Connect with us

Economics

Pride Goeth Before The Bitcoin Fall

Pride Goeth Before The Bitcoin Fall

Submitted by QTR’s Fringe Finance

Pride goeth before destruction, and an haughty spirit before a fall.

-…

Published

on

This article was originally published by Zero Hedge

Pride Goeth Before The Bitcoin Fall

Submitted by QTR’s Fringe Finance

Pride goeth before destruction, and an haughty spirit before a fall.

– Proverbs 16:18

Many people already know some of my controversial takes on bitcoin, not the least of which is the idea that I believe a crypto cataclysm could be coming, and that China could be side-stepping a global economic crisis by bowing out of the crypto world.

You can read those thoughts here: Is China Sidestepping A Crypto Cataclysm No One Else Sees Coming?

So I was very interested when, last week, Kitco posted a debate between Peter Schiff and Alex Mashinsky on the merits of bitcoin versus gold.

Schiff is CEO and chief global strategist of Euro Pacific Capital and a large proponent for buying gold as a safe heaven to preserve wealth.

Mashinsky is the CEO of Celsius, a CeFi lending platform operated by use of blockchain technologies, and a proponent for bitcoin and cryptos as assets.

I want to start this piece off by saying two things.

First, just know I’m going to get a lot of shit from bitcoin bulls about it. If you’re one of those bulls already thinking about giving me shit, I encourage you to read some of the points I’m going to make here and not immediately try and throw a wet blanket over this entire article.

Second, I want to make the points that (i) there are some things about bitcoin that I like and (ii) that I have exposure to some crypto related names. I like the idea of bitcoin, I just don’t know if it is going to stand up, long-term, in practice. Like many people, for a preservation of wealth and store of value, I am much more comfortable holding gold.

Furthermore, I agree with the problem that a lot of bitcoiners are trying to solve: that the central banks are completely out of control and are doing more harm than good. So hopefully, if you are a crypto advocate, you don’t see this article as me widening the gap between us, but rather trying to identify some nonsense in the space that I think can help inform both bitcoin skeptics and those who are bullish.

Source: Kitco

When I first saw that Peter Schiff was debating Alex Mashinsky on Kitco news, I knew it was a debate that I wanted to watch. Before I even started watching the interview, I saw a disclaimer on Twitter written by Peter himself, where he apologized for losing his temper.

I couldn’t help but wonder what, exactly, took place during the interview, as I have watched hundreds of Schiff interviews and have never seen him lose his temper. In fact, sometimes, I lose my temper watching the videos and get mad at Peter for not losing his temper because of how stupid some of the guests are that he is routinely pinned against when discussing things like the merits of capitalism versus socialism.

But it wasn’t more than a couple of minutes into Kitco’s debate that I started to understand exactly why Peter was getting frustrated. The guy that he was “debating” against was throwing a slew of logical fallacies against the wall and just seeing what stuck.

Mashinsky led the debate by suggesting a classic fallacy: that bitcoin’s past performance was going to always be indicative of its future results. This is akin to betting “black” at the roulette table after “red” comes out fifty times in a row because it is “due” to come out when, in fact, “black” still has the same 50% chance of coming out as it did on all of the prior spins.

I give kudos to the Kitco moderator for trying to put a stop to this argument before it started, but this is always the first arrow in the quiver for bitcoin bulls. I have pointed out over and over, there is a reason that the first disclaimer you always see when buying a financial product is: “past performance is not indicative of future results.”

Because it isn’t.

Mashinsky then continues hopping from one logical fallacy and inaccuracy to the next. During a discussion about whether or not all bitcoin margin debt (key word: all) was liquidated during the last bitcoin crash, Peter Schiff points out that the amount of leverage people are using to buy bitcoin is likely still significant and dangerous. Mashinsky argues that he believes all margin debt had been liquidated during the last bitcoin plunge, a ridiculous assertion that had Peter fuming.

Mashinsky

The absolute worst and most irresponsible of all of the arguments from Mashinsky came when he suggested to viewers of the debate – many of whom likely lack financial sophistication – that both bitcoin and gold pay a yield.

Of course, what he meant was that they pay a yield on his Celsius platform, but he failed to qualify his statements to make that clear. Neither asset pays a yield in general and Mashinsky knows that.

As Peter noted, the capital to pay a yield has to come from somewhere. In dividend paying companies, it comes from their retained earnings. Bitcoin and gold don’t earn anything on their own, so there’s nowhere to draw from to pay a yield, let alone an astronomical 5% yield that Mashinsky claims during this debate.

When Mashinsky claims bitcoin pays 5%, Peter hones in on the fallacy and immediately asks him repeatedly where the yield comes from. Mashinsky has no answer. Peter then takes a guess and asks if Celsius trades the crypto in order to come up with the proceeds to be able to pay the yield, but Mashinsky never gives him a clear answer. This is an extremely dangerous thing to suggest by Mashinsky without explaining in full – and I think even bitcoin bulls can understand why this is dangerous. You can’t get a 5% yield anywhere, let alone from a speculative new asset class. And if you are getting 5% somewhere, chances are you may not be getting it consistently or for a long period of time.

Understanding how a yield is paid is one of the most important concepts in value investing, which is of course why Peter honed right in on the Achilles’ Heel and why Mashinsky refused to answer questions about it.

Hilariously, there are also several times during the debate where Mashinsky refers to bitcoin as “gold” or the “gold standard”. Perhaps Mashinsky should take a step back and understand why things are labeled the gold standard to begin with.

In the words of Peter Schiff: “Gold mines are literally gold mines!”

Schiff

Mashinsky spends parts of the debate trying to juxtapose bitcoin and gold, like many others have done while advocating for bitcoin. But at some point, it’s going to become very apparent that the two are not the same and bitcoin bulls will one day wonder why they hadn’t made the distinction clearer to begin with.

Mashinsky then contradicts himself several times when speaking about where the price of bitcoin is going to go. When questioned about where the price of both gold and bitcoin are going, he predicts that gold will go to between $2300 and $2500 over the next year. He then predicts that bitcoin will reach $150,000 next year. That prediction comes just moments after Mashinsky himself says that we have no idea where the price of either asset is going to go. The fact that he is replete with double talk like this should alarm prospective investors in bitcoin.

There’s also a point in the middle of the debate where Mashinsky admits that psychological buy-in is the one thing that’s driving the price of bitcoin. Schiff then tries to ask several times what happens if people stop believing in it. Mashinsky admits that if people stop believing in it, it means that they have started believing in something else. This point should be fleshed out as a major risk factor and not just dashed over quickly after being avoided, as it was done in this interview.

Showing off pure ignorance of where value comes from, Mashinsky even claims gold “has no value” during the interview, telling Peter:

“Gold has zero value. Yes you can use it in jewelry and you can use it to build high fidelity electronic equipment, but that doesn’t mean it has any value.”

Mashinsky also advocates for “borrowing against your fiat” to buy bitcoin. Make no doubt about it, this is asking people to borrow against their houses, credit cards and everything they own to pour money into bitcoin. It’s an idea that’s as irresponsible to suggest as it inverse to the idea of “protecting” your wealth.

Mashinsky’s debate tactics also included ad hominem attacks, like when attempts to make fun of Peter for being a dinosaur, suggesting he is using a dial-up modem after his connection drops during the debate. These jokes, especially about Peter, often come up in the bitcoin community and while they are relatively harmless, it is important to understand that they are creating a climate of cognitive dissonance and confirmation bias that reaffirms the notion that bitcoin bulls have some super tech-savvy understanding of bitcoin that guys like Schiff and myself do not.

Bitcoiners better hope they’re right.

As I’ve argued several times before, sometimes it isn’t the fact that people don’t understand bitcoin that makes them skeptical, it’s the fact that they do.

Finally, later in the debate, Mashinsky is also challenged on bitcoin’s need for a power source and the threat of quantum computing, both of which he doesn’t really seem to have a great answer for.

People laugh at me when I bring up the idea of solar flares and coronal mass ejections rendering their bitcoin temporarily useless, but it is a real world scenario that could happen. In fact, we had solar storms just over the last week. When asked about the need for power, Mashinsky is forced to reply that all bitcoiners will be able to do in that instance is “wait for the power to come back on”.

Since I have been paying attention to bitcoin over the last couple years, no one has been able to give a good answer for what to do when the power goes out. It looks like your bitcoin is simply rendered useless in that case. Yes, you could say the same thing about the banking system because a lot of it is digital, but people that own gold own it as a hedge against those systems.

Wouldn’t it be safe to say that gold could be a hedge against bitcoin, too?

When talking about quantum computing, Mashinsky admits that bitcoin is going to have to be modified over the next decade as quantum computing advances. No one knows what those advancements or changes will look like and who is to say whether the bitcoin you buy today will adhere to the same rules and same mathematical certainties it will after such a modification is made.

Gold, on the other hand, has had the exact same properties and has been the exact same metal for thousands of years, which is specifically why people like it and why it works as a store of value.

What are the two key points I’m trying to make in this article?

First, bitcoin bulls can do better than Alex Mashinsky. The guy obviously spent a majority of the debate pitching his own service and not trying to legitimately deconstruct counter-arguments against bitcoin. I’ve met too many people who are too smart in the bitcoin community to let this guy be the person that represents you as a whole. Personally, I wouldn’t wanna do business with the guy either, but that’s just me.

The second key point is to always remember that hubris comes before the fall. This is an old saying, but Mashinsky’s tone of arrogance and bragging about his business while not being able to answer key questions about how it functions, to me, looks like a great deal of hubris.

The more interviews I watch like this, the more the hubris ramps up towards a fever pitch. Over time, nature and karma have a way of correcting these things. Admittedly, I’ve been saying the same thing about Tesla for years and its reckoning hasn’t happened yet, but that doesn’t mean that it won’t.

Past performance is not indicative of future results.

You can watch the entire hour long debate here.

Read more from QTR:

1. Covid Is Over (If You Want It)

2. Two Reasons The Market Could Collapse Heading Into The Holidays

3. When The Global Monetary Reset Happens, Don’t Forget Who To Blame

Zerohedge readers always get 10% off a subscription to my blog for life by using this link.

Tyler Durden
Tue, 11/23/2021 – 23:00



Author: Tyler Durden

Economics

One Year Inflation Expectations

Expectations and forecasts from economists continue to diverge from consumer based expectations. Figure 1: CPI inflation year-on-year (black), median…

Expectations and forecasts from economists continue to diverge from consumer based expectations.

Figure 1: CPI inflation year-on-year (black), median expected from Survey of Professional Forecasters (blue +), median expected (preliminary) from Michigan Survey of Consumers (red), median from NY Fed Survey of Consumer Expectations (light green), forecast from Cleveland Fed (pink), mean from Coibion-Gorodnichenko firm expectations survey [light blue squares]. Source: BLS, University of Michigan via FRED and Investing.comReutersPhiladelphia Fed Survey of Professional ForecastersNY FedCleveland Fed and Coibion and Gorodnichenko

What forecasts are more unbiased (which is separate from which forecasts more represent agents’ expectations).  Over the 1986-2021 period, the following results apply:

πt = 0.022 + 0.128 micht-12 + ut

Adj R2 = 0.00, SER = N = 428, reject unit slope null

πt = 0.022 + 0.542 clevelandt-12 + ut

Adj R2 = 0.166 , SER = 0.012, N = 428, reject unit slope null

πt = 0.004 + 0.788 spft-12 + ut

Adj R2 = 0.259 SER  0.011, N = 143, fail to reject unit slope null

All results using HAC robust standard errors.

In other words, the professional economists’ forecasts are more accurate, even when including the recent period.

 

 


Author: Menzie Chinn

Continue Reading

Economics

Focused Protection Impractical? Compared to What?

(Don Boudreaux) TweetHere’s a follow-up note to a commenter at EconLog. Steve: There are two different avenues down which we can and should travel to…

(Don Boudreaux)

Here’s a follow-up note to a commenter at EconLog.

Steve:

There are two different avenues down which we can and should travel to assess whether or not the Focused Protection advocated in the Great Barrington Declaration (GBD) is more practical than is the alternative – namely, lockdowns – against which the authors of that Declaration warned.

The first avenue is the narrow one of asking whether or not Focused Protection is more practical than are lockdowns at protecting against Covid-19. The second avenue is more broad; on it we ask if Focused Protection is more practical or less practical than are lockdowns at protecting society.

The authors of the Great Barrington Declaration wisely travelled down both avenues.

On the first avenue: Precisely because general lockdowns and mandates combat Covid by expending resources and attention indiscriminately, had the GBD’s recommended Focused Protection been followed, these resources and attention would have been marshaled more rationally. They would have been better targeted at protecting the vulnerable rather than wasted, scattershot, on ‘protecting’ the great majority of the population from what is to them a risk that ranges from small to minuscule.

You doubt that Focused Protection would have worked better than the alternative – lockdowns – against which it was recommended. For reasons that I explained earlier, I disagree with you that Focused Protection was the worst of the two alternative courses of action for protecting people from Covid.

But even if I’m mistaken on the narrow point – even if lockdowns are the better means of protecting humanity from Covid – the case that Focused Protection is the less practical of the two options is not yet settled. That is, even if lockdowns are the more practical means of protecting people from Covid, as long as humanity attaches any value at all to achievements other than reducing the risk of exposure to the SARS-CoV-2 virus, lockdowns might nevertheless still be impractical as an alternative to Focused Protection.

How practical are prohibitions on factories, trucking lines, restaurants, and other businesses remaining open? How practical are the resulting disruptions of supply-chains – or what I prefer to call “the global supply web”?

How practical are government prohibitions on family gatherings? Prohibitions on people gathering to worship, to mourn their dead, and to celebrate their marriages and graduations? How practical are school closures and the attendant farce of pretending to ‘educate’ six and seven year old children – or even college students – over Zoom? How practical is it to prevent children from socializing and playing with each other? How practical are the prohibitions on travel, with some of these prohibitions even being intra-national? How practical is the quarantining of fellow citizens who are returning from abroad?

How practical is the more than 50 percent increase, in a mere two years, of the annual amount spent by the U.S. government (from $4.448 trillion in 2019 to $6.818 trillion in 2021)? How practical is the more than tripling of the U.S. government’s budget deficit from 2019 to 2020? And the still appallingly high budget deficit for 2021?

How practical is the steep increase in the money supply in 2020-21 – and the now-resulting rising inflation?

How practical was the playing, in 2020, of sporting events in stadiums filled only with cardboard cutouts? How practical was it to delay medical diagnoses and treatments for ailments other than Covid? How practical is it for many governments, including many in the west, to outlaw protests against lockdowns? How practical are the unprecedented vaccine mandates for the general population, and the accompanying treatment of the unvaccinated as untouchables?

How practical is the substantial increase since early 2020 of Covid-fear-fueled authoritarianism?

Even if lockdowns prove over time to save more lives from Covid than would have been saved from Covid by Focused Protection, this fact would not suffice to render lockdowns the more practical strategy than Focused Protection. Account must be taken of lockdowns’ collateral damage.

Compared to lockdowns, perhaps the greatest advantage of Focused Protection is that whatever collateral damage it would have caused would have been an invisible fraction of the collateral damage caused by lockdowns. This damage from lockdowns was caused precisely because the unprecedented pummeling that society has endured over the past 20 months was indescribably imprudent and frighteningly impractical.

It boggles my mind that, compared to the unprecedented and draconian course that most governments took in response to Covid, anyone can regard the alternative course of Focused Protection as impractical.

Don


Author: Don Boudreaux

Continue Reading

Economics

Oil tumbles, gold firm, bitcoin plunges

Oil slides on variant concerns Oil is among the assets taking a heavy beating on the variant news today, falling more than 5% as traders fret about the…

Oil slides on variant concerns

Oil is among the assets taking a heavy beating on the variant news today, falling more than 5% as traders fret about the impact on restrictions and behaviour this winter. Even without severe restrictions, people will adopt more caution which will weigh on demand, as OPEC+ has repeatedly stated and factored into their models.

It seems the US and other consuming countries have played their hand too soon. Sure, Biden will score some political points ahead of the midterms as voters see prices at the pump fall, which was ultimately the goal. But should prices spike again early next year, what then?

Crude is back at levels last seen at the start of October and if this risk aversion continues in the weeks ahead, there’s plenty of room to fall. While OPEC+ would likely have avoided altering production plans next week or in the months following in response to the SPR releases, it may soon feel its hand is being forced. Next week may come too soon but another major outbreak could see them slam on the brakes.

Gold jumps on safe-haven appeal

Times like this are when gold shines and we’re seeing investors flock back to an old reliable friend today. It has pulled a little off its highs after hitting $1,815 earlier in the session but it remains above $1,800 at the time of writing. It’s an interesting one for gold and bonds, as the situation now is very different from last year.

Central banks can’t just turn on the taps again with a “whatever it takes” avalanche of cheap cash as they have before. Inflation is a real problem and lockdowns will exacerbate the problem. Sure, they may be a little more patient and hold off on raising rates next month in the case of some or accelerating tapering in the case of the Fed, but they can hardly ramp up their stimulus measures in any considerable way. Their hands are tied.

This should still be bullish for gold as, at the very least, central banks will delay tightening until they have a better idea of the risks to the economy. Allowing inflation to run hot unaddressed could increase the hedge appeal of gold again, particularly in these uncertain times.

Bitcoin remains a speculative risk asset, for now

In recent weeks we’ve seen that, in times of real uncertainty, bitcoin has not done well as an inflation hedge or a safe haven asset. There’s no doubt it’s a fascinating tradable instrument and a highly speculative one, but it’s quite clear now that it’s a risk asset and nothing more. Not at the moment anyway. Who knows what the future holds.

It’s taking a real beating today, off around 8% and looking vulnerable. Key support around $55,500 has fallen which will now draw attention back to $50,000. I’m sure soon enough the eternal crypto bulls will pile back in and smell a bargain but as we’ve seen so often in the past, bitcoin is capable of enormous gains and eye-watering corrections.

If this new variant triggers major risk aversion in the markets, it could come under serious pressure. Unless of course, the inflation narrative catches again. No sign of it yet but, as ever with crypto, it has an incredible ability to find the bullish case in anything. Maybe this will be next.




Author: Craig Erlam

Continue Reading

Trending