Bitcoin has died**
You didn’t really think that some computer code was going to compete to be a global asset class, did you? I mean, that was pretty stupid of you if you did.
A bunch of bearded cryptography enthusiasts versus all the intellect of the world’s bankers? It was hardly a fair fight and it was clearly ridiculous to imagine that they could prevail. I mean really, LOLs and ROFLs as they say.
Take a look at the monetary policy of bitcoin. It is ridiculously simple, a child could understand it, maybe a child even wrote it.
That’s it, that’s all there is to it. Five lines of computer code. It means, give out 50 BTC + fees for each block. Every 240,000 blocks cut that by half + fees, repeat.
Ridiculous! We know it has to be more complicated than that. We need press conferences, we need governors and governance, we need millions of analysts pouring over the nuance of every word to work out how much our money might be worth in the future, we need shifting sands and growing denominators. It’s how it has to be. You know that; you’ve always known that.
What about a marketing department and thousands of staff and the people who will design our notes with heroes from history all over them? I’m afraid it just cannot work without all those colourful pieces of paper and it really is a shame that you thought it could.
** Bitcoin is up 120% this year (don’t tell anyone, just tell them it has crashed and you don’t have any and hope they leave you alone). P.S. they won’t leave you alone and will keep asking you about it until it’s $500k and then they’ll buy some.
Amidst all the “I told you so” volatility talk we were treated to this chart by Geert Jan Cap. It sets out the history of bitcoin moves since 2010.
Suffice to say volatility is falling with time, yet there are some killer days in there still, like March last year.
Ultimately, bitcoin is in price discovery. If you don’t want volatility and I understand why people might not, then wait until it’s $500,000 because it will be a lot less volatile and perversely everyone will feel more comfortable buying it.
Geert also treated to a comparison between bitcoin volatility and that of the US treasury yield. Clearly, with yields so low, it doesn’t take much for a large percentage change in yields, so perhaps the chart is misleading in that sense. Even so, it is very clear that the bond market is getting wobblier and bitcoin less so. My sense is that this trend continues as the years progress, so forget the noise and zoom out.
That is the six year bitcoin journey of JP Morgan and in particular their CEO Jamie Dimon. Much hilarity ensued as a result of this collection of quotes, but I take a rather different view. I have no love for Jamie Dimon, who has personally enriched himself at the Federal Reserve spigot, but I don’t really have an issue with his bitcoin awakening.
Firstly, it is natural to be sceptical at first, who isn’t?
Next question, is it a fraud? There were certainly good reasons to think so in the early days. We had the Silk Road, the ICO boom and an exchange hack every week it seemed. It was a good question; it remains a good question and worthy of investigation. It is still very easy to be defrauded in this sector, particularly more recently with an explosion of new projects that are clear frauds.
Then, slowly, realisation. Maybe it is a thing. Maybe it is a thing I am interested in.
Finally, admitting you were wrong and doing something different. That is difficult to do and probably more difficult if you are a public figure, as he is. CEO since 2004 and including JPM predecessor companies, since 2000. 21 years at the top is an unusually long time and perhaps in this story we see how it is done.
Have an opinion, stick with it. After all, a wrong decision is better than no decision. Then, should it transpire that you were wrong, change your mind and admit it.
It’s hard to argue with that.
The foundations of the house
Here’s an interesting account about the apolitical nature of bitcoin. It’s taken from a niche twitter account which posts handwritten notes about all sorts of stuff, generally two a week. They are half odd and half compelling. Not too much concern for spelling or grammar either. I must say, I find these strange people in corners of the internet a lot more interesting than the newspapers, even if they are certifiably insane.
In this case I tend to agree with the note, having something with such a stable foundation as Bitcoin is helpful in an otherwise confusing world (forget price, think the protocol, think the code that has reliably run exactly as intended for 12 years). What else can we anchor to that behaves exactly as intended?
Goodness me. The words of a confident money manager bestriding the globe, showcasing her innovation and foresight.
I’m sure Agent Lagarde will extend this health metaphor as the year progresses. Let’s play a game and buy some bitcoins every time she does it. There will be extra points for “surgery”, “repair”, “medicine” and “intervention”. If she says “intensive care” at any point in relation to the economy, I’ll take the week off.
While we are here, I thought we might also dip further into the ECB Annual Accounts, I touched on them last week and have now had a chance to peruse them further. Incidentally, it was a soothing activity. What better use of my weekend?
The most irksome matter, buried away in the notes to the balance sheet, is the ECB Pension Scheme.
Contributions paid by the ECB are 20.7% of salary. I have never seen or heard of a scheme so generous, it is extraordinary. The cost of the pension scheme this year is also in the notes, €542 million. Half a billion euros! On the pension scheme! Not the actual salaries of these people, that’s just the pensions. There are 3,500 staff at the ECB and so the annual pension cost per head this year was €155,000.
On a generous appraisal, the average annual salary in Europe is about €35,000. I don’t think it’s too much of stretch to say that the central bank shouldn’t really be spending 4.5x that amount on staff pensions in a single year. How can this be? We’re on crutches here, aren’t we?
Taking a look on employment site glassdoor.com we can see what the staff have to say about working at the ECB.
Good salary with “golden cage risk”. I think perhaps that is an apt description. Like being a zoo animal really.