James Altucher Wrong About Crypto Currency

One of the ironies of crypto currency is that although the developers are pretty smart, the average speculator or pundit is really dumb. One thing you may notice is that there a lot of people who have money but are stupid…people who hype crypto currencies and other bad investments, as well as those who invest in them. If you don’t believe me about how dumb these people are, here is a recent story of someone who accidentally lost a private key containing $170k of Bitcoin. You don’t see such a huge IQ disparity between those who are experts and enthusiasts in subjects such as physics or math.

Today’s crypto currency twit is James Altucher, who believes that ‘crypto will save the world’. This is the same guy behind those infamous “crypto genius” ads which appeared everywhere at the very peak of the Bitcoin bubble last year, meaning that anyone who bought his newsletter has probably by now lost 80-99% of their investment, plus whatever money they wasted on the newsletter itself. That makes fake Viagra pills a good deal by comparison. The funny thing is, parents teach their children not to get in cars with strangers, yet as adults we willingly give our money to them. We think that because we’re older we become wiser and better able to read people’s motives, but the fact so many people willingly fall for these scams shows otherwise. You may think I’m being too harsh, but these are people that willingly deceive the public with fraudulent sales pitches, and should be called out on it.

A) Gold is never a hedge against recession if you look through history. It’s not a hedge for inflation, it’s not a hedge against the stock market. Gold can’t pay for anything. Gold is s***.

It depends. If your local currency is plunging relative to the US dollar, which is the global unit of wealth, as in the case of Venezuela, then it is obviously a good hedge against inflation, and James has no idea what he is talking about. It is also a good hedge if the CPI exceeds the federal funds rate. This makes good a better hedge than keeping money in a bank account. Conversely, gold is a poor hedge if the federal funds rate far exceeds the CPI, because then keeping your money in the bank offers a better value than hedging with gold.

It can be used for transactions.

It can but very few merchants accept Bitcoin. Buying with Bitcoin requires that one first convert fiat into Bitcoin. And then the merchant must convert their Bitcoin back into fiat. This creates a lot of unnecessary waste and friction when just using fiat is easier.

It is backed by ten thousand years of science.

So is 1+1=2. So what.

It’s not a rock.

Technically, gold is a mineral. But the one advantage Bitcoin has is it occupies no physical space, which can make it ideal for storing large sums of money, but it is also very easy to lose if you’re not careful, due to theft or carelessness.

It solves the problems of every collapsing currency (examples: Argentina, Iran, China, etc. I can provide more details but bitcoin has been the choice of the populace when their currency fails).

Ummm…except that adoption is very low in those countries, and most people are too poor or lack the infrastructure to acquire or use Bitcoin. Furthermore, few merchants accept it. Bitcoin is denominated in US dollars, but currency collapse and hyperinflation causes rapid poverty and loss of purchasing power relative to the US dollar, which makes it hard to hedge because by then it is too late. Literally all your money is worthless.

It is a store of value (it’s less volatile than the US dollar right now).

Uh what….how is Bitcoin being down 85% in a year ‘less volatile’ and a ‘store of value’. The US dollar has actually gained against most currencies since 2017. I guess, technically, Bitcoin stored 15% of its original value had you bought it a year ago. Awesome.

The world is scared to death of privacy. Bitcoin solves the entire problem of privacy with money.

Wrong again. Although a Bitcoin wallet address is much harder to trace to a specific person than a bank account, the flow of Bitcoin transactions are visible on the public ledger. Monero however is more clandestine.

Within the next two months it will have cleared two huge regulatory barriers: an exchange backed by NYSE and an ETF backed by SEC.

Lol say what. The ETF has been in limbo for years, going a far back as 2013, with no signs of progress.

It can be transferred (as money) more easily than fiat money or gold. Hence the reason it’s the perfect hedge against a volatile market or currency (and, of course, a volatile market leads to a volatile currency and vice versa).

It only easy if a lot of people are using it. Otherwise, you have to convert fiat to Bitcoin and then Bitcoin back into fiat for the recipient. This is cumbersome.

Just like gold replaced barter, and paper money placed gold, and fiat money placed paper money (backed by gold), digital currencies will replace all fiat money in the world.

Gold never replaced anything; . Gold has been used as currency since the inception of civilization. Notice how he says ‘digital currencies’ instead of Bitcoin. This means he acknowledges Bitcoin may not be the dominant currency should this happen, which does not bode well for Bitcoin investors.

And since the supply of bitcoin is FIXED and demand is going to go up 100,000% (the difference between $15 trillion and $150 billion), then bitcoin’s price will be $6,300 (current price) times 1,000 = $6 million.

The number of Bitcoin is fixed, true, but because the protocol is open source and there is no intellectual property, anyone can create competing currencies, and Bitcoin holders do not benefit from this in any way, but actually lose as a result. This dilutes ‘equity’ of Bitcoin holders. As of 2019, Bitcoin has only 50% marketshare versus 95% in 2013 due to competing coins such as Ripple and Ethereum. Bitcoin would be 2x as valuable if that money went into Bitcoin instead of competing currencies, so Bitcoin holders were effectively deprived of 50% of their potential returns.

Every Fortune 500 company from Walmart to FedEx to JP Morgan to Goldman Sachs are already using bitcoin and/or blockchain in one form or other.

It’s understandable how blockchain and Bitcoin are confused or used interchangeably, but blockchain is the underlying protocol/technology, which is open-source. This means, as discussed above, the use of blockchain technology does not imply Bitcoin holders benefit, because there is no intellectual property, no royalties, unlike Microsoft, Disney, or Apple.

The fact that crypto currency proponents cannot even give logically sound arguments or arguments grounded in realty, does not lend much confidence. What a lot of people don’t understand about Bitcoin (and this is something I only learned recently) is that hedge funds are the reason why Bitcoin went from $500 in 2016 to as high as 20,000 in 2017, not due to small investors or adoption as commonly believed. This is really bad for Bitcoin investors because it means much, if not all, of the 2017 rally was artificial. Hedge funds care more about maximizing returns than any sort of long-term loyalty to the thing which they investing in. In 2017, hundreds of crypto currency hedge funds were launched, providing steady buying pressure. They also helped prop up Bitcoin for the first half of 2018. When the buying ceased, Bitcoin quickly fell from $6k to $3k, because there were no more hedge funds to buy the dip. That meant that the only market participants remaining were whales (mostly early investors and miners who accumulated Bitcoin at a very low price from 2010-2012) and small-time traders. Without hedge funds to buy the dips, there was no one to absorb the selling pressure from whales cashing out, so Bitcoin rapidly fell 50% in December from $6,400 to $3,200. A bet on Bitcoin is a bet that these hedge funds will return, which I see as exceedingly unlikely.