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The demise of cryptocurrencies?

From a high of $120,000 to less than $70,000 today, one has to wonder what is going on with Bitcoin.  My favorite are the stories of "Crypto-pushers" who now reveal that despite telling the world to "go big on crypto" have not purchased any bitcoin since 2018 when it hovered around $6k.  The truth of cryptocurrencies is that they behave more like rare paintings than even gold.  The value is entirely driven by what others are ready to pay, as a high water mark, and the cost of extraction, as the low water mark.  

Currently the cost of mining a bitcoin is around $70,000 per coin.  The cost of extracting gold is about $1,000.  That means that gold suppliers will "stop" producing gold when the price drops below $1,000 (there is some flexibility there). However, the price of gold right now is around $5,000…so still a very profitable endeavor. 

What this means is that most miners will stop mining until the price rises above $70,000.   I am exaggerating, because they already have a sunk cost, but you get the picture.  The supply of new bitcoins should slow.  However, many many bitcoin investors purchased the coins using borrowed funds, since it was going one way only.  These trades are beginning to unravel.  How far they have to go is unclear.

Its not that cryptos are a confidence scheme, it's that crypto has no real use.   The only real use is by gray or black market operators, but translating bitcoins into a usable asset class is still difficult for the same reason it has been a success.  It's largely unregulated, which makes it attractive.   It doesn't help that the Chinese have been clamping down, and now the tanker shadow fleet is in trouble (it was used to export oil from Iran and Russia).   It means that the demand side of the equation has been upset.  For those who think that exchanges are the solution, the vast majority of transactions are done outside of the exchange, the real users of the products do not want exchanges to be involved.  The exchanges are great for marginal traders and price discovery…


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