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.

Law, blockchain, cryptocurrency

Law Decoded: Bringing blockchain into securities markets, Feb. 12–19

Laws regarding blockchain and cryptocurrencies are far behind the times due to the latter's newness. However, some laws are being written to try to catch up.  

The development will not be easy due to the international scope of blockchain and cryptocurrencies. The privacy of cryptocurrencies has made them attractive to criminal activity, but the above article has little to say about that. However, most of the rapid growth of cryptocurrencies has not been due to criminals.  The use of cryptocurrency as money and for investing has also gotten the attention of monetary authorities such as the U.S. Federal Reserve System.

A Fed[eral Reserve] president predicts the Bitcoin boom won’t last. Really? There is little risk of that prediction being wrong. There is far more risk of being wrong by predicting a big bust will be very soon.

Bitcoin’s Rise Should Make Regulators Ask if the Fed’s Policies Have a Hand in It: WaPo

"While calling the Fed justified for trying to boost the pandemic-afflicted economy by encouraging investors to put their funds in job-creating activities instead of parking it in banks or government bonds, the lack of investment opportunities has driven many to chase yield via 'speculative vehicles - bitcoin very much included', the newspaper said." (WaPo).

Heh. The Fed people want control. The Fed people or the WaPo editors -- maybe not intended -- call investing in government bonds, which supports more government spending, a non-job-creating activity!😉 It is surely the opposite of what they so often say.

GameStop again

The Gamestop bubble is an age-old financial craze with a modern twist

It is much like the speculative tulip bulb mania of 1636, also made more manic by options.

GameStop's Reddit Raiders: Goliath Beaten by David, Then They Change the Rules

It is not true that all the Davids were speculating on the rise of GameStop's stock price and all the Goliaths were short-selling. There were both Davids and Goliaths on both sides. Parts of some Goliaths like Fidelity and BlackRock enjoyed the upward ride. Link.

The author Ron Hart asks how is it legal that more than 100% of GameStop stock is being sold short. Assuming he believes it shouldn't be legal, I agree. A person can't lend what he or she doesn't have. However, suppose a friend and I place a pure side bet on the price of a given stock now at $50. If it rises to $P my friend pays me M*(P-$50) and if it falls to $P I pay my friend M*(P-$50), M being a chosen multiple. Neither of us owns or has borrowed any shares of said stock. Either of us can stop the bet at any time. Our bet should not affect the actual market price $P, no more than my friend and I betting on the outcome of a Super Bowl game or the World Series.

With options (futures, too, if available for GameStop) on said stock that are cash settled we could actually transact with neither of us owning or borrowing shares, and make a similar bet. (If settlement must be in shares, e.g. the buyer of an exercised call option must receive shares, then there is a tie to the actual share market.) One of us is in effect betting on $P to rise and the other $P to fall. One of us is in effect going "long" and the other "short." 

Because option trades can be made in this way, it makes sense for Hart to say that more than 100% of GameStop stock is being (in effect) sold short. A strict legal limit on shorting -- the short side must actually borrow shares owned by somebody else, and the owner can't lend any more shares than he or she owns -- makes sense. The other way of "shorting" via options is somewhat a conundrum and a workaround strict short-selling.

A moralistic crusader such as Liz Warren likely smells a rat here and is eager for government intervention whenever she believes there is something wrong. Of course, any laws or regulations she would likely dream up as a "fix" would likely make matters worse.

Hart writes, "They stopped buy orders in GameStop, allowing the price to drop and bailing hedge funds out -- to the detriment of the Reddit Raiders." (For some, not all.) It was not necessarily a detriment. If a client is prevented from buying high followed by the price plummeting, that is beneficial to the client.) Hart did not outright say they -- I assume he meant Robinhood, the place where most Reddit Raiders do most their trading -- were wrong to do so or why. However, there are plausible reasons why Robinhood did what they did other than assisting the short sellers (mainly hedge funds), but that was the only plausible reason Hart gave. Perhaps Robinhood didn't have the lending capacity to support some transactions. Indeed, Robinhood's CEO denied any collusion with hedge funds. He said the limits were necessary "to meet the clearinghouse deposit requirements that we pay to support customers trading on our platform."

Michael Burry, who made lots of money in 2008-9 on credit default swaps, sold GameStop before its surge.

Frustrating banking experience

I have a Visa credit card issued by Bank of America (BoA). Recently BoA emailed me an offer for bonus $$ to open a new checking or savings account with BoA. The $$ were large enough that I tried to set up and make a deposit on my computer using a check (phone for photos of check) that another bank had mailed to me. That didn't work. I called BoA, since how much I could deposit was restricted -- well below the amount stated in the email. I couldn't do it on my computer in any way. I asked for a mailing address in order to make the deposit by snail mail. The help desk person said BoA accepts checks by mail only on closed accounts! I was told I had to do it using BoA's app on my smart phone. That didn't work either. Then the help desk person said I could make the deposit at an ATM.

There is a BoA ATM only about 2 miles from my house, so I tried that. After inserting my BoA credit card in the ATM and entering the last 6 digits of the credit card number, what appeared on the ATM screen was a stranger's debit card with the same last 4 (maybe 6) digits. The ATM instructed me to enter the stranger's PIN. I didn't know and didn't try. I might have been extremely lucky guessing and been able to withdraw some cash from the stranger's account. On the other hand, a video camera was probably recording me! Anyway, it was weird and a little scary to be in the position of possibly making a cash withdrawal from a stranger's debit card account with my credit card.

I was asked to hold my smart phone in front of the ATM's scanner, presumably so that a BoA image could be scanned. I was clueless about what it wanted to scan. Anyway, the display on my phone then wanted to, I assume, tie my credit card to Google Pay. I don't have a Google Pay account, nor do I want one. I have a PayPal account that I opened many years ago to transact on eBay. Google Pay seems to me like a copycat of PayPal. However, I suspect it comes with Google trying to google and spy on everything I do on my phone in order to bombard me with more advertising. No thanks! I get more than enough advertising from my gmail and Google newsfeed already.

Back to the BoA story. The help desk person said there is a BoA branch within 4 miles. Wrong; it is only an ATM. The closest branch is 25 miles away. 

After this incident I will be evaluating whether or not I should even keep my BoA credit card. Some stranger might successfully get a cash advance charged to my credit card with his or her debit card!

David French on abortion

David French: How To Be Pro-Life in Joe Biden’s America

I have read a few articles by David French and believe he is a very good writer. I don't agree 100% with what he says, but the article is worth the time to read it. 

One issue the article doesn't address is coercion -- the use of physical force or threat for X to get an abortion, more importantly, for Y to pay via taxes for X's abortion. 

Ayn Rand wrote little about abortion., and I may have not seen all of it. Leonard Peikoff wrote, "Abortion is a moral right—which should be left to the sole discretion of the woman involved; morally, nothing other than her wish in the matter is to be considered." 

I don't wholly agree. It's not her sole discretion if other people are coerced to pay for her abortion. It's not her sole discretion with a wiser husband or doctor and no coercion.   

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Nancy Pelosi and rules

FoxNews: Calls for Pelosi to pay fine

Apparently Nancy Pelosi's mindset is that 'rules are made for other people to follow.' It's hardly the first time she acted similarly, e.g. her incident with the hairdresser.