Bitcoins: Not Too Big To Fail

Reader Note:  We’ll post an update when the Case Shiller/S&P Housing data comes out this morning.  Likely before the market opens…so if you’re an early reader, drop by again…

You can see in this morning’s headlines one of the reasons that I’ve been skeptical of Bitcoins.  Oh, sure, the idea of a “pure” currency, unloaded by 100 years of debt sounds altruistic and all, but when comes down to cases, the Federal Reserve is not going to bail out a Bitcoin operation, but they will bail out banks at the drop of a hat.

Is there a lesson here?

The reason we begin here is that after multiple (successful) hacking attacks, Mt. Gox has gone by the wayside, or at least so it seems based on report like “Survival of Bitcoin exchange Mt. Gox in doubt” as reported by CNN Money.

Still, there are other Bitcoin exchanges in operation and over at the site you can find quotes from other coineries.  Hit the “charts” tab.

I’ve mentioned in the past that Bitcoins are doing something of a rhyme on the 1634-1637 experience in tulip bulb prices in Holland.

May I offer you a starting point for some excellent reading if you are trying to sort out what to expect from Bitcoins going forward? 

You may have never heard of Aswath Damodaran but he teaches corporate finance and valuation at the Stern School of Business at New York University.

One of his best books of general interest if you’re learning about investing is available from Amazon:  “The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit (Little Books. Big Profits) “  Easy read, packed with good info.

Back to point:  If you go poking around Damodaran’s website, not only will you find a treasure-trove of fine articles summarizing years of study and research, but his analysis of the tulip bubble (and pricing) is very much on point when you’re trying to brain out where this whole bitcoin “thing” could be leading.

As I reread his paper this morning, it struck me that we may be about in Phase 3 of the Bitcoin bubble.  And that should be followed by Phase 4 which he called the “aftermath.”

And what does an aftermath look like?  To pull a quote from his paper – on tulip prices, remember…

“In the aftermath of the bursting of the bubble, you initially find investors in complete denial. In fact, one of the amazing features of post-bubble markets is the difficulty of finding investors who lost money in the bubble. Investors either claim that they were one of the prudent ones who never invested in the bubble in the first place or that they were one of the smart ones who saw the correction coming and got out in time.”

While I still believe that a Federal Reserve-backed digital currency (which would be unladen with debt and automatically taxed through a clearing operation) is still a fine resolution to the two-tier currency problem as the US dollar continues its devaluation process (-3.4% per year on average purchasing power since 1913, including the Great Depression), we can see the evidence accumulating that there is enough computing horsepower being directed at “crypto” currencies, that it may not be possible to evolved an all-electronic system of money at this time.

Of course, the experience of Bitcoin might be incorporated as part of a move to begin licensing the Internet, and the ultimate criminalization of hacking, just as the FCC’s Communications Act of 1934 set up licensing of radio waves (and set up enforcement for what were that era’s “hacker equivalents.”

Sorry if you didn’t get out…but one of these days, the price may drop down to where it’s appealing again.  But then – as I see it – only as a kind of digital tulip; a point I haven’t wavered on since the question first come up.

Reading Damodaran on Bubbles is certainly not a waste of time if you’re trying to keep your non-virtual wallet intact.


Ukraine Delay, Russian Window?

We read this morning how the new “unity” government announcement out of Kiev has been put on hold for a day (longer?).

As the cited story relates, the EU is pressing for quick action.  Reason?  The sooner the EU can lay out a relationship with the new government, the sooner the EU can begin to flex its muscles in the direction of Russia which has, besides a huge agricultural interest in the region, control of the pipelines carrying petroleum products to Europe.

EU leaders were busy funding and promoting the “revolution” in order to seize control of this energy choke point from the Russians and the strategic problem they have is that the longer the Unity group doesn’t get Unified, the strangers the case of the ousted president, which in turn, would give Russia a pretext to march into the power vacuum.

Meantime – and is it related? – we find the timing of the latest exploit aimed as US military veterans to be a particularly odd event.

Go read :”Operation SnowMan: DeputyDog Actor compromises US Veterans of Foreign Wars Website…”

Could this be a sign (under cover of the snowstorm in Washington this month) that there is a cyber skirmish in play and that there’s more to come, all peripherally related to the Russians getting reader for…..for….what?  If anything….

Disposable Americans: NM Radiation Leak

The leak earlier this month of atomic leftovers, including plutonium, that spread a plume of radiation over New Mexico, up over the Texas Panhandle and into the square states, has us wondering again about the honesty and candor of the US nuclear regulators.

A story in the Monday NY Times details what’s going on near the underground storage facility near Carlsbad, New Mexico.

That said, readers reports are starting to come in from downwind areasL’

“My son has been monitoring the radiation here, 20 miles north of Santa Fe and in the past 24 hours our readings have increased just over  50% above the normal background readings that we’ve been getting  on a daily basis for the past year or so since I got the monitor.  My son said he would try to separate the alpha, beta, X and gamma radiation by using shielding techniques he uses for that purpose.”

We’ll pass along the details as they come along, but if you live in that downwind corridor, the rad levels from Carlsbad up through Kentucky will be instructive to watch.

How to Run an Agenda

All of once, over the past month, or so, a series of bills that would allow discrimination over sexual preference (as counter religious beliefs) have been tossed in the hopper in almost a dozen states.  But only in Arizona has the measure been railroaded through by the state GOP and it would legalize discrimination on religious grounds.

And, just to mix even more emotions into this, here we have a political type in Delaware demanding that Phoenix be stripped of its SuperBowl plans

Any minute now, we’re expecting the EU to weigh in on this…

Gaye rights is already been moved into the international sphere with Uganda signing an anti-gay law.  This on top of what Russia, and other countries have done…

IRS – Tea Party Rules

Speaking of running politics, the Obama administration which had been moving IRS to rules that would have kept 501-(C4) groups out of politics is quietly falling apart reports the Washington Times in today’s editions.

All of which is being cast by some as a good move for freedom…but only if you like the eBay-like processes that buy American political outcomes…including the tax exempt pools of money.  It wasn’t just about the Tea Party, although that’s how it has been cast.  It’s about ALL tax exempts…

This is one thing the Obama administration was on the verge of getting right….so it’s going, going….

X-Flares?  Who Cares?

Every so often, the Sun comes out with an X-class flare, but just because they happen from time to time doesn’t mean the end of the world.  Take his one for example:

An X4.9 flare peaked Feb 25 00:49. The event occurred in NOAA AR 1990 (ie returning AR 1967) on the solar East limb.

Solar proton level started to increase with some delay and gradually. They will probably not cross the event threshold (with this event alone). A partial halo CME was associated to the flare. First EUV image data (SWAP) and coronagraph data (LASCO) indicate that the CME was very fast and bright. Given the position of the source region on the East limb, we expect however no geomagnetic consequences. This will be confirmed later today.

The east limb is the eastern horizon area, if you want to think of it that way..and since that pops out out into space (where we’re not at the moment), it’s an interesting but hardly threatening event.

On the other hand, a large solar flare happening would make a pretty interesting cover story for military aggression.  The plot would be a foreign power waits for there to be a large flare off the sun and times its arrival to occur at the time the enemy of the great country sets off a nuclear device causing EMP.

It’d be a fine case of deception and plausible deniability…just the stuff of  good fiction.

Or tomorrow’s headlines.