Bitcoin Shopping Spree

Bitcoin is the hottest item this holiday season.  It is the hardest to trade legitimately, but still the most popular among retail.  It figures that retail these days will flock to something that is anti-establishment, much in the way they flocked to Trump.  Of course, Trump didn't end up being anti-establishment, he is hyper-establishment, looking to give big business donors a huge gift in the form of tax "reform".

Socioeconomically, the underlying distrust of government and desire for alternative investments (the masses don't seem to have real enthusiasm for stocks anymore) has led to this dash for cybertrash.  You can't really compare this to the dotcom bubble or housing bubble.  At least there was some underlying value there, but cryptocurrencies have no real underlying value.  I am sure the bitcoin maniacs will argue with me on this, but unless governments give up their printing press in favor of bitcoin, it has no underlying value.  And what government would be dumb enough to give up one of their main sources of power to throw their monetary fate into bitcoin?

This really tops the cake among bubbles that I have seen.  You had stamps in the late 70s/early 80s, baseball cards in the late 80s/early 90s, and Beanie Babies in the late 90s, but this is on a global scale and larger.  At least for the above bubbles, there it at least some nostalgic/sentimental value for the asset, but that is absent with bitcoin.  It may be the closest thing to the tulip bubble.

Investing in bitcoin is not investing in block chain technology.  Block chain is a transaction mechanism, not an investment.  And the number of transactions that bitcoin can process is less than 5 per second, which makes it quite slow, compared to a VISA which can process more than 24000 transactions per second.  So that just makes bitcoin a store of value, which is not backed by any governments.  It is essentially competing with gold and silver, or even art and antiques, except it has no physical uses, which makes the value even more ethereal.

If I had to make a guess, it would be similar to gold, a weak dollar play, so a weakening US economy, and thus a more dovish Fed would help bitcoin sentiment, so I think there is another leg higher for this bubble in that case.

I am in no rush to short bitcoin because I do believe the dollar will get weaker over the next couple of years, and that could trigger another rush into bitcoin.  It will be interesting to see how bitcoin trades once futures trading is available on the CME and CBOE.  If the longer dated futures contracts have sufficient liquidity, I would be willing to take a long term short position in bitcoin sometime next year.

The seasonally strong period before Thanksgiving and Black Friday played out, and that sets a possible pullback this week.  I took a small short looking for a pullback this week.