Quote of the day—Peter Schiff @PeterSchiff

The real problem with #Bitcoin isn’t volatility. Volatility means Bitcoin can’t function as a currency, but it makes it very appealing to traders and speculators. The real problem is that Bitcoin has no underlying value to support its price, making a terminal collapse inevitable.

Peter Schiff @PeterSchiff
Tweeted on January 10, 2022
[That is what I believe too. I mentioned the volatility, appeal to traders, and no underlying value in a discussion with a coworker last month after he told me about setting up the server rack in his garage to mine Bitcoins. My coworker wasn’t accepting my arguments. I tried comparisons to other mined products such as gold and silver. He seemed to understand what I was saying but could not be convinced Bitcoin is a high risk investment.

Schiff claims the following credentials:

Chief Economist & Global Strategist: http://Europac.com, Chairman: http://SchiffGold.com, Founder: http://EpacFunds.com , Host: http://SchiffRadio.com

That Schiff sells gold probably gives him a blinding bias but he, and I, may still be correct. I just don’t know. And that I, and apparently Schiff, cannot make an accurate prediction as to when the demise of Bitcoin occurs gives me concern that we are mistaken in our belief.

I’m more confident in prediction about the financial collapse of the U.S. government than I am of predicting about the demise of Bitcoin. Yet, I still believe.—Joe]

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19 thoughts on “Quote of the day—Peter Schiff @PeterSchiff

  1. cryptocurrencies rely on solving mathematical problems that are difficult.

    But difficult only for the moment.

    Difficult mathematical problems never get harder, they only get easier – to paraphrase Bruce Schneier’s bon mot about exploiting computer vulnerabilities.

    They will fall.

    Kurt

  2. Kurt is right, but the bigger issue is the one Schiff mentions, that the value of bitcoin comes merely from the religious belief that it has value. It has that property in common with all fiat currencies, like the US Dollar. But unlike “ordinary” fiat currencies, bitcoin has the additional problem that it isn’t backed by any legal authority — it is not “legal tender” in any place. That makes it value shakier even than the Venezuelan or North Korean currency.
    Real money, as real economists like Ludwig von Mises understood the term, is no longer used anywhere. But it might come back.

  3. Bitcoin has almost zero value. It’s currency, not money. But the difference is difficult to nail down even for economists.

    My mother asked if part of her portfolio should be in bitcoin. I asked her how much she’d be be willing to pay for magic internet points.

  4. “I don’t know.
    I don’t know if we’re in a bear market.
    I don’t know if interest rates will go higher.
    I don’t know if crypto will go lower.
    I don’t know much of anything.

    I don’t know who will be president in 2024. I don’t know who will win the World Series in 2022. I don’t even know if the sun will come up the next morning.

    As absurd as that last one sounds, if you think about it, it really is true—we really don’t know if the sun will come up tomorrow morning. We don’t know anything.”

    Jared Dillion, January 13, 2022.

    But we do believe that we know a lot and therein lies our success or failure. If we guess right then we win, otherwise we loose.

    For crypto if we and a LOT OF OTHER PEOPLE believe that it has value, then we’ll be successful – perhaps even wildly successful. Otherwise, we are left with a virtual piece of paper with some numbers on it.

    PS. I don’t own any crypto.

  5. If you can’t hold it in your hand, if you can’t touch it, if you’ve never even seen it, is it really yours? If it doesn’t exist when the internet is out, does it really exist at all?

    • Right. Incidentally, that applies also to any number of “gold” investment vehicles, the kind where you’re told you have an “account” corresponding to gold in some vault somewhere, and those numbers you can trade when you want to.
      Even assuming that gold really does exist, numbers in a file on some computer suffer from the exact problem you mentioned. There are good reasons to own gold, but those reasons all should tell you that it only counts if you have the actual metal in your actual possession.
      Since all of us should have gun safes, a secure place to store gold isn’t a real problem.

  6. Good comments all! And my only addition is to say that all currency is based on supply and demand. And need.
    If one were lost and alone in the desert. Dying of the elements. Would truckloads of gold, silver, and crypto help?
    Not without someone to trade them to for the things you need. And someone wanting what you have to trade.
    As Anon said. “Magic internet points”. Perfectly says all one needs to know about crypto.
    At least gold and silver have secondary uses. If nothing else they make good bullets. And silver is a wonderful anti-biotic.
    And right now one wishes they had a warehouse full of ammo? (Sooner or later everyone needs that.) But a year from now?
    To me wants and needs are the basis of anything we call money. And having something with no shelf life, and multiple uses is always going to be worth something to someone. That’s where I would start.

    • It’s a really good idea to read Ludwig von Mises on what money is.
      The fundamental form of commerce is barter. The trouble with barter is that I may want something you have to offer but I don’t have something you want right now. This is where money comes in — it’s something that, by social agreement in the community you’re in will be generally accepted by others in trade. Why? Because of that agreement: I can sell you A in exchange for some money M, precisely because I believe that sometime later I can give that M to someone else to get something B that I want. Anything that’s non-perishable can potentially serve as money, so long as there is social agreement to consider it as such. Over the millennia, many things have served — copper, salt, sea shells, large rocks with holes bored through them. But gold ended up the one thing that was more often chosen by more people. Partly “it just happened” and partly it is because gold meets the requirements especially well.

      That said, your “man in the desert” example is a good one. Money is for commerce, it is useless for solo survival. And it isn’t all that interesting in a community so small or so primitive that barter is all you need.

      • I’ve found in my studies that metals have always been used in commerce. But their rarity and their resistance to being tarnished by the elements is what ranked their value.
        And still does today.
        I would watch Platinum. Historically, gold has sold at 85% of Platinum price. That’s been inverted for some time now. With no good explanation other than London metal price manipulations. Which is how the super-rich play
        And Platinum was always the super-rich man’s game metal.

    • I would base our future (after TEOTWAWKI) currency on eggs. Specifically, large “grade-A” eggs. They can’t be profitably hoarded. They have intrinsic value, but only when delivered and sold to the final consumer. Their supply more or less naturally scales with the population, especially in the cities. Historically, the retail price of a gross of large eggs corresponds well to the price of an ounce of silver.
      This is not a joke.

  7. I’m wondering how different it is, really, from our current paper currency, which is increasingly only digital currency anyway. Technically neither has any intrinsic value.

    It could be said that Bitcoin is the more honest in that it doesn’t claim to be backed by anything but faith in other people to keep it viable for a little longer. In a way it could be seen as faith in other people’s greed, or fear, or what have you. It never seemed to me to be based on anything good.

    The dollar is backed by the presumption of the government to have authority to declare it “legal tender”. They’re now in the final phases of spending away the last of any real credibility that they may have had, it would seem to me.

    I once had a small collection of U.S. currency showing the process of gutting its value while psychologically manipulating us into going along with t. It started with gold and silver certificates, which were redeemable for a specific amount of metal. The next phase was bills said to be “redeemable for lawful money”. The next phase after that they dispensed with any claim to a connection to metal or even to “lawful money” and stated simply that “this note is legal tender”. Progressivism. We went from trading metals, to trading certificates for metals, to trading certificates for an undefined “lawful money”, to believing that the certificate itself is the money, in and of itself.

    It’s a form of transubstantiation, isn’t it? The living embodiment, as it were, of value, which serves as value vicariously without any need of real value to back it up, simply because it was “blessed” by someone presumptuous enough to pass as an “authority”. Now we don’t bother with the certificates at all but we trade promises for them on line. In either case, the only value in it comes from our faith in it.

    That reminds me of a passage in the Bible;
    “Now faith is the substance of things hoped for, the evidence of things not seen.” Hebrews 11:1 KJV

    Therefore we’d best be careful where we place our faith, for surely we all live by it.

  8. To me there are a number of problems with Bitcoin and its emulators:
    – You have to have Internet access of some kind to redeem or transfer
    – Too easy to be permanently lost (forget your master password? Tough)
    – Too easy to steal if the site that holds your wallet is subverted or just corrupt

    Lack of intrinsic value and the amount of capital diverted to hardware and energy for mining are just the icing on the cake of not very bright. Gamer GPU cards spiked in price when the miners found out they could be used to speed up the process.

    • GPU card are a sore spot for me.

      They’ve spiked so hard I can’t put together the password cracking rig I want/need for work. 2-4 decent cards would allow us to implement a new password policy:

      “If we crack it, you must change it.”

      Kurt

      • Heck, those of us who are just gamers are more than a little tired of the crypto miners hogging all the good hardware.

  9. All the arguments I’ve heard for Bitcoin center around its distributed nature and lack of control by any central authority since all central authority is corrupt or at least corrupting. Also they tout the mathematical properties that limit it to 21M coins preventing any inflation. One argument I thought was novel is that you can generate electricity somewhere remote and mine Bitcoin as a store of that energy value were it would be othewise impractical to distribute for a better use.

    I like the idea of Bitcoin but I honestly don’t understand it well enough to make a decision one way or the other. What bothers me (if understand correctly) is that there is a permanent record of every transaction and if your association with a particular address at a particular point in time ever becomes known, your entire transaction history can potentially be determined; it’s like it fails the “Jews in the attic test” continuously in perpetuity. But regardless, I sure wish I could have bought that guy a pizza in 2010.

    • Yes, there is a permanent record of every transaction (that’s the “block chain”). But the entries in it are essentially anonymous, and new ones can be created anytime you want. For example, it’s very clear that you could use a different identity (different public key) for every Bitcoin transaction you make. You can pass bitcoin to yourself (in whole or in pieces) any number of times with new identities for each move. And once you’ve spent a bitcoin acquired with identity X you can delete the private key for X. So it’s definitely possible to avoid the problem you mentioned.

  10. As I understand it, Bitcoin was intended to be a method of value transfer, not value storage. The mining process does fulfill the restricted supply component of money, but that’s not enough by itself. Bitcoin is a sort of digital baseball card, and like a used pistol, worth what you can get for it. Tulip bulbs are still an item of commerce, so there’s that example.

  11. How is BitCoin different from a US Dollar bill. Neither have any intrinsic value. Both can be created at will…..and in reality it takes more effort and work to create a BitCoin than it does to create a dollar. Both rely on the “faith and belief” of a person in the person or organization standing behind the two currencies. Historically it’s been much easier for nefarious people to abuse and manipulate dollars than crypto currencies.

  12. As I understand it, a ‘bitcoin” is really nothing more than a unique serial number registered to a supposedly unhackable online ledger. In short, a particular arrangement of electrons on a computer chip- somewhere. The serial number on a Federal Reserve note is registered with the Federal Reserve, such that an inquiry would generate an answer “that is a 10 dollar note, series of 2013, printed at the Philidelphia mint and shipped to the Federal Reserve Bank in Cincinatti, Ohio, and dispersed to the Farmers Bank in East Oxbreath.” Only one such note can exist in the Federal Reserve System. I think bitcoin will crash, as governments a) find ways to track bicoin transactions across the globe, thus cutting down on illegal activities; b) try to build “Government Bank Bit Coin” systems, which will enable governments to shut down and/or debase the bitcoin system of payments. Cash is king, and gold is the backup….

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