin?

This is madness.