More elsewhere from yesterday

Bitcoin is, of course, a mania – a delusion of the sort that human societies are prone to. This is fighting talk from someone who declared in 2011 that bitcoin was all over. Being wrong is not interesting – it is rare things which are interesting, not common ones – but the psychology and economics here are important.

The classic text on this topic is Charles McKay’s Extraordinary popular delusions and the madness of crowds. Human societies are prone to manias which seem to defy any sense or reasonableness. Certainly markets can be so overcome, although the witch burnings show that it’s not purely an economic phenomenon.

11 comments on “More elsewhere from yesterday

  1. OT / HT

    Labour councillor’s resignation letter in full

    …The controversy over regeneration in Haringey is a perfect example of the conflict at the heart of the Labour Party.

    In their campaigns against the regeneration of some of the most deprived parts of the borough, those who now dominate Labour revealed an unforgivable willingness to exploit. They fought to keep people in positions of deprivation.

    Why? To manufacture anger and hatred as fuel for their desired class war. I have nothing – nothing – but contempt for these politics, which only achieve keeping the downtrodden, downtrodden. These politics are immoral, are destructive, cause great harm to the poorest, and great harm to society, and they now dominate the Labour Party…

  2. The value of an asset to speculators is not based on its expected value in the long run, but on its expected value when you sell it. If an asset is going up in price, and you’re willing to predict it will very likely continue to do so for a few months or years (even if that’s because you know speculators are demanding it), then buying it makes perfect sense. That’s not a delusion or mania. That’s a gamble.

    Pass the potato.

    Lots of products have the property that it is known their value will eventually drop to zero – nothing lasts forever. Classic cars rust. Artists go out of fashion. Companies go bankrupt. Sports stars and actresses get old. But they can still be bought up as investments where ever their price is expected to go up before it goes down. Are they all ‘bubbles’?

    That doesn’t mean it’s a good idea to buy them, though, unless you figure you’re better at predicting the future than the market is.

  3. Bitcoin mining is an online casino, but the odds are slightly in favour of the players. The more you bet by investing in mining rigs, the better your chance of winning. The Bitcoin currency is an unknown because unlike other currencies it has little value in trade. Thanks to money laundering regulations, many banks won’t accept it. You have to go through Bitcoin exchanges and their record is somewhat spotty, to put it mildly. I haven’t looked very deeply at the blockchain algorithm but what I have read at places like investopedia makes me think that the size of the ledger increases not just exponentially, but as a factorial of the number of transactors. Computing power will have to grow by the same factorial exponent to keep up. This seems to be an inbuilt limit to growth.

  4. That’s why mIOTA and RaiBlocks XRB is the future, and not BlockChain v1 coins. No miners distorting the economics of these project.

    But Tim – For the ultimate in 4Chan lulls, lookup at their genius in inventing “Proof of Weak Hands Coin” – the world’s first unbreakable, unstoppable, and absolutely hilarious blockchain Ponzi scheme. Their link to their White Paper just completes the joke. I think as someone with an economist’s thought process you’ll appreciate the work that’s gone into this one, to troll the market.

  5. We think 16th century blokes were a bit overzealous for burning witches, but they’d think we’re mental for putting up with Laurie Penny and Theresa May. ¯\_(ツ)_/¯

  6. Didn’t someone recently set one up called Ponzicoin, attracted quite a lot of investment and then fucked off with all the money? 🙂

    Gullible and ignorant, a dangerous combination.

  7. Isn’t fiat currency only the same, only run by States with lots of people with guns? The only reason you accept pounds or dollars or whatever is because you think you can offload them on some other idiot for real stuff. It has no intrinsic value, its only value comes from the confidence that someone else will want it more than a loaf of bread.

    Regardless of the merits or not of Bitcoin and all the other cryptocurrencies, the biggest delusion of them all is confidence in a fiat currency. They all collapse eventually. And who knows, if a fiat currency collapsed would having all your wealth in Bitcoin be such a delusion then?

    (disclosure:I own no Bitcoins or similar)

  8. @Jim If the UK*/US/EU currencies were ever to collapse completely, you’ll have a lot more to worry about than the value of your savings.
    * e.g. by Corbog/McDonnell getting a grip on the magic money tree

  9. I do think most people commenting on Bitcoin fail to understand what Bitcoin is. It is not a commodity. If there is a commodity being traded it is in confidence to make transactions with the advantages Bitcoin provides.. That may well be, in practise, be the ability to conduct trade in goods & services that are illegal or to be able to conduct trade without the impediment of government taxation.. Whether you like it or not, these are genuine markets & the ability to operate in them adds value. So the value of Bitcoin is a reflection of the value it creates.

  10. Incidentally, it fascinates me how many people who seem to consider themselves economically literate fail to understand the very fundamental basics of how markets work. For every buyer there must be a corresponding seller. That the price of Bitcoin has risen indicates that potential buyers have entered the market but have been unable to encourage existing Bitcoin holders to sell at lower prices. Thus, that is a measure of the confidence Bitcoin holders have in the value of Bitcoin. It’s also a sign that actual trading in Bitcoin has been light. Because if buyers had been finding sellers the Bitcoin value would have remained lower. So it’s not a classic “bubble” because the market is effectively closed on the supply side. There’s no scam artists feeding worthless tulip bulbs or Florida land plots into it. All 52 cards in the deck are sitting on the table in plain view.

  11. ” If the UK*/US/EU currencies were ever to collapse completely, you’ll have a lot more to worry about than the value of your savings.”

    Forget savings, and consider survival in such a scenario. One’s biggest problem is getting hold of resources – food, energy, etc etc. If you have something of value such as gold, then you will be able to access such resources. Bits of paper saying ‘Bank of England’ on them, maybe not so much.

    As far as I can see there is a perfectly rational reason to hold bitcoin, or any other widely accepted currency substitute such as gold, namely that one day the currently universally accepted State issued currencies may not be accepted in return for resources. And if you have something else that is accepted it puts you ahead of the game. What value that puts on gold or Bitcoin I have no idea, but there has to be some value on that basis.

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