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November 27, 2017 | Gross

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Normally, it’s a good idea not to discuss things you’re ignorant about. Like how pre-pubescent girls feel. What drives people to get so damn much life insurance. Why anyone cares about Meghan Markle. How parents could buy an evil doll named Cayla. Why people cry when they’re happy. Where NDP supporters come from. Who the hell Noah Cyrus is. And bitcoin.

The digital, doesn’t-actually-exist, alternative currency didn’t quite make it to $10,000 a unit on Monday. But close. Stunning. Bitcoin has added 45% in two weeks – something which took the US stock  market three years to achieve. It’s ahead 17% since…Friday, for god’s sake. Some people say once the $10,000 mark is reached, the thing will move in staggering multiples. Meanwhile the volatility of bitcoin has touched 100%. And you thought Donald Trump was unpredictable.

As Bloomberg reported yesterday, when the chart below was published, bitcoin – the love money of the dark web, hacker-ransomers, online drug dealers and sex slave traffickers (as well as Microsoft, Intuit and PayPal) – now has a bigger market capitalization than 470 companies listed on the S&P 500. Next month a major bitcoin futures exchange opens, allowing Wall Street monoliths and pro traders to move in and shellac the newbies and tech boys.

Maverick Toronto real estate broker Alex Prikhodco is a bitcoiner, and has been so since 2012, when one was worth a measly $200. “As a programmer I looked into the algorithm and I got absolutely fascinated with the way it worked,” he tells me. “Whoever came up with that was an absolute genius! Nothing like this has ever been done before. I told some of my friends that I bet bitcoin is going to be worth over a $10k a pop at some point and possibly much, much higher, not a question of if, but a matter of when. People laughed at me of course, much like they did when I was telling people real estate is gonna crash shortly.”

Prikhodco admits bitcoin is risky, and he would never touch it for his RRSP. Plus, yes, it’s in a mother of a bubble – but one with the potential to increase by a factor of (maybe) 27. We should note here that the dude is also an urban survivalist who owns gold, guns “and a decade worth of ammo.” That’s a lot of squirrels, or whatever he plans on stalking.

Here is why bitcoin is less risky than Canadian real estate, however: “Most people who hold bitcoin are not leveraging 10 to 1 to buy bitcoin (unlike real estate). Real estate is overvalued not because of what an average family can or can’t afford (which is irrelevant), but because people bought a bunch of real estate they CAN’T afford for the single purpose of speculation and signed up for loans they’ll never be able to repay. And now we see the results of that. “

But what about bitcoin being a digital entity, only worth something as a commodity, or holding purchasing power, when there’s electricity, a server, a functioning Internet and your iPhone is charged?

“If internet goes lights out, so would the banks, ATM’s, Interac payments, stock market, cell phones, traffic lights, subway system, electricity supplies, real estate, toilet flushing (remember 2002 blackout?) and the most important thing to us all – your blog, that we will all dearly miss. Bitcoin is not the only thing that relies on the internet, far from it. If internet goes out – life as we know would be unimaginable and losing some bitcoin would be the last thing on your mind.”

Prikhodko (and others surfacing here to shed expert light on cryptocurrencies) admit the next surge in technology could result in a better digital store of value, rendering bitcoin obsolete in a hurry. Governments could outlaw it in unity, fearing the impact on fiat currencies and central banks. Snaky people could corner the bitcoin mining business. And wild, unbridled, unregulated speculation, reminiscent of stock markets a century ago, could simply blow the thing up should a wave of shorts move in.

Remember what JPMorgan boss Jamie Dimon said after calling bitcoin a fraud: “If you’re stupid enough to buy it, you’ll pay the price for it one day. The only value of bitcoin is what the other guy’ll pay for it. Honestly I think there’s a good chance of the buyers out there are out there jazzing it up every day so that maybe you’ll buy it too, and take them out.”

Dimon’s a financial genius, by the way. And he’s right. Bitcoin has a far greater chance of going thermal than it ever does of replacing the US currency.

But, wow. It’s now worth about $150 billion. Ten grand a coin seems reasonable this week. Maybe tomorrow. Or by the time I finish this sentence. Believers like Prikhodko say that’s less than two-tenths of one per cent of the world economy, so stop sweating things. Lots more to come because hundreds of millions of people no longer trust paper money. And when parents buy toddlers dolls that are Bluetooth-enabled with online AI functions, anyone born after 1990 is best suited to, you know, blogging about dogs.

I’ll shut up now.

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November 27th, 2017

Posted In: The Greater Fool

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