Bitcoin bubble part 2- why its no good.


The bitcoin price over the last month or so has really gone crazy, as of today its up around $43USD/BTC. It’s hard to understand why it is so high given not a great deal has changed (other than the halving of the mining reward late last year and perhaps a little wider adoption)from when it was just under USD3 in November 2011 after its crash from previous highs around $30/BTC.

A bit unsustainable but good for those who bought some and kept them when they were much cheaper (if they intend on converting back to their home currency).
A bit unsustainable but good for those who bought some and kept them when they were much cheaper (if they intend on converting back to their home currency).

At the end of the day it really doesn’t matter what the price of a BTC is if its main purpose turns into being the “transport medium” of wealth from one individual to another, it is merely the conduit by which value is exchanged. If they are USD100 each or USD1 each it will only mean that the person sending the $$$ to someone else needs to buy more or less of them. The problem with this wild fluctuation in value is that the majority of people who want to buy to store value and to later exchange for goods or services in the medium term are likely to be to nervous to do so given its volatility and as a result the usage of bitcoin as a stored value and accordingly to be used as exchange for goods or services could be limited

Perhaps bitcoin will be relegated to just a short term transfer of wealth vehicle, quickly bought, sent to another wallet and then converted back into the local currency of the receiver before any swings in the exchange rate adversely impacts the recipient.

We will no doubt see soon what happens.

Retail prices here in Australia.

I just read on Gerry Harvey bleating about how the retail segment this year is going to find it tough because consumers in Australia are too tight to spend.

Here is a perfect example of why I and I guess others are choosing to spend at other electronic retailers.

Suppliers of electronic goods (goods which are largely a commodity now) are replaceable by any other retailer assuming they sell exactly the same product, you will normally go for the cheaper option, at the end of the day it boils down to time, are you willing to trade time waiting for a product for $$ saved.

At Dick Smith today I see they are selling the new Amazon Kindle 3g for AUD219 delivered. A quick check at Amazon finds I can get the thing delivered from the USA by 5 September (by priority international courier) for AUD194, that’s a saving of AUD25.

Now I’m not about to race out and buy a Kindle but its a basic example of how easy it is to save $$$ online in Australia.

The big 4…

I read something very interesting today that sums up working in some accounting firms.

“When large numbers of people are after the same commodity, be it stock or bond or a job the commodity quickly becomes overvalued.”

I think I agree.

Bitcoin – I think I was wrong

I have been thinking more about Bitcoin and what it could be used for and why the exchange rate of Bitcoin may actually mean very little in the real world. Here is what I think.

Given there is relatively few places that are actually accepting Bitcoin to purchase their goods the only thing I can think of that Bitcoin is good for is to store value; anonymously!

Lets pretend I’m a crook and I want to launder money that I have gotten through less than honest means, I could purchase Bitcoins through a place like MtGox and hold it there for a period of time and then either exchange it back to USD – or what ever the currency you purchased it for in the beginning.

In the above situation it doesn’t really matter what the exchange rate is when you buy Bitcoins, it could be USD1000 for each Bitcoin, as long as the exchange rate doesn’t move against you when it comes time to change it back to a common currency you are OK; in fact the higher the exchange rate the better because the percentage change would reduce if the rate was fluctuating by a few dollars up and down. To explain, at USD10/BTC a $2 change is a movement of ±20%, the the exchange rate was USD1000/BTC a movement of $2 is only ±0.20%. Now, sure the $ value may also be moving by large $$ values but up and down $200 would appear to the market as fairly extreme.

Further, I would even think that given the funds being laundered were ill gotten perhaps the launderer (if there is such a word) is prepared to take a hit of a certain % because, lets face it, they probably stole it to begin with.

The other explanation is that there are a bunch of guys (and girls) ripping each other off for fun, kind of like a game of musical chairs, and who ever holds the Bitcoin at the end of the game actually looses (because you have been the one most ripped off).

These are just my thoughts that help explain the exchange rate crazy-ness going on. No doubt there is some dodgy-ness going on by someone in the back ground driving the rate up anyway.

The Global Fin’ Criss and Big Baths

I’m currently studying Decision Analysis at Uni.

All these big big companies around the world (of particular note Japan and of course USA and UK) are making massive losses, and even first reported losses in the history of the Company a-la Toyota. Sure these a re a result in losses taken (in some cases) securitised mortgages and default swaps etc, however, surely not all the company performance can be blamed on the GFC. This got me thinking, how is it that these companys can go from healthy profit to losses in 12 months? I recon, and this is only my opinion, that the management have said “Its a really crap year, lets take a big bath”.

Big bath’s are taken when management recognise that fin budgets are not going to be achieved so they make sure they set up things for next year so they have a good year. This is often done with restructuring charges or some other abnormal charge or expense, lets call it a GFC charge.

There, I have put this in black and white. It will be interesting to see what Toyota’s results are next year – I say modest profit probably helped along by a reversal of some provisional charges made this year.