Cryptocurrency outlook #4

Joe Biden picks Gary Gensler as SEC Chair. Fox Business and Bitcoin.com comment on the possible effects on government regulation of Bitcoin and other cryptocurrencies. 

Fox: "If bitcoin and other cryptocurrencies were deemed to be securities, they would fall under the purview of the SEC. Exchanges that facilitate the trading of such cryptocurrencies would also need to have the appropriate investor protections in place," Gensler said (my bold).

"He pointed to improvements in the areas of payments systems, trade finance, and medical-records technology as areas where blockchain has proven useful. Gensler is currently a professor at the Massachusetts Institute of Technology and teaches about blockchain."

Bitcoin.com: Gensler clarified: “To the extent that somebody is offering an investment contract or security that’s under the SEC’s remit, and they have exchanges that operate there, then we have to make sure there’s investor protection” (my bold).

On the other hand, “If it’s not that, and it’s a commodity, as bitcoin has been deemed to be, then it’s either a question for Congress … or it’s possibly a question for the Commodity Futures Trading Commission,” he described (my bold).

Furthermore, the professor also said that the SEC must ensure that crypto markets “are free of fraud and manipulation.”

This is an example of whether or not x falls under the concept X in the context of government regulation. Whether it does or not can have significant consequences. Maybe x falls under both. For cryptocurrencies there is one concept - investment contract or security - for the SEC and another - commodity - for the Commodity Futures Trading Commission. 

Cryptocurrency outlook #2

Harvard Professor Kenneth Rogoff Warns Central Banks Will Never Allow Bitcoin to Go Mainstream

Professor Rogoff says:

"As it really starts to compete with ordinary, fiat currencies, government currencies, I think they’ll clamp down on it like a ton of bricks. They are not going to allow that to happen."

"But make no mistake, the governments need to retain control over taxation, controlling crime, etc. They need to maintain control over the unit of account — the currency. Yes, private innovation can come out for a while, but eventually over the long course of history, the government first regulates and then it appropriates, and I think we can see that happening here."

Cryptocurrency outlooks

Following are four opinions about the outlook for Bitcoin and other cryptocurrencies. Three are pessimistic or negative at this time. That's not surprising given the recent sharp rise in Bitcoin's prices.

'Big Short' investor Michael Burry says he doesn't hate bitcoin but thinks its 'long-term future is tenuous'

I guess Burry says "tenuous" based on Bitcoin's (and others') phenomenal rise during the past 4 months. Yahoo Finance: BTC-USD. Click on '6M' above the chart to see the rise graphically.

Creepy Bill Gates Announces That He’s Not a Fan of Bitcoin – Warns People Who Aren’t as Rich as Elon Musk from Buying It

Really? That's a reasonable opinion if cryptocurrency would be a large portion of one's investable assets or a large amount needed in the near future. However, what if it's a small part? How is it any worse than buying a few lottery tickets with multi-million dollar payoffs? Risk assessment is not an all-or-nothing matter; assessing the magnitude of risk is what's important. Stop being a control freak of others' lives, Bill Gates! It's a big enough task to control your own. 

Should I buy bitcoin? Why the cryptocurrency is on the verge of a bear market

"To be sure, bitcoin’s wobbles aren’t unusual but the crypto’s reputation for volatility is one reason naysayers contend it isn’t suited to serve as a medium of exchange."

“To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering,” Janet Yellen said.

This is reasonable and to be expected from one who favors a government-controlled monopoly on the widely-accepted medium of exchange. Transaction costs for Bitcoin and other cryptocurrencies are too large to be a widely-accepted medium of exchange for small transactions. This argument gets weaker as transaction size gets larger. Transaction cost divided by the value of the whole transaction declines as the latter gets much larger. Thus Bitcoin and other cryptocurrencies are more feasible for large business transactions.

Charlie Munger, Warren Buffet's long-time business partner, says never to crypto and gold.

Come on, Charlie. Never? Even buy low and sell high? I know that's difficult to achieve, but I see nothing wrong taking on a little risk and watching it like a falco columbarius. 🙂 If you had not taken risks, you would not have had the tremendous success that you did!! Little or nothing ventured; little or nothing gained. Does this mean your intended audience should not invest in Berkshire-Hathaway stock either? You know it has risk. Click on '5Y' above the chart here and see what happened mid-February to mid-March last year. BRK-B's price fell about 26%. Somebody could have bought BRK-B high and sold it low in a panic.