Bitcoin: Headed to the Stars?

Bitcoin blew by another milestone.

This morning, the world’s first cryptocurrency hit a new record of $9,680.

It started off the year trading at just $997.

I can’t believe what happened,’ said a friend.

I bought $1,000 worth in 2012. Bitcoin was trading at about $8 at the time. Then one of the big cryptocurrency exchanges, Mt. Gox, was hacked and almost $500 million worth of bitcoin was stolen. I got out.

If I had just held onto my stake, it would have been worth more than $1.2 million today.

Lighter than air

You hear stories like that all the time now. They are bull market stories. The hero regrets having sold too early.

Later on come the bear market stories when he regrets having sold too late.

But let’s enjoy the bull stories now…while we can.

The typical story has its hero…and its villain. The hero bought bitcoin when everyone told him not to. Now he’s regarded as a genius. Even his father-in-law is asking his opinion on everything from politics to cocktail recipes.

Last week, the geniuses multiplied…

From what we can tell, bitcoin is headed to the moon. Or to Hell.

Weightless…frictionless…why not?

If it hit $9,000…why not $90,000…or even $900,000?

Bitcoin is a perfect ‘investment’ for the fake-money era. Lighter than air. Not here; not there. Neither animal, vegetable, nor mineral.

Immaterial. Implausible. Imponderable. And immeasurable. There is nothing to hold it back.

Faked earning

Almost all assets are overpriced or fraudulent — usually both. Something was bound to soar to the top of this gassy heap. Why not bitcoin?

Stocks have been bid up to the sky by fake money from central banks.

Management teams took the Fed’s super-low-interest-rate loans and pretended to be investors — buying back and cancelling shares in the corporations they run to boost earnings per share.

Unbelievably, the only net buyer of US stocks since 2009 has been corporations themselves!

Earnings were faked, too, using ‘non-GAAP’ adjustments to make it look like they were more profitable than they really were.

The third quarter of this year may have set a new record. Of the 30 Dow companies, 14 reported ‘adjusted’ earnings, rather than using the old-fashioned Generally Accepted Accounting Principles (GAAP).

And those 14 companies reported adjusted income 26% higher than the GAAP numbers would have shown.

One case, drug maker Merck, stands out. It took a loss of 2 cents a share and turned it into a profit of $1.11.

How did it do that?

We don’t know exactly, but the usual magic depends on declaring certain expenses ‘one-time-only outlays that might give investors a misleading picture of the regular and usual earnings of the business’.

That gets you through one year. Then, the following year, you find other mistakes that you swear you will not repeat. 

Hocus-pocus accounting

In smaller companies — especially in the tech sector — the practice is even more extreme.

Twitter, for example, showed a loss of $21 million in the third quarter. But with a little hocus-pocus on the ledgers, it was able to turn that into non-GAAP earnings of $78 million.

Bitcoin is perfect for this kind of market. It doesn’t have to deceive investors about its profits. It has none.

And, of course, the statistics and metrics we use to keep track of the economy have also been faked.

The feds claim full employment when there are more working-age men without jobs than ever before. Consumer price inflation is seriously miscalculated — as everyone who goes shopping knows.

We don’t shop often. But, the other day, we bought a pomegranate. It cost $2.50. The lady at the checkout was appalled. ‘Do you still want it?’ she asked.

‘Real’ (inflation-adjusted) GDP is still rising modestly, but only if you adjust it by the fake inflation number. If you applied a more realistic figure, it would show the US economy in recession for the last 10 years.

Real deal

Meanwhile, the world’s governments go further into debt on the fake premise that they will pay it back.

Bitcoin has no problem with debt, either. Nor does it have any of the fake qualities of other investments. It is 100% real…or at least 100% not fake.

It has no sluggish, greedy management to mess up the company’s business…no rising material costs to squeeze its margins…no wages to renegotiate…no bonuses to pay…none of the things that pinch profits.

And it doesn’t have to tell lies. The truth is strange enough.

One new crypto ‘coin’ was called UET. Its promoter explained the investment thesis as follows: ‘You’re gonna give some random person on the internet your money.

UET stands for Useless Ethereum Token — a reference to the second-largest crypto asset by market value, Ethereum — and has a logo with someone giving you the middle finger.

Nevertheless, it still trades…for approximately nothing.

Here at the Diary, we’ve been sceptical of bitcoin…but ready to be impressed.

Our sons think it’s the real deal — le dernier cri in money circles. They took some of the family money and invested it in cryptos in June. In less than five months, we’re up more than 200%.

There’s nothing like success to stop the learning process. You don’t ask questions when prices are rising.

Still, we can’t help but wonder. Maybe the mysterious creator of bitcoin, Satoshi Nakamoto, was a genius. But it’s unlikely that there are so many others.


Bill Bonner,

For Markets & Money

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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