- random mood swings, as always, which are amplified because most of the "traders" are momentum traders
- China's new desire to ban cryptocurrency trading including some "clever" methods outside the big Chinese public servers
- Korea's repetition of the claim that a complete ban is still possible
- U.S. plans to regulate the cryptocurrencies
- the first expiration of the Bitcoin futures today
Bitcoin "traders" are clearly doing their best to fit the elephant in the room – the semi-satirical textbook graph of the history of a bubble (which has been around for years!).
It seems that almost all those who listened to the advise by TRF and shorted the Bitcoins when CBOE offered the first professional Bitcoin futures trading on December 11th will make nice profits today. These Bitcoin bears or skeptics will be paid cash by the Bitcoin bulls. The number of settled cash positions may be comparable to 100,000 by now so it's no longer negligible relatively to the 16.8 million Bitcoins that exist, or tens of thousands that are traded on Gdax every day etc.
The people or institutions that have opened positions must scale them down a bit before the expiration date. Because this whole game is a zero-sum game, these two effects could be expected to cancel each other. Some bulls close their positions, some bears close their positions.
Unless, of course, one group visibly dominates among those that are "forced" to close their position before the expiration date. Because the Bitcoin bulls are generally at a loss, they are more likely to be forced to close their positions prematurely – although I haven't studied these rules in detail. That would push the Bitcoin futures price down, and the Bitcoin spot price would go down because of the arbitrage, too. So the prematurely closed long BTC futures position may be an explanation of the drop that we saw yesterday.
When the contracts are settled today, it's a cash settlement that won't impact the Bitcoin trading "directly". The Bitcoin pessimists will earn their first well-deserved money while the Bitcoin optimists will have to pay – sometimes for the first time. It's just some flow of cash that doesn't change the supply and demand for the real Bitcoins directly.
However, there surely exist "indirect" consequences of the cash settlement. Well, they're probably not too "indirect". Someone may call these consequences "direct". In particular, the Bitcoin bears will be somewhat richer (they will get some cash today) and therefore more powerful, while the Bitcoin bulls will be poorer and therefore less powerful.
If you assume that the holders of the Bitcoin futures positions are "systematic" i.e. their tendency to buy long or short contracts is a "constant" of their life, you might expect that the Bitcoin bears who will be paid some billion of dollars today will transfer their bounty to the new futures contracts, and will therefore push the price down, too. The Bitcoin bulls won't get new money today – they will lose some – so the demand for the short positions may increase more quickly than the demand for long positions today.
Does anyone believe to have a reliable enough prediction what will happen with all the prices at the moment of the expiration? Do you expect discontinuities? How big, in which direction? I do expect some extra decrease of the price (which may escalate and become the crash towards zero at every moment).
Bitcoin and statism
But I chose the title about "statism". Tony told me I was a statist because I am a critic of the Bitcoin. Tony isn't the only man who has raised this accusation. Recently, I heard it e.g. from ML, an aide to ex-president Václav Klaus. "Oh, I am surprised and disappointed that [you are against the Bitcoin]," I was told. To some extent, folks like Ron Paul share this sentiment. If you're pro-freedom, anti-big-government, libertarian, you have to root for the Bitcoin, we are told.
Of course, if you define the libertarian etc. to be a Bitcoin supporter, this statement may be redefined to be true. And yes, I generally think that people should have the freedom to spend their money in any way they want – perhaps including the pyramid games and the stupidest forms of gambling. Otherwise I am deeply puzzled by the accusation, especially after those weeks in which I read lots of comments by the Bitcoin cultists, especially at the Bitcoin Reddit forum. They're obsessed with some kind of privacy which gives them points for being individualists of some kind but otherwise they seem like far left-wing nut jobs, radical warriors against capitalism.
The reasons why I make this conclusion look obvious. They think that all the existing pillars of the capitalist financial world – including commercial banks, hedge funds etc. (whose leaders generally agree with me concerning Bitcoin's being worthless and the Bitcoin economy's being unable to replace basic things that we know in the economy based on stable currencies) – are dinosaurs who need to be eradicated.
On top of that, these people tend to act as extreme collectivists. "We must HODL together," many of them say, "and if all of us HODL, we will defeat the enemy". The enemy is capitalism as we know it – and the institutions that symbolize it, such as big banks, hedge funds, and stocks as a key portion of people's investment portfolios. And they even say "don't care about the exchange rate, we're building a rosy future instead". Well, I've heard a lot about such "building of a rosy future" during communism. (BTW you may check the article To understand the Bitcoin, [someone] studied Karl Marx to be sure that there is a link.)
Needless to say, the "success" of the Bitcoin and 1400 related volatile cryptocurrencies depends on their high price – which is the only visible thing they have achieved so far, by HODLing (passive sitting on their aß and doing nothing useful). The price depends on "good press" that the cryptocurrencies are getting, and that's why the fans of this stuff focus on fighting against the critics (every criticism, however accurate and essential, is dismissed as "FUD" i.e. a heresy) and on spreading absolutely dishonest and breathtakingly idiotic positive memes such as "the Bitcoin is safer than stocks if not the U.S. dollar".
But that's what makes them community organizers, hard core leftist propagandists. If something is libertarian business based on freedom and people's maximizing their well-being, the money, prices, and exchange rates must be absolutely neutral morally. Someone who has a more positive or negative opinion about an exchange rate than someone else cannot be portrayed as an evil person. People must have the freedom to decide how much they value something, what they want to buy. In particular, most people must remain free to think (well, know) that the Bitcoin is inherently worthless. The Bitcoin fans may buy it for $10,800 (current price, drop by 2% since I started to write). These two people simply have a different opinion about the value. One of them may make a profit, another one can make a loss. But it's not a moral issue.
Especially if you're buying a coffee, you don't want to be attacked for ideological reasons.
The Bitcoin cultists are effectively politicizing all these questions that should be treated totally calmly and apolitically. That's another respect in which they are "like the communists". They want to force everyone to believe something – even if it is totally ludicrous. The distortion of the Bitcoin price from zero to $11,000 is analogous to the fake exchange rates that commies defined for the communist currencies. The Czechoslovak crown was officially worth some 1/5 of the U.S. dollar, except that you could only sell the U.S. dollar at that rate at the Czechoslovak communist banks. If you wanted to buy the U.S. dollar, you had to go to the actual market – which was considered a "black market" by the retroactively illegal communist laws – and you only got 1/30 of a U.S. dollar for one Czechoslovak crown. Now, the claim that "the Bitcoin is far more valuable than almost all people think" is analogous to the communists' overestimate of the value of their currency, it's unsustainable in a market with rational players, and much of this distortion of the prices is rooted in ideology and the collective desire of some movement or nation to portray itself in nicer colors than the true ones.
There's another sentiment that makes the Western libertarians or "libertarians" – including folks like Tony and perhaps Ron Paul – hate lots of things that I consider basics or great examples of communism. I already saw it in the discussion of net neutrality. Tony, Ron Paul, "conservative" fans of net neutrality, and other self-described libertarians simply got used to identifying a certain kind of companies with "the big government" if not "communism".
The victims of this demonization are the Internet Service Providers (in the discussions about net neutrality), commercial banks (in the discussion about the proposed Bitcoin economy), and the concept of the fiat money (the same context). Comcast or maybe even Bank of America may look like socialist dinosaurs, indeed. Every big company may look like that. And indeed, too big companies – especially if they acquire some kind of monopoly – may behave in a more socialist way.
But they're still companies and technologies that are pillars of capitalism. I was lucky to live through the transformation of communism to capitalism – and I consider myself a person who has contributed to that transformation. So I could see the birth of many new banks, the birth of new Internet Service Providers, and other things. And I could follow the policies of the Czech National Bank for decades. 25 years ago, we or similar folks who were approximately 20 years old were building actual capitalism that works and that made the people vastly wealthier; young folks who are 20 years today are sitting on their aß, "HODLing", and praising a worthless would-be currency. The trend looks terribly disappointing to me.
The national fiat currency is a useful tool needed for modern capitalism that is basically created "from the bottom", because people need it. They need a currency whose value makes it "constantly fair". You roughly know how the prices will behave, at least some average ones, so both the buyer and seller face equally big risks. None of them enjoys some big advantage or disadvantage. If you hold some product, like a used car, for a year, it's about the same as holding cash. The people who hoard cash – or spend all their cash – aren't guaranteed to be winners or losers. That's what makes the fiat currency flowing, that's what makes it usable.
All the central banks just dictate the stability of the currencies so that they're predictable. This is needed for a currency that is usable for constantly fair purchases and sales, for your ability to hold cash (or debt) instead of products and assets, or vice versa. In this sense, the central banks play a similar role as judges and courts that are simply enforcing justice. By setting the interest rates and targeting the inflation rate etc., central banks are playing the role of arbiters between buyers and sellers, borrowers and lenders, and so on. You need such an arbiter because you need people to be able to hold predictable enough, and "constantly fair" money that may be used to consume or invest in the future (or, if you borrow, that allow you to consume or invest now even though you only expect to earn the money in the future).
Central banks are perhaps a part of the government and I don't know whether they make the government "big". I am just absolutely sure that nothing in modern capitalism could work well without the stable currencies that the central banks provide us with. And if the rules what the central banks should do are basically determined, i.e. if the behavior of central banks is nearly deterministic, then they have (nearly) zero power. So regardless of the unlimited "physical ability" to print the money, the accusations that they make the government too powerful are demonstrably and obviously idiotic. If someone's behavior is completely determined, then he has no free will and therefore zero power. On top of that, the real U.S. economy wouldn't change much if the U.S. adopted the Euro, the Czech crown, the Chinese yuan, or some similarly behaving currency brought by the extraterrestrials. Who issued it is irrelevant and whether a picture of Mao appears on the banknote is a cosmetic technicality. What matters is only how it behaves – whether the average prices will be stable and predictable.
Analogously, I've seen lots of telephone service and Internet service providers that were built from scratch after 1989. Some others weren't built from scratch – they used the existing infrastructure from the communist times, or were built by foreign companies (that may be accused of being socialist dinosaurs, too). But it's enough to see that all ISPs are basically doing the same thing as the "clearly capitalist ones, as proven by their birth certificates", and they compete with each other just fine. The same may be said about the commercial banks. They compete with each other – and with the banks that were clearly built from scratch when capitalism was restarted in my country.
So it seems obvious that all the ISPs and commercial banks and many other "umpopular" companies must be considered full-blown examples of capitalism, companies that people created in order to create a profit by serving other people's genuine needs that they're willing to pay for. I surely consider ISPs and banks important – I contribute to the demand for these services. For this simple reason, I don't see any substantial difference between a self-described "libertarian" who wants to destroy the commercial banks or ISPs and replace them by some egalitarian, global "net neutral" universal provider or a global universal (crypto) currency; and Vladimir Lenin and similar Bolsheviks who were doing these things, destroying capitalist owners, sending them to the Gulags, and building international communism with the help of Aurora and similar tools.
The ISPs and commercial banks are parts of the capitalist economy and a systemic attack against them is obviously a systemic attack against capitalism – real-world capitalism – as such. Maybe it's because my position in the formative years – I considered myself a builder of the new capitalist economy including the old-fashioned brick-and-mortar commercial banks – but I just wouldn't hesitate for a second whom I root for in this apparent conflict between the regular banks and meaningless cryptocurrency exchanges; in the conflict between the system with regular banks that has worked for centuries and an ideologically driven replacement that isn't used in the real legal economy because it obviously cannot work well; between stocks and virtual currencies in investment portfolios (only the former may be considered a serious investment).
From my viewpoint, these self-described "libertarians" are just another bunch of anti-capitalist jihadists, another example of extreme leftists.
And that's the memo.
When I wrote the blog post, the price was around $11,000. Now, some hours later, it's oscillating $9,700 at Bitfinex (40% of trading volume), Gdax (union with Coinbase, 20% of trading volume) and Bitmex (where leverage, shorting is possible). I hope you understand that I can't constantly update the price in this text LOL.
HODLers continue their heroic fight. ;-) Other cryptocurrencies are dropping a bit faster, for example, Ripple dropped by 75% from the recent (all-time?) peak.