The Big “Buy & Hype” Bitcoin Casino

Wolf Street

28 February 2021

Bitcoin was trading at $57,000 when I recorded and posted the podcast on Sunday, February 21. Now, as I’m posting the transcript of that podcast, bitcoin is trading at $46,000. So the numbers in the podcast are a little off. But it makes one of my points.

By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT.

So bitcoin is trading at about 57,000 bucks at the moment. Its market cap is over $1 trillion. This glorious moment jogged my memory, so I dug up that old email. Back in August 2012, I was contacted via my website by some guy about bitcoin. At the time, bitcoin was at 10 bucks.

He wanted to buy my book and pay with bitcoin. So for the paperback, which sells for about 15 bucks on Amazon, he would have had to fork over 1 and a half bitcoin. So today, the proceeds from the sale of that paperback would be around 85,000 despised fiat dollars.

He called bitcoin a “monetary revolution.” He wrote, “There is a large and growing community of bitcoin users, who are migrating away from the dollar and euro, because those currencies are being inflated away to nothing.”

And he said, “The value of a bitcoin has doubled in the last 4 months.” Which is the monetary revolution, apparently, that money keeps doubling every few months.

He offered me a deal. If I listed my book on a site called CoinDL, he’d buy my book, and he said he would “recommend it on the bitcoin internet forums.” And then, on my site, I would need to encourage people to buy bitcoin. I would have to post my bitcoin address, ask for donations in bitcoin, etc. to let people know that I was endorsing bitcoin, and that I held bitcoin, so that they too would pile into it.

Maybe I could have sold one book to him, plus three more books to some other folks on the internet forums he frequented, four books in total, for six bitcoin in total. Today, those six bitcoin would have amounted to 342,000 despised fiat dollars.

What was striking about the deal he tried to draw me into: He offered to buy my book for bitcoin and help me sell a few more books for bitcoin, and in return I would leverage my site to hype bitcoin to my readers.

Ladies and gentlemen, this is exactly how it worked universally, and even today the same principle is in effect, but now big players have jumped into it, and they quietly bought bitcoin, and then they used their global megaphones that the mainstream media amplified for all to see, and they hyped bitcoin, and it’s on the front of the mainstream media, and bitcoin has soared.

Buy and hype. This is the principle on which bitcoin has operated from day one. Everyone getting into it would become a hype artist. And there would be no metric by which its price could be judged. These two factors were the true genius behind bitcoin.

So obviously, I didn’t go for the deal. I didn’t need to participate in a “monetary revolution,” where the value doubles in four months.

This has nothing to do with monetary anything, but is a form of gambling that relies on ever more new gamblers entering the casino and bidding up the price, with more and more gamblers selling each other the bitcoin, all united in the singular purpose of driving up its price so that everyone could get rich.

The first part of this I understood back then: That this has nothing to do with monetary anything, but is a form of gambling. That was clearer than daylight.

The second part I didn’t fully understand: That this form of gambling relies on ever more new gamblers entering the casino and bidding up the price, and that it would be everyone’s job to draw in new gamblers, like a giant pyramid scheme.

And the third part I didn’t fully understand either at the time, but it has now been proven beyond a reasonable doubt: That all these gamblers in the casino are all united in the singular purpose of driving up the price so that everyone could get rich.

These gamblers would not bet against each other or against the house. They would enter into a special gamble where they all would be on the same side, where each would do what they could to drive up the price to make each other rich.

I told this guy – Brian was his name … are you out there, laughing off your butt, Brian? – So I told him: “Thanks for your interest in my book. At this point, I’m still hung up on the US dollar, while it lasts.”

After bitcoin came the other cryptos. There are now over 4,000 cryptos out there, including some that started out as a public joke. Anyone and their dog can start a crypto and hype it and hope to get some traction.

The whole crypto space combined now has a market cap of nearly $2 trillion. Over half of which is bitcoin.

Sure, it would have been nice today to sell my 6 bitcoin for 342,000 bucks to some hedge fund and wash my hands off it. But it’s unlikely that it would have ever gotten that far.

One scenario is this: The six bitcoin at the time would not have ranked high in my consciousness. We’re talking 60 bucks here. I would not have paid a lot of attention to it or worried about it or taken a lot of security measures to protect that $60-stash.

So I might have lost the password. This happened a lot, apparently, to early owners that had straggled into a few bitcoin. There is no hotline you can contact to request a new login. If you lose your password, the bitcoin are gone. For me, that might have been a realistic scenario.

The other scenario is that I would have sold the bitcoin as soon as their value reached some kind of critical amount, something that was worth jumping through hoops for. So if bitcoin hit a 1000 bucks, I might have sold.

There is almost no way that I would have held on till today. It’s totally illusory to think that I would have made $342,000, because I wouldn’t have. I would have either lost the password or sold the six bitcoin long ago. Or maybe a hacker would have stolen them.

I would have sold because bitcoin doesn’t represent ownership of anything other than of the digital entity, it’s not equity of a company or of real estate or of anything else. Bitcoin doesn’t produce anything. It doesn’t have a physical presence, such as gold has. Bitcoin doesn’t have revenues or earnings, and it doesn’t pay interest or dividends, and it doesn’t have any other metric by which to judge its value.

And that’s the key to its price.

No one can ever say bitcoin is overvalued or undervalued. It doesn’t have a value. It just has a price, and what the price is from one moment to the next is determined by gamblers trying to drive it higher by hook or crook, and by some of those gamblers cashing out while they can.

There is therefore no theoretical limit to the price. The theoretical range is between zero and infinity. The price is beyond the idea that something is making or not making sense. It’s just a number. It’s not related to anything. There is no dividend yield or any other yield, no earnings per share, no P/E ratio, no cap rates… none of the performance metrics we might look at apply.

And unlike gold, which doesn’t have performance metrics either, bitcoin has no physical presence. You lose your password, the bitcoin are gone.

There is no yardstick as to where the price should be. So the idea is that this price could go to infinity.

People say that because the supply is limited to 21 million bitcoin, and because demand is unlimited, this will drive its price to infinity.

Yes, maybe, theoretically. But there is no need to have bitcoin, and demand can go back to zero and this wouldn’t impact anything in the real world, except the perceived wealth of the bitcoin holders that haven’t sold. No one needs bitcoin. It’s just a gambling device. The demand is artificial, and that artificial demand can vanish in no time.

The big obligation is that all gamblers in this casino have to use whatever megaphone they have to drive the price higher. And it appears that the big players have now ganged up, the biggest Wall Street players, and creatures like Tesla, and a bunch of hedge funds, with huge global megaphones.

And it’s always the same principle. Buy some bitcoin quietly, then make a big announcement and hype it to high heaven.

There is, however, a problem that reasserts itself periodically. Every now and then someone tries to get out from the position and get some despised fiat currency, such as dollars. And when there are not enough new gamblers willing to buy at that price, the price drops until there are enough gamblers willing to buy. This has eviscerated bitcoin in the past. When this artificial demand vanishes, the price can plunge so fast it makes your head spin.

Now the gamblers are huge outfits with billions of despised fiat dollars tied up in bitcoin. They couldn’t care less about the “monetary experiment.” These are not true believers in bitcoin. They’re in it to make a huge profit denominated in despised fiat dollars.

They know they can rig the bitcoin market with their big megaphone, at least for a while. And they have done it loudly and clearly. But when they want to take profits and get some despised fiat dollars for their bitcoin, as they all will, because that’s what they’re in business to do, who will be there to buy?

These are big positions, and they’re tough to get out of without blowing a huge hole into the price, that then triggers a cascade of selling. And when this happens, there is suddenly no liquidity, and the bottom falls out. Bitcoin has become legendary for this.

But now the amounts are much bigger. So maybe they’re hoping that, when demand suddenly vanishes, the despised Fed will step in and bail them out of their bitcoin by buying their bitcoin and handing them billions of despised fiat dollars in order to prevent their highly leveraged and interconnected funds from taking down the financial system or whatever.

And that day, ladies and gentlemen, the day that the Fed bails out the biggest most leveraged bitcoin gamblers because the price collapse of bitcoin is threatening to take down their highly leveraged funds, thereby threatening to collapse the entire financial system – that will be the day bitcoin has truly arrived.

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