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December 12, 2017 | Bitcoin: Just a Game

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

RANCHO SANTANA, NICARAGUA – Yesterday, we wrote about business as usual.

Despite the sound and fury of the last 12 months, nothing much has changed.



Headed for Bankruptcy

The U.S. is a little further advanced toward the final stages of becoming a degenerate empire. Saddled with the cost of keeping its legions all over the world… and the cost of supporting 70 million retiring baby boomers, it is headed for bankruptcy.

According to the bipartisan Simpson-Bowles budget commission, Washington needs a tax revenue base equal to 21% of GDP to cover its costs.

The new tax bill – or what we know of it so far – will raise revenue equal to about 17% of GDP. This will leave the feds with a $1 trillion-a-year shortfall.

That means trillion-dollar deficits… as far as the eye can see.

Empires are cyclical, not eternal. They go up… up… and up. Then, having gone up too far, they go down… down… down, usually ending in military defeat or bankruptcy – often both.

It’s business as usual that brings them down. We’ll return to that tomorrow.

First, we want to give you two updates. The first is from the farm in Argentina. The second is on bitcoin.

Far From Reality

In Argentina, our lawyer, Pancho, went to powwow with the originarios.

As long-term Diary sufferers know, some of the locals – high up in the mountains and far from reality – say they are remnants of the Diaguita people, a group of Indians long considered extinct.

They don’t speak the language or know any Diaguita customs, and the chief’s mother was from Germany… but the government gave the local people money to pretend to be protected indigenous people; some took the bait.

As originarios, they claim the land they live on, even though it has been titled to other people for three hundred years.

“I met with them,” says our man on the scene. “But it was a waste of time. I told them that if they didn’t take down that fence they put on your land, I would take them to court.

“They aren’t really originarios, and I think I can get a court to agree. But you never know. And we’re trying to work it out as amicably as we can. They’re not bad people… but they have some pretty bad ideas.”




Enigma Asset

Another update… about bitcoin.

The enigma asset rose $2,000 in the last 24 hours, bouncing back from last week’s sell-off.

One of our sons is a math whiz. Lately, he’s been studying the breathtaking world of options on bitcoin.

Yes, you can buy options on bitcoin, dear reader. But it is not for the faint-of-heart.

“You have to realize,” explains our in-house expert, “these options are priced in bitcoin, not dollars. You buy them with bitcoin and you sell them with bitcoin.

“If you’re buying a bitcoin call option, and the price goes up, you win from the trade. But you earn even more than you’d earn by just buying bitcoin. You get leverage to the underlying asset, in other words. And if you exercise your call option, you end up owning an independent form of money, not a stock, like with regular options.”

Got that?

We’re not sure we do.

But the 27-year-old has made $1,000 in the last six days.

“I’m just experimenting, trying to understand how it works,” he explains.

“You know, everybody says the blockchain technology [the secure, decentralized ledger bitcoin and other cryptos are built around] will be useful in lots of different fields.

“They say blockchain technology is where the real money will be made. They’ve been talking about using it for property titles, contracts, and all sorts of things.

“But it doesn’t seem to work. Or there’d be some successful applications by now. As far as I know, there are none. Blockchain seems to work only for cryptocurrencies, where they don’t have to connect back to the real world of titles and contracts.”

“And even there, I have my doubts. People say bitcoin is money. But whether it is real money or not is only something you can know later – if it starts to be widely used. There’s no such thing as theoretical money. It either works as money or it doesn’t.



Serious Leverage

“I like bitcoin,” he continues.

“Using small amounts of money, you can get some serious leverage. But it’s like a math challenge. It’s a very illiquid market. It means that the options are probably priced incorrectly.

“No matter what you think about bitcoin, there is probably money to be made. I assume that the market maker is a math genius who has figured it out. I assume they’re the smart money. I don’t know. But it’s fun to play with it. It’s like a game.”

At least, it’s fun on the upside.

“You can buy a call option for $2,000, based on the price of bitcoin going to $30,000 by the end of March. It seems crazy, because the price would have to go over $32,000… or about a 100% gain… to make money on that trade.

“But you never know. We’re in uncharted territory.”

This territory might be uncharted, but it feels familiar: boom… bubble… bust.

The pattern applies to many things, empires as well as markets.

More to come…




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December 12th, 2017

Posted In: Bill Bonner's Diary

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