Saturday, January 13, 2018

Korean backlash to planned Bitcoin trading ban shows that crypto could get out of control

A recent event from the life of the Bitcoin cult looks like a punchline from a comedy. A Bitcoin conference in Miami – a gathering of the people who propose a new financial system to the world – had to cancel payments for the conference in the Bitcoin because the fees are too high and the network suffers of congestion. You can't make it up!

Meanwhile,, a major Bitcoin exchange located in San Francisco, started a "two-hour-long" upgrade on Wednesday. Almost three days later, the website is still down and the circumstantial evidence makes it increasingly clear that they have screwed something a big time – or have stolen all the funds. Two hours ago, they were really promising an imminent relaunch again – we will see. Or not. (At 12:25 after the lunch, Prague Winter Time, a seemingly operational page with a completely screwed basic design appeared – "styles" don't load.)

There have to be lots of cryptocoins there that the owners believe to be worth billions of dollars. But almost no one is protesting or talking about it because in the Bitcoin-based financial world, this kind of a "delay or cancellation" is the business-as-usual. On top of that, all the Bitcoin cultists have to be silent about the bad news because they're frantically terrified by the fact that to say the truth means to make the value of their "assets" collapse. It's a scheme that turns the members into chronic liars.

Meanwhile, the U.S. finance minister Mnuchin said that they are creating a crypto committee and its main goal is to make sure that the cryptocurrencies won't be used as the anonymous numbered Swiss banking accounts. Well, they already are used in this way.

But it's the events in Regular Korea that are probably most far-reaching for the fate of the cryptocurrencies at this moment. (North Korea loves the Bitcoin – a typical communist plot – and apparently uses it effectively to circumvent the sanctions and do other things.) A few days ago, Korea's justice minister Park Sang-ki said that the country would ban all trading of the cryptocurrencies. (From January 20th, anonymous trading and trading by minors should be banned according to older decisions.)

Korean law enforcement officials have also "raided" the largest crypto exchanges in the countries because of suspected tax evasion. The cryptocurrencies slided by some 15% as a result.

Well, it turned out that the justice minister was outlining his plans which weren't necessarily approved by the whole government. The whole Korean government, including the finance minister, agrees that the overheated Korean cryptocurrency market needs a fix but the finance minister probably doesn't want as principled and straightforward a fix as the justice minister.

The Korean public is the most affected nation among the large ones in the world. Some 30% of Korean workers have made some investments in the cryptocurrencies and Korea is full of Bitcoin zombies – the undead people who are watching the Bitcoin price movements 24 hours a day.

It's not clear whether the complete ban will be adopted – the government and most of the lawmakers would have to agree – but the reaction to the warning/plan by the justice minister was already rather intense. In total, about 100,000 people signed petitions, well, 4000 petitions and not just one, that protested against the planned ban. Some of them demanded the resignation of the justice minister who has "manipulated the market".

Now, this is a comment that deserves some detailed discussion. Has the minister "manipulated" the cryptocurrency market and was it illegitimate? Well, he has surely affected it – and manipulated it in this sense – because he has declared his plan to ban and destroy the cryptocurrencies. Of course the plan to liquidate something that some people consider an "asset class" could be counted as manipulation. But does he have the right to do so? You bet. I think it's uncertain whether the justice minister really needs the rest of the government to act.

But was the "manipulation" illegitimate? Why are these people protesting?

It's easy. They believe to have lots of wealth in the cryptocurrencies and the price of the cryptocurrencies – the fictitious price that they can't ever get out of it simultaneously because there isn't a sufficient number of buyers who would buy it anymore – dropped by some 15%. So they don't like that their perceived wealth has dropped by 15% and found a culprit – the Korean justice minister. So far so good. The only problem is that it is obviously totally OK for him to express his negative opinion about the cryptocurrencies and even to plan moves that will tame or abolish this market.

They think it was a "bad manipulation" but their internal label for this "bad manipulation" is "FUD", an acronym that stands for "fear, uncertainty, doubt". It's an acronym so it sounds rather modern but when it comes to the meaning, it's just a synonym of a "heresy". According to these Bitcoin losers, every negative statement about the Bitcoin is a heresy. It's not hard to see why. They paid some real money – a thousand of dollars – and expect their thousand of dollars to grow to one billion dollars because everyone will say nice things about this irrational movement and almost everyone will join the bubble.

That may be a nice wishful thinking for somebody but it also shows that these people are lazy dishonest parasitic bastards who suck and who want to contribute to the world by sitting on their aß and harassing all the people who dare to say the truth. There is actually no important role played by the Bitcoin in the future, the Bitcoin price – which should be zero if people were sane – won't grow by additional orders of magnitude, and quite generally, wealth and progress can't be produced by sitting on the aß or "HODLing", as these people call "sitting on their aß". Almost all of these losers will be forced to "HODL" up to the very end and they will have nothing.

A funny point about the "manipulation of the Bitcoin price" is that it is extremely easy to "manipulate it", indeed. Jamie Dimon – who still "isn't even interested in the Bitcoin at all" – just said that it was fraud and the price went down by some 15% because of that, too. When regulators say something "bad", the price goes down. When someone says something "good", e.g. "we will adopt it", the price goes up. (Canadian KFC is accepting Bitcoins now – and warning that the bubble will burst at the same moment.) The price is so easily manipulated exactly because the Bitcoin and its virtual siblings aren't pegged to any material assets – and they're not even pegged to any political or economic privileges or commitments of any central banks or anything that would play its role.

The Euro is considered to be a flawed project by many economists and politicians but the exchange rate doesn't drop by ten percent when an important economist or politician criticizes the shared currency because by construction, the Euro – like any fiat currency – is designed so that its value is actually affected by moves by the independent European Central Bank (or other central banks) which is separated from almost all the actual users "who care" whether the value is high or low. That doesn't exist in the Bitcoin case which is why the price is all about "manipulation" and random mood swings of the herd of sheep that trades this piece of nothing.

So the current market price of one Bitcoin is a random number evolving roughly as an exponentiated random walk. 100% of that price may be considered noise. When you subtract the noise (without exponentiation), you get the only correct, fair, and sustainable price, namely the intrinsic value of the Bitcoin, and that's equal to zero.

OK, so the volatility is due to the complete absence of any real assets or commitments underlying the Bitcoin price. And that's why it's easy to manipulate it. So everyone who buys or sells the Bitcoin is manipulating it, and so is everyone who says something "good" or "bad" about the Bitcoin.

In particular, everyone who has ever bought the Bitcoin has clearly manipulated the price. The price before the manipulation was zero – and pennies some 8 years ago – and the people who bought it and spread hype about the Bitcoin have manipulated the Bitcoin price so that people in this "business" currently pay $14,000 for this worthless piece of virtual šit.

The only difference between the Bitcoin buyers, propagandists, and cultists on one side; and the justice minister on the other side is that the former have "manipulated" the price upwards while the minister has "manipulated" it downwards. Is the manipulation upwards morally or legally better than the manipulation downwards?

I hope not. They're just two opinions with the opposite sign. In every sensible market, there may be bears and bulls, sellers and buyers, and they have to have equal rights. Should the bulls who believe the growth of the Serbian dinar relatively to the Russian rouble be demonized or punished? It makes no sense. If the Bitcoin were a commodity that is supposed to be rationally traded, no one would even think about the legal or ethical difference between manipulators who are bulls or bears, respectively.

But the Bitcoin is nothing like a rationally traded commodity. It's a religious cult. And that's why the symmetry is completely broken in the minds of the cultists. Praising and hyping the Bitcoin is always "good", saying the truth about the Bitcoin which sounds negative is "bad". This raping of the truth by this religious cult is what primarily turns me into a Bitcoin hater. I just hate the self-evident and extreme dishonesty of these people. It's clear that (and why) they would prefer the price of something they own to go up. But that doesn't mean that they are entitled to force the world to make it go up. They are not allowed to harass the pundits who just point out that the Bitcoin is still worthless, despite the impressive bubble that the growing irrational cult has nurtured, and the people in this cult still suck, and the cryptocurrencies should be treated along with other Ponzi schemes or pyramid games.

Since the Bitcoin futures began to be traded at the CBOE, CME exchanges, the symmetry between the positive and negative trends was largely restored. Just a month ago, people (including Bitcoin haters such as myself) could think that the "growth to the Moon" was far more likely – the mania was unstoppable blah blah blah. But the existence of the short selling suddenly makes it clear that the positive and negative bets are "comparably likely" to be proven true. After all, the futures trading starts to matter. Some 10,000 Bitcoins worth of contracts are traded on the two exchanges every day – that is more than the 1,800 new Bitcoins that the miners create every day and need to be dispersed. And it seems very likely now that on January 17th, the first expiration date of the futures, almost all the Bitcoin bears (skeptics) will be paid nice profits – the price has gone down from the beginning.

Nassim Nicholas Taleb, the guy who invented the "black swan" meme, is obsessed with overhyping the probability of events that people generally consider very unlikely. In some cases, he may be right, in most cases, he's wrong – in most cases, he is just another fearmonger. When the futures trading was getting started, he was spreading the hype that to short sell the Bitcoin was basically equivalent to suicide if not the Armageddon for the world because the price of the Bitcoin can go to infinity.

Well, this is a typical opinion that the Bitcoin cultists love (and many of them repeated) – I am not sure whether Taleb may be counted as one of them but he's surely aligned in this respect. You know, as I already wrote, the sane view is that the bulls and bears are completely symmetric. If you don't have any stop losses (everyone has them), shorting the Bitcoin may be very expensive for you if the price of the Bitcoin increases by an order of magnitude. And a whole clearing company may go bust when too many bad positions accumulate, during the short squeeze etc.

However, it's still rational to say that "bulls and bears are symmetric groups". After all, there's a simple way to reorganize the trading and reverse the position of the two "currencies". If you think that shorting BTCUSD is "extremely risky" for the short sellers, you may sell the inverse futures, USDBTC. Just express the value of one dollar in the units of one Bitcoin (it's equal to one over the Bitcoin price, 0.000071 now), and people may enter long or short positions in USDBTC – which are almost exactly the same thing as the short and long positions (the order is opposite) in BTCUSD (the order of two currencies is reversed, too).

So it's just damn obvious that the BTCUSD bulls and bears are analogous – except that the bears are rational. But if you really don't know what will happen, and we don't know it for the following months (or in another comparably short-term perspective), the bulls and bears have "equally risky positions". Taleb's and Bitcoin cultists' ideas that to be bear is "suicidally risky" while it's OK to be a bull is nothing else than the ultimate bias resulting from the irrational pro-bubble religion.

Think about a more rational Forex pair such as EURUSD. The Euro is worth some $1.22 now – yes, it has strengthened. (And yes, one dollar is below CZK 21 now – it was CZK 26 a year ago.) Does it matter that we trade EURUSD and not USDEUR? Note that $1 is equal to €0.82, you can invert the price. Well, the EURUSD and USDEUR contracts would differ by a multiplicative factor of 1.22 (you can just buy a different number of contracts so it's not a "real" difference) – and their behavior only differs by terms of the second )(and higher) order.

These terms may be expected to be small because the exchange rate probably won't double or halve anytime soon. But these large movements are comparably likely. It's just nonsense that one of the bets is intrinsically much more risky than the other one.

When the futures were introduced, lots of people swallowed the apple from the Garden of Eden. Up to that moment, they could think that there was something "holy" or "guaranteed to win" in being a Bitcoin bull. Suddenly, people may short sell the Bitcoin, too. (In practice, there exist hard data showing that the institutions are generally shorting the Bitcoin while the small ordinary Joes are going long. Yes, I find it clear that the Joes are the morons.) So the two positions are analogous. It's pure gambling, at least in the short run.

And indeed, the Bitcoin price stopped growing – right now, it's lower than where it was one month ago when the futures trading started at CBOE, and some 30% below the peak (which may turn out to be the all-time peak – in that case, the Bitcoin price chart will look almost indistinguishable from the amusing "chart of the bubble"). For some time, the Bitcoin price may behave as a random walk but "investors" will realize it's too little, they expected more (systematic, fast, almost safe, and reliable growth to the "Moon"), and they will start to abandon the ship, driving the price of the Bitcoin towards zero.

But let me return to the title. I think that the number of people who wrote petitions against the Bitcoin ban in Korea, and who wanted the justice minister to be beheaded etc., was high. The Korean government was said to be "shocked" by the high number. Is the number really too high? It depends how you define "too high" or what your expectations are.

These 100,000 people clearly aren't an isolated group who write a petition about a fringe topic. It's a group of people that may fill a large square in Seoul. On the other hand, 100,000 is just over 0.1% of the population of South Korea – which is some 76 million. So it's a large group that starts to be visible and that could potentially establish its own political party (or overtake an existing one) but that party couldn't think about winning the elections yet.

But if the exponential growth continued (I think that it was stopped by the introduction of the futures), those 100,000 could easily grow to 10 million. Just add two orders of magnitude. In 2017, the reach of the Bitcoin fever has increased by an order of magnitude – so two years of this exponential growth could be enough to turn the Bitcoin cult into a dominant political force in South Korea!

So while I agree with those who say that the cryptocurrencies are a tiny fraction of the wealth and especially of trade or another meaningful economic activity in the world (e.g. with Mojmír Hampl of the Czech National Bank) which is why the central banks and commercial banks don't have to be afraid of them, don't need to regulate them etc., I also think that these folks underestimate how quickly an exponentially growing function could qualitatively change the situation and the rules of the game.

In particular, if the Korean government is already terrified by the number of the people who violently defend their Bitcoin cult, then it means that these activities should better be banned as soon as possible because one year or two years later, the government could indeed fail to have enough power or determination to decide – the situation could get out of control. The Bitcoin is still (and will be) unusable as the basis of any modern economy so it would mean a huge problem for South Korea, too.

These warnings only apply to South Korea right now. I don't think that any other country has been so infected by this irrational postmodern religion. But hypothetically, with some delay, such an escalation that is driven out of control could plague any other country. Exponentially growing trends that have already "converted" several percent of the population simply shouldn't be ignored. It's straightforward to ban these things – but when the situation changes sufficiently dramatically, you may be so terrified that you will prefer not to ban it anymore.

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