Saturday, March 30, 2013

The Irresponsible Jeff Tucker

Jeff Tucker is out with a column on bitcoins. Not surprising, it is filled with over the top commentary and errors in the fundamental presentation of economics, just like his IP work.

I really don't want to go into his full discussion of bitcoins, once I destroy Tucker, along with Kinsella, in Monday's debate, people will be much more careful about any of Tucker's views.

I do, however, want to point out one comment by Tucker that is quite irresponsible. He writes:
 Many people fear that Bitcoin is overpriced right now. This view is held even by people in the Bitcoin community who worry that a move from $15 to $93 in three months is not good for long-term viability. A crash could bring down the currency unit in devastating ways, leading to another round of debunking and clucking from the advocates of government money.
But here’s the truth: No one knows for sure. Maybe the price will keep climbing. Next month at this time, people might be kicking themselves for not getting in right now. My instincts right now tend in this direction. I’m seeing BTC at $250, then $500, and then $1,000 by year-end.
I also find bitcoins an interesting investment vehicle, but I would never make such an open ended comment as Tucker does here. I have recommended bitcoins in the EPJ Daily Alert, but I also recommended a limit, in the ALERT, on how much bitcoins should be bought. The limit being just 1% of an individuals portfolio. With Tucker's open ended commentary, he is setting up a situation where novice investors get too enthusiastic and plow all their money into bitcoins, which if things don't go right, could result in massive losses.

Bitcoins are attractive because they provide some degree of anonymity in conducting transactions. They are also extremely difficult, perhaps impossible, for the government to grab, which is something that you can't say about bank deposits (See Cyprus). But they are not now money.

They, in some ways, act like travelers checks, in some ways act like gold and have some characteristics of a penny stock pump and dump scheme. Bitcoins are not, however, any of the three entirely. As bitcoins get more popular, they are likely to gain more attention from the government, and the government is likely to continue to attack BTC at its most vulnerable point, the conversion point between dollars and bitcoins and vice versa. Thus, the potential for wild swings in bitcoins is very possible.

If BTC does take off and the coins climb in price by a multiple of their current price, by say, 10 or 20 times current levels, even a very modest investment of 1% of a portfolio, is going to show spectacular results, while limiting downside exposure.

Tucker's commentary is extremely dangerous, because, like an amateur, he fails to take in to consideration the possibility of something going wrong and adjusting for it. He is going to drive novices into going all in on an investment that is very complex and has downside if things go wrong. I am not saying that bitcoins should not be bought, but they should only be bought with the understanding that A. things could go wrong and B. price volatility is not out of the question. Thus, my conservative approach of only advising that 1% of portfolio be put into bitcoins (or for river boat gamblers 10%).

Downside always has to be considered in any investment, Tucker ignores this. The only investment that I am comfortable calling a very safe investment is nickels. I wouldn't have a problem with an investor putting 50% or more into nickels. I am nowhere near as comfortable with the intriguing investment, bitcoins.


  1. I still don't understand why so many austrians seem to favor bitcoins. Granted, i am somwhat a novice to austrian economics, but from what i understood it goes directly against the core of Mises' teachings. The fact that it is (pseudo-)anonymous or limited in supply (not accounting for the possible endless supply of similar schemes) means nothing. It is not, and will never be (in my opinion) money. Its recent rise in price means nothing. Lots of useless things go up in price for a period of time. Of course yould could feel bad for missing out on these gains. But the same can be said about internet stocks in the '90s or housing in '00s. I have never seen a good explanation of how it is in agreement with the regression theorema. Most of the time they use circular logic as in: "It has value because it is accepted by investors... and so on" or sometimes they state flatout that Mises was wrong and that he somehow was not foreseeing the internet, etc... Fighting the fed is great, but i don't see the advantage of doing it with a misconstructed scheme.

    1. I'm a novice as well, but isn't Bitcoin consistent with monetary regression by virtue of exchanges? Its value is relative to fiat currency, which traces to monetized gold & silver, and to physical gold & silver. Whether it can ever function as "money" of course depends on it being universally accepted. I am concerned about the issue of supply - particularly about being dependent upon humans to set this. Also, though it exists outside of bankster purview, it is susceptible to manipulation, just as gold and silver are. Still, the potential for anonymity and lack of ties to any state are strong advantages.

  2. Although bitcoins have certain positive uses, I am uncertain about there use as a real money. There is no tangibility with them. If the internet were to go down (a power failure, grid attack, massive DNS attack, etc.) then the owner is out in the cold and penniless. Understanding that the government could confiscate gold again, precious metals can't be beat on a black market or underground economy. Mises was right by using the regression theory of money, gold and silver are real money.

    1. LOL! Yes. Something tangible like the dollar or gold!?! Unless one wised up years ago and is already international with multiple passports, how many of you actually think that your gold and silver will not be confiscated when shit hits the fan??? Only those who already have their gold and silver in private storage will most likely be able to keep their money. For those who only have their "money" in the US, I sincerely wish you the best of luck in keeping your property. Yes, there are some risks with bitcoin but even the area of weakness (i.e. the traceability of the conversion of between bitcoin and a fiat currency is being addressed by the IT community). Once the hurdle is addressed (i.e. anonymity in that aspect of the transaction), what are going going to do?

  3. > If the internet were to go down

    Then we have to start over with everything. The internet going down worldwide would imply that the electrical network that supports might also be damaged. That suggests a cataclysm of such proportions that losing Bitcoin would merely be a footnote to a larger tragedy.

    If the internet is up anywhere, Bitcoin will still work. That can't be said about any bank.

    > gold and silver are real money.

    I agree. Gold and silver are real money. I can get gold and silver for bitcoins and bitcoins for gold and silver. That would imply that bitcoins are far closer to real money than not.

    The ability to flip a switch and turn a light on has real value but you can't hold that value in your hand. The ability to get on a computer and type some text that gets packetized, routed through the internet and displayed on other peoples' computers has real value that isn't tangible.

    Bitcoin is the first successful effort to monetize the fact that the lights are on and a worldwide network is in operation. People are more than free to argue about whether or not Bitcoin is real money while the rest of us are realizing profits in gold, silver and bitcoins.

  4. I don't think Tucker's comment was irresponsible. He clearly says that no one knows if Bitcoin is in a bubble. He's simply giving his opinion on what he thinks will happen with it. What do you expect him to say?

  5. Why the fight? You both like Bitcoin. Tucker likes it more than Wenzel. Just a wild guess, but I'll bet 10 libertarians in a room have ten opinions about the value of Bitcoin. Slow news day I guess.

  6. I think Jeff Tucker is joking about the bitcoin mania. obviouly, those words are not mean for investment recommendation.

  7. What people forget about bitcoins is that in the event of a sudden down swing there is little to no exit...

    First you have to find someone who knows what they are, then you'll have to convince them why they want them when you're trying to jump out.

    I feel sorry for all those sacrificing their liquidity in the hype. If any real crisis were to occur then bitcoin, at this point at least, would thus prove a very ineffective hedge.

    Add to this the dependency on other goods (this is the secret I feel to why bitcoin can never really be a money) just to make a single transaction and it's quite obvious how f'ed the whole thing is. Precious metals and other hard investments don't rely on a working computer, electricity, etc. (which in an extreme crisis may not be available - many of the utilities are state run).

  8. LOL. Tucker's irresponsible, irresponsible, irresponsible ... speculation, bubble, gambling.
    Invest 50% of your portfolio in nickels.


  9. Oh shit. Tucker has respond in a video. It isn't pretty:

  10. Well, it's the end of the year and BTC is over $1,000.

    Just sayin'