"Bitcoin & Cryptocurrencies"

 Yesterday Punxsutawney Phil saw his shadow, which foretells six more weeks of winter. Now I recognize that “global warming” has morphed into “climate change,” an expression with which everyone can agree. Over the billions of years of Earth’s existence, the climate has changed from extreme heat to extreme cold. And there is little doubt it will continue to do so. Years ago, an expression in New Hampshire was: “If you don’t like the weather, wait five minutes.” Even as a youth I recognized the use of hyperbole. Regardless – and perhaps this is age speaking – I do hope the Pennsylvania groundhog is wrong. It seems to me that, while we have not had much snow in Connecticut, the temperatures have been colder than recent years. As the poet Richard St. Clair wrote”

 

“Every season has its beauty, true – 

Yet greening trees my favorite are to view.”

 

Well, it’s February and we are a couple of months from the first buds appearing, so you will have to make do with this essay on Bitcoins.

 

Sydney M. Williams

www.swtotd.blogspot.com

 

Thought of the Day

“Bitcoin & Cryptocurrencies”

February 3, 2025

 

“Bitcoin is a technological tour de force.”

                                                                                                Bill Gates (1955-)

                                                                                                Co-founder Microsoft

 

“You can’t value Bitcoin because it is not a value producing asset.”

                                                                                                Warren Buffet (1930-), in a 2018 CNBC interview

                                                                                                Founder and CEO, Berkshire Hathaway

 

Wisdom is typically attributed to the elderly, but one of our grandsons, a graduate student in modern European history, recently texted me with wise words: “It’s good to not agree with a President on all things.” He was responding to a text in which I had stated some misgivings about a few decisions made by President Trump during his first days in office, including his enthusiasm for cryptocurrencies, as seen in his promotion of two meme-coins, $TRUMP and $MELANIA issued a few days before his inauguration.

 

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It is my understanding that the argument for cryptocurrencies, and particularly Bitcoin, is based on a preference for a decentralized monetary system. The concern, which even Bitcoin skeptics like me share, is that countries with fiat currencies, and the U.S. with the world’s reserve currency, have rising and unsustainable government spending, which central banks have accommodated with artificially low interest rates. The subsequent debt has led to inflationary pressures. Debt is limiting options for governments, including needed defense spending. Because of its size and interest costs, national debt may become unserviceable. Bitcoin’s attraction includes the claim that the total number of coins issued will be limited. 

 

I don’t pretend to have special knowledge about cryptocurrencies. But this is what I understand about Bitcoins: The maximum total supply of Bitcoin is supposed to be 21 million, a number it is never expected to reach. As of December 22, 2024, according to Investopedia.com, 19.9 million Bitcoins had been mined. At $100,000 per Bitcoin, the total value of all Bitcoins is $1.99 trillion, or almost 7% of U.S. GDP. The smallest unit of measurement in the Bitcoin network is the Satoshi, which equals 0.00000001 Bitcoins. That would suggest that, at a price of $100,000 per Bitcoin, it would take, if my math is correct, approximately 1,000 Satoshis to equal one U.S. Dollar. 

 

Despite my limited technological expertise, I appreciate the development of blockchain technology, which has allowed Bitcoin to prosper. Blockchain technology, as I understand it, allows for a decentralized, tamper-proof, transparent system to record transactions. Buyers and sellers can maintain separate ledgers, but, with the approval of both parties, their ledgers are updated automatically and simultaneously.

 

But will (or even, can) Bitcoin substitute for a currency like the Dollar? First, what is money? Money is a medium of exchange, which people accept for the payment of goods and services, as well as for the re-payment of loans. In order to qualify, it must be stable relative to values placed on goods and services and the expectations of creditors. People would not be happy if the price of a movie ticket, a subway token, or a half-gallon of milk changed daily by five or ten percent.  Money is critical, as economies rely on it to facilitate transactions and to power economic growth. Given its volatility, would Bitcoin qualify as a currency? With its questionable origins and volatility, I suspect no, at least not at present. It is not a commodity, as it has no inherent economic value like a bushel of soybeans, a barrel of oil, or an ingot of gold. Unlike a business, it generates no cash flow. It is “mined” at a predetermined rate, but it cannot be harvested or slaughtered. It is not an equity, which represents a share of a business, with the potential for dividends, nor is it a bond with a stream of interest payments. It is a speculation, not an investment.

 

In the fall of 2012 I attended a colloquium in Vienna hosted by the Liberty Fund of Indianapolis and the Hayek Institute of Vienna. Four years earlier a paper, authored by Satoshi Nakamoto (a pseudonymous individual or group whose identity has never been confirmed) and titled Bitcoin: A Peer to Peer Electronic Cash System, was posted to a cryptography mailing list. One of the attendees attempted to explain the reasoning behind Bitcoins, which were then selling for $7,000. Most of what she said was over my head, and I came away as ignorant as I had arrived. Today, part of me feels like the billionaire investor and philanthropist Stanley Druckenmiller who in October 2023 said: “I don’t own any Bitcoin… but I should.” On the other hand, I agree with Mr. Buffet, who once called it a “mirage.” 

 

Who is right, Bill Gates, Warren Buffett, or Cathy Wood who has predicted another ten-fold increase in the price over the next five years? All three are smarter and wealthier than I am. While the current monetary system has served us well, concerns are understandable, especially regarding years of deficit spending and the blossoming of debt to untenable levels. Politicians, in a desire to please constituents, and central bankers willing to accommodate their every whim, have placed us in an indefensible position. My preference would be for Congress and the President to address the difficult concerns regarding how much welfare can a society afford before destroying the economy. In an unstable world where defense spending must be increased, governments must study “untouchable programs,’ like transfer payments, entitlements, and what the threats from aging and shrinking populations (without immigration) mean for the future.

 

My concerns over Bitcoin are not solely its absence of cash flow or its lack of an underlying asset, it has also to do with the mystery surrounding its founder(s). Who or what is Satoshi Nakamoto? How do we really know that the stated limit on Bitcoin production will hold? The future is never clear, and from my limited knowledge, a fascination with Bitcoins should cause people to read (or re-read) Charles MacKay’s 1841 classic, Extraordinary Popular Delusions and the Madness of Crowds, in which he writes of “Tulipmania,” the South Sea Bubble, of witches, crusades, and prophecies of the end of the world. “Men,” Mr. MacKay wrote in the preface, “it has been well said, think in herds; it will be seen they go mad in herds, while they only recover their senses slowly, one by one.” Any asset that attracts more than two trillion dollars needs investigation. I find it wrong that the President is promoting his own meme cryptocurrencies, while overseeing what may be a speculative craze. Is it herd mentality that is driving the rush to cryptocurrencies? I don’t know, but I advise caution.

 

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I support most of Mr. Trump’s agenda, and I am happy he is President; but the Country does not need obstreperous, ideological advocates who blindly support their side. We need wisdom. We need those who think independently to reflect on events. The ability to think for one’s self is the purpose of education, to be skeptical, to avoid being indoctrinated, to maintain perspective. Divided into polar opposite factions, we have lost that ability. “You are either with us or against us,” said President George W. Bush in the fight against terrorism after 9/11. That attitude persists within the electorate; it is in Congress. Dishearteningly, it is in the media, podcasters and pundits. My grandson was right – we should feel free to disagree with those we support. If the consequence is government inefficiency, so be it. Freedom is worth that sacrifice.

"Viva the Protesters"

Sydney M. Williams

www.swtotd.blogspot.com

Thought of the Day

“Viva the Protesters!”

April 28, 2020

“Never doubt that a small group of thoughtful, committed citizens

can change the world, Indeed, it is the only thing that ever has.”

                                                                                    Attributed to Margaret Mead (1901-1978)

                                                                                    Anthropologist, Author

Protests have been around for centuries. The Protestant Reformation in northern Europe in the early 16^th Century was a protest against the universality of the Catholic Church. Americans protested England, beginning with the Boston Tea Party in 1773 and ending at Yorktown in 1781; the French stormed the Bastille on July 14, 1789. The Russian Revolution of 1917 toppled the Tsars. Mao Zedong’s Communist revolution in China in 1949 forever changed that country, killing an estimated 20 to 40 million people. The fall of the Berlin Wall in 1989 followed protests. In our country, in the past half century, we have seen marches for civil rights, women’s rights and gay rights. We have had anti-war protests. More recently we had the Tea Party movement, Occupy Wall Street, Black Lives Matter, the Woman’s March and March for Life. How productive they have been is a matter of debate. Writing last year in “Perspective Magazine,” Chaya Benyamin wrote: “Protest rhetoric is more about preaching to the choir than it is about changing hearts and minds.” A Harvard study of the Tea Party movement, three years ago, had similar nebulous conclusions. But, as an observer, it seems that all these protests resulted in change, some revolutionary.

A reader in Louisiana, a retired lawyer, e-mailed a week ago: “President Trump’s having essentially accepted the epidemiologists’ over-reaction to an admittedly dangerous virus will be historically judged to be by far his greatest first-person policy error.” I tend to agree. Never before, in the history of this Country, was a decision made to intentionally shut down the nation’s economy. In an essay titled “Innovation versus the Coronavirus,” Bill Gates referred to the current pandemic as “the first modern pandemic.” But is it? The 1957-1958 H2N2 virus was called a pandemic, as were the 1968 H3N2 virus and the 2009 H1N1 pdm09 virus.  Those three pandemics killed 2.25 million people worldwide, including 230,000 in the U.S.

The President was put in an untenable position. In early January, when China knew of how contagious and deadly the virus could be, scientists and medical experts around the world, including the WHO, CDC, FDA and Dr. Anthony Fauci of the NIAID downplayed its malignancy, as did politicians from both Parties. It wasn’t until February that models, many using erroneous data inputs, began showing horrific projections. So personal and political fears, as well as the dread of litigation, obviated a calculated, rational response. Politicians did U-turns, with the media, which had been largely silent in January, jumping aboard. Lockdowns were imposed. Executive Orders were issued and, if not obeyed, offenders could be arrested. In truth, the virus was worse than Pollyanna’s first claimed, but not as bad as Cassandra’s later suggested.

Nevertheless, a cataclysm was unleashed. The consequences have been grim: the biggest increase in unemployment in the nation’s history; the bankruptcy of thousands of small and big businesses; the biggest deficit spending plan in the nation’s history; the possible default of states, counties and cities, and a reckless printing of money by the Federal Reserve. President Trump’s, and others’, calls for negative interest rates will only add fuel to a future inflationary cycle. The decline in incomes will negatively affect future tax receipts, propelling higher deficits of federal, state and local governments. Should shutdowns persist, the result will be a surge in suicides and deaths from opioids and other drugs associated with depression.

We have entered an economic sinkhole from which extrication will be difficult. Politicians will be watching their backsides. Businesses, without some form of limit on liability, will be worried about class action lawsuits, and consumers have been so frightened by the effects of the virus that a return to “normal” will take months, if not years. And any reopening must include protection for those most vulnerable to the savages of COVID-19 – the elderly, the obese; those with preexisting health conditions. People and businesses must respond by being personally and socially responsible – health consciousness, social distancing and commonsensical behavior will become the new norm.

Across the country, protests have begun over the lockdowns, and a few states have begun to lift restrictions. Twenty-six million people have lost their jobs in the past five weeks. Many of these people live paycheck-to-paycheck and for whom the dignity of work is important. Avik Roy, president of the Foundation for Research on Equal Opportunity, wrote in an op-ed in Saturday’s Wall Street Journal, “Reopening the U.S. Economy:” “Reopening the economy is not merely about livelihoods, but also about lives.” Andrew McCarthy, in the National Review on the same day, noted that “…governments have a compelling interest in public safety…It is, nevertheless, the foundational conceit of the American republic that governments are created to secure fundamental rights of a nation’s citizens – our rights to life, liberty and the pursuit of happiness. Moreover, the legitimacy of government is dependent on the consent of the governed.”

The media has pilloried protesters, characterizing them as “right wing,” exemplifying “white privilege” and that behind them stand “the quiet hand of conservatives.” Politico had a recent article about how a tea party-linked group planned to “turbo charge lockdown protests.” Katherine Shaver, writing in the Washington Post on Saturday, quoted George Rutherford, an epidemiology professor at the University of California in San Francisco” Letting people decide for themselves because they’re bored is not a good way to do it.” Perhaps Professor Rutherford should familiarize himself with the Constitution, and, no, they are not protesting because they are bored but because they need jobs to pay for rent and food. As well, protesters provide cover for governors skittish about re-opening their economies. Blame for subsequent increased hospitalizations and deaths can be put on those who lobbied for a reopening. Early on, President Trump endorsed the protesters. He has since backed off but has encouraged re-openings when done safely.  

Despite myriad groups working on vaccines and therapeutics, there is little doubt that the virus will linger, and deaths will persist. But the nation cannot afford many more weeks of hibernation. We need a vaccine and we need more tests, which will give assurance to consumers and employers and that will provide officials with a more thorough picture of the spread of the virus. We need government officials to be honest with the people, as to the cause and facts related to morbidity. We need a press that dispenses factual information, rather than sensationalizing personal stories of tragedy. We need more detailed reporting of those who have died: age, gender, preconditions that played a role in death, geographic locations and workplace. Such information will offer perspective and should instill confidence in those least likely to be subject to the most harmful effects of the virus.

Confidence needs restoring, not just so consumers can return to their role of generating 70% of the nation’s GDP, but so businesses will not be censured by politicians, condemned by reporters, or harassed by trial lawyers. Examples of countries like Sweden and of states that did not impose draconian lockdown laws (or have since lifted them) should give inspiration to an economic resurgence. The protesters have played the role of a citizen’s revolt. Viva the protesters! As the song goes, “The people has risen, we’re free again.”[1]

                                                                       

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[1] “Risen,” by Shawna Edwards