It’s all about the mackerel.
In the American prison system, prisoners use packages of mackerel as a medium of exchange because 1) the supply is inherently limited because prisoners can only buy 14 “macks” per week, and 2) no one wants to eat it.
In other words, prisoners collectively decided to use a useless item as a medium of exchange and store of value because its supply was inherently limited. Sound familiar?
In a real sense, Bitcoin is even more useless than prison mackerel because at least prison mackerel is used to process transactions. Bitcoin is barely used as a means of settle transactions; all the action is in speculative investing.
As I write this, Bitcoin just past $16,000 in value. I would bet any amount of money that on December 7, 2018, the price of Bitcoin will be below that value.*
Everything about the situation just screams bubble. I’m very bullish on blockchain, but Bitcoin?
Now, just because a medium of exchange lacks any inherent value doesn’t mean that it’s doomed to crash. Gold remains a valuable (though bad) investment even though its usefulness as a conductor and jewelry material doesn’t justify its price. But gold also has millenia of history as a valued medium of exchange, a luxury Bitcoin does not.
In contrast, mackerel became a prison currency because the prior currency, the cigarette pack, ended up getting banned by the prison system in 2004, which means its history is barely a decade old. Which is why it wasn’t surprising when the value of the “Mack” crashed at one prison:
“I’ll never forget the day where the macks lost all their value almost overnight. Someone had a huge amount of money macks and they got confiscated and the administration left them sitting in a bucket. They essentially introduced hyperinflation. They flooded the market with money macks.”
Bitcoin prices have been rising because speculators are buying Bitcoin in hopes that prices rise further–the greater fool theory. During my current trip to Japan, Bitcoin has risen from $10,000 to $16,000. Not coincidentally, I was pitched two different ICOs at an event where I spoke.
Inevitably, Bitcoin is going to hit a limit as the market runs out of greater fools, a point that I think is fast approaching, and some of the big holders (the Winkelvii?) will sell, flooding the market, and setting off a downward spiral.
There’s even a catalytic event–on Monday, the Cboe will start trading Bitcoin futures, meaning that people will finally have a chance to bet against the currency, once again proving that Trading Places is both one of the funniest and most educational movies of all time.
I’m off to buy some futures contracts!
* UPDATE: Someone must have posted this to Hacker News, because it went viral. Scott Walker even offered to bet me $1,000,000. I admire his conviction, though I disagree. But he does make a good point that I’m not *really* willing to bet any amount of money; I just didn’t think someone would offer to bet me $1,000,000. Therefore, I’m going to cap the bets I take at $10,000 per bet.
** UPDATE: I have received legal assurance that this doesn’t count as illegal gambling, provided no money is “pooled” up front, so it’s game on!
*** UPDATE: It is now December 7, 2018, and the price of Bitcoin is $3,368. Alas, none of the people who tweeted at me or offered to bet were willing to follow through by the time I got legal clearance from, I kid you not, a Las Vegas law firm with specialties in gambling law and crypto law. I’ll just have to satisfy myself with listing their Twitter handles here:
People who responded to my original tweet with skepticism:
@BitcoinBhoy @Hodlayheehoo @dbrizzy80 @georgepf84 @tracyarciaga
People who expressed interest in betting but never followed through
@qihu00 @ericsports @Bitcoin_Shill
People I DMed with about betting:
@jimmysong, who went the farthest towards making a bet with me, but ultimately didn’t
@cryptocharlesh who was willing to make a longbets.org bet with me (which I was unwilling to do because I wanted to make money, not donate to charity)
@haralabob, who was game, but who is really rich and wasn’t interested in a mere $10,000 bet.
Same for @scottwalker99, who immediately offered to bet me $1,000,000, but wasn’t interested once I capped bets at $10,000 per person.
I want to give a special final mention to @allnewsfor, who wrote: “Btw the internet will remember if you are too scared to back up your empty words with action”
I hope that applies to those who refused to bet me as well!