Bitcoin’s end may be forecasted in its recent price run up (I intentionally didn’t say value because it has no intrinsic value). Late last week the digital currency traded above $20,000 for the first time according to an article in the New York Times. That article also noted that the crypto currency started the year below $1,000 and as recently as this October coins could be had at a now very attractive $5,000 each.
The Times article said the factor driving the new interest is the increasing interest from Wall Street and for good financial reasons,
At the current cost, the value of all Bitcoin in circulation is about $300 billion. To get a sense of how big that is, all the shares of Goldman Sachs are worth about $90 billion.
But the only comparison should be with other currencies like the dollar. Bitcoin’s price is tiny compared to the M1 money supply, a measure of dollars in circulation. M1 is hovering near $3.6 trillion according to the Federal Reserve Bank of St. Louis.
M1 is a good jumping off point because it reminds us that real money is regulated by something other than the marketplace and that regulation is much more transparent. Every major country and currency has its own version of such an index except in Europe where some countries use the Euro but the principle is still the same. In contrast, Bitcoin has Coinbase, a San Francisco company providing brokerage services. We should note that Coinbase’s systems went kaput for an afternoon last week. That’s not exactly something to make you warm and fuzzy.
But the valuation (ok, I said it) is like blood in the water for Wall Street. Hedge funds and brokerages are lining up to trade in Bitcoin. Said the Times,
Coinbase now has more account holders than Schwab, and it has struggled to keep up with the growth.
But more troubling is the looming trouble that Bitcoin could deliver the the financial system,
The path for large investors has been smoothed by the Chicago Mercantile Exchange and Chicago Board Options Exchange, which have been racing to roll out Bitcoin futures contracts. Most banks are already signed up with these exchanges and consequently can immediately begin trading the contracts. The options exchange has said it plans to start trading on Sunday [December 10].
My friends involved in this say that Bitcoin and other crypto currencies provide a measure of freedom from government regulation, which is more conducive to doing business. But all of this freedom only reminds me of the words of Anatole France, an early 20th century poet, novelist and journalist, and Nobel Laureate, “The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”
I see this run up as potentially destabilizing to the global financial system and quite possibly the black swan that the Trump administration didn’t see coming that produces its first real test. The fall out from the test might turn out to be worse than the crash.
I swear I was getting through this and trying to move on. She wasn’t my favorite candidate but when you consider the alternative she looked like George Washington in a pantsuit. Like many people I had moved on from denial and anger to Elizabeth Kubler-Ross’ next stage in the grief pyramid called bargaining. He can’t be that bad…they can tame him…I’m going back to work, he can’t chase me there…I’ll be okay.
But noooo! A brief story in the New York Times today says Donald Trump, incipient POTUS is planning to hold a technology conference next week. It’s right here under this headline, “Trump Plans Technology Conference With Silicon Valley Executives.” The article by David Streitfeld, Maggie Haberman, and Michael D. Shear covers a lot of ground what with Trump also seeming to have cancelled the next generation of Air Force One today, which is also in the piece.
Says the article, “The list of those being invited was not immediately clear, but they could include Mark Zuckerberg of Facebook, Timothy D. Cook of Apple and Sundar Pichai of Google.” Sure, that’s right, Silicon Valley CEOs have nothing scheduled that far out so of course they’ll all trudge over to Trump Tower. Whatever it is, when a president asks for your time, he’s doing it in the name of all the American people so you more or less have to attend.
The one saving grace in all this might be (and we really don’t know all the details yet) the fact that these are all consumer technology mavens so far. Maybe Trump has a punch list of social media enhancements to go over or maybe he intends to build a wall between our electrons and the rest of the world. Or maybe Trump just wanted to call a fly-in for rich guys to compare private aircraft. His is bigger, you know.
Regardless, I’ll withhold judgment on Trump’s tech chops until I know if this is just show and tell for social media or if he really wants the skinny on what to expect in areas like machine learning, AI, the IoT, and a half dozen other techno-wizbangs that will rock his world soon. I’ll begin to worry when Ellison, Benioff, and Gates get summoned.