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December 3, 2017
One now, or two in 15 minutes?

Bitcoin has taught its early adopters the virtue of delayed gratification, giving the lie to the old saw that cryptocurrency serves no social purpose.

Read more in the THE TAKEAWAY below.
 
 
TOP TRENDS ON COINDESK

To the Moon?

Whether you saw it as vindication for long-time HODLers or a sign of froth, this was a historic week for bitcoin. The mother of all cryptocurrencies achieved new all-time highs, powering through $10,000 and then $11,000, though there were steep dips as well.

One factor driving the euphoria is the imminent introduction of futures trading on the Chicago exchanges, with the CFTC giving its blessing Friday for the CME, CBOE and Cantor Fitzgerald to start listing bitcoin derivatives on Dec. 18.

However, as CoinDesk columnist Michael J. Casey cautioned, futures could slow bitcoin's ascent into the stratosphere, since professional investors will now have a way to short the market. And that's a good thing, in his view: "By lowering volatility, two-way institutional engagement will increase the impact that bitcoin can have on the world."

Your Show of Shows

And speaking of institutional engagement, the energy was palpable this week at CoinDesk's Consensus: Invest in New York, where 1,300 professionals gathered to explore the opportunities for sophisticated traders and portfolio managers in a maturing crypto asset market.

Hot topics included new trading tools (perhaps most significant among them leverage, a dirty word for many early bitcoin adopters); cooling sentiment for ICOs (again, not necessarily a bad development for a sector that's had a regulatory target on its back); and of course the "b-word" (hint: not "bitcoin" or "blockchain"; it rhymes with "rubble").

One more caveat: For now, it seems, most of the "big" money coming into the sector is the low end of the high end – wealthy individuals, family offices and crypto-specific hedge funds. Several speakers described their efforts to court university endowments, but reported no successes yet.

As a number of presenters explained, the infrastructure in the market is not yet developed enough to suit the needs of the largest institutions – for example, a way to easily determine whether they've obtained the best execution possible for a trade. "As much as we want this to truly be an institutional asset class, it's not quite there yet," said Hu Liang, founder and CEO of trading platform Omniex. 

Fear and Loathing

Meanwhile, the price action and media attention prompted a greater-than-usual volume of dire warnings about bitcoin, and dismissals of its value, from prominent figures in finance and government.

Economist Joseph Stiglitz said it should be outlawed. South Korea's prime minister said it's corrupting his country's youth. Federal Reserve Vice Chairman Randal Quarles said it threatens financial stability (a sentiment echoed in a CoinDesk op-ed by blockchain industry gadfly Preston Byrne). Billionaire Carl Icahn said it looks like a bubble. Goldman Sachs CEO Lloyd Blankfein said it's too volatile for his firm. Even the White House is monitoring it.

Not a peep from Jamie Dimon this week, though.   

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QUOTE OF THE WEEK

"Bitcoin Cash got liquid and tradeable instantly, which was shocking to us. It was born out of nowhere … [and] became one of the biggest products we traded."

– Dan Matuszewski, head of trading at Circle Internet Financial, at Consensus: Invest

THE TAKEAWAY 

The most expensive dunce cap in the world is a hat I bought with bitcoin about five years ago. I'm not going to bother looking up exactly how much bitcoin I paid for it, and what that would be worth if I had just HODL'd. It's too mortifying to contemplate.

But you know what's even more embarrassing than my failure then to grasp one of the fundamental advantages of bitcoin? Joseph Stiglitz's failure to grasp it now.

Bitcoin "doesn't serve any socially useful function," the Nobel Prize-winning economist blithely declared on Bloomberg television last week. Wrong, Joe.

Off the top of my head, I can name three social useful functions of bitcoin: its censorship-resistance; its judgment-resistance; and the topic of this essay, its deflationary quality, which rewards saving for tomorrow rather than splurging today. 

Stepping back, a longstanding knock on bitcoin's suitability as a currency was that its fixed, predictable supply and zigzagging but generally increasing value against the dollar encouraged hoarding. But "hoarding" in this context seems little more than a morally loaded term for what our grandparents called "saving."

Used in this way, the word "hoarding" pathologizes thrift, something once considered virtuous. It equates the kind of person who will wait 15 minutes for two marshmallows instead of eating one now with the kind of person who keeps 40 cats in a New York City apartment. 

In his forthcoming book The Bitcoin Standard: The Decentralized Alternative to Central Banking, economist Saifedean Ammous argues that wider adoption of bitcoin would have a salutary influence on people's behavior.

"When the value of money appreciates, people are likely to be far more discerning with their consumption, and to save far more of their income for the future," writes Ammous, who is an assistant professor of economics at Adnan Kassar School of Business at Lebanese American University in Beirut. "The culture of conspicuous consumption, of shopping as therapy ... will not have a place in a society with a money which appreciates in value over time."

Rather, he continues, money that increases in value over time "would cause people to develop a lower time preference, as their monetary decisions will orient their actions towards the future, teaching them to value the future more and more." 

Sounds great in theory, you might say, but how do we know it will work in practice? Well, it already is – among bitcoin users, I'm in good company with my spender's remorse over that stupid hat. As developer Jimmy Song wrote in a blog post in September:

"Most bitcoiners I have met regret most purchases they've made with bitcoin because unlike fiat, bitcoin increases in utility and value. People that were once living paycheck-to-paycheck now look at investment horizons of 10–20 years.

"Bitcoin encourages people to be wiser with their money, to think before they spend, to plan ahead and not act so much on impulse."

That long-term thinking is perhaps most evident in the volunteer army toiling away at bitcoin's code, as suggested by this telling observation from CoinDesk editor-in-chief Pete Rizzo in his July article unpacking the scaling debate: 

"I once asked two high-profile developers if they cared if they even lived to see bitcoin become what they envisioned. They seemed to think that this was unlikely, and didn't seem worse off for the realization."

Let that sink in. These devs are so future-oriented that they're OK if the full payoff comes when they're dead.

The closest story to that I can think of in my all years covering mainstream finance was an American Banker article about a tiny, family-owned bank in Kansas whose chairman decided to replace the core system (a rare investment, since it's so expensive) so he could leave his sons a viable institution. His sons. 

More typical is the short-termism that, at its most destructive, led Wells Fargo to set impossible sales quotas for its retail bankers, motivating them to create millions of unauthorized accounts and ultimately resulting in massive fines and brand damage.

In this light, it's ironic that Jamie Dimon and Warren Buffett are among bitcoin's most prominent doubters, since they cosigned a letter last year bemoaning the way quarterly earnings guidance has distracted publicly traded companies from long-term growth strategies. If Dimon and Buffett did a little digging, they might see that bitcoin can have the opposite effect on individuals.

So while it's all well and good that the price is up 1,000% this year, getting rich quick is a lame reason to be interested in bitcoin. It's not about Lambos, and it's certainly not about YOLO – quite the opposite.

To be sure, continued price increases are far from guaranteed, and as even the most ardent evangelists have said since the early days, no one should invest more in bitcoin than they can afford to lose. It still could conceivably tank and never recover. Unlike subprime mortgage paper after the 2008 financial crisis, bitcoin has no state-sanctioned buyer of last resort. That may give bitcoin the moral high ground, but it's a practical disadvantage.

All that said, bitcoin's track record as a store of value since its birth nearly nine years ago is looking pretty good at this juncture. Whether that dooms it as a common currency, as even some sympathetic observers say, remains to be seen.

But in a country where the personal savings rate has plummeted from above 10% for most of the 1960s to around 3% today, I'd say anything that encourages young people to think about tomorrow (to quote a favorite song of Stiglitz's former boss) serves a very socially useful function. 
– Marc Hochstein

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OTHERS ARE TALKING ABOUT

Tulip bulbs? Check. Money laundering? Check. "I like the technology, just not the currency"? Check. This op-ed in the Financial Times by Jean Triole trots out all the old arguments against bitcoin. More interesting, though, is the article's critique of the ICO model: "[I]t neglects the fundamentals of finance: the use of trusted and well-capitalized intermediaries to monitor projects. Centuries of experience have taught us the value of screening out fraudulent or low-value projects." 

An article in the Atlantic is similarly dismissive of bitcoin, saying it is "not a currency. It is a collectible — a digital baseball card, without the faces or stats." Wonder if the writer's heard of Pepecash?

Some Tesla owners are mining cryptocurrency with their parked electric vehicles, according to EcoMotoring News. "Any source of electricity you don't have to pay the normal rate for, or that you don't have to pay for at all, is an opportunity for miners to increase their already thin profits," the article notes. 

For a hyperlocal angle, a reporter in Albany, N.Y., tries to figure out what people can use bitcoin for by visiting wine merchants. 

UPCOMING EVENTS (see more in our full listing)

WHAT WE'VE BEEN UP TO

Our US Editor, Bailey Reutzel, appeared on the Breaking Banks podcast to discuss the bitcoin hitting $10,000, and whether it's a bubble or just the beginning.

Missed Consensus: Invest? We're already planning for Consensus 2018. Get your tickets here.

Got suggestions on how to make this newsletter better? Want to write an opinion piece for CoinDesk? Need someone to talk to about your trust issues but can't afford a therapist? Email our managing editor, marc@coindesk.com, or tweet @MarcHochstein. And follow us @CoinDesk. 

Until next week...
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