Wednesday, May 12, 2021
The Smartest Guys in the Room Call Bitcoin “Rat Poison Squared,” “a Colossal Pump-and-Dump Scheme” and “a Big Criminal Scam” but Federal Regulators Look the Other Way
Anne Goldgar wrote of the Dutch Tulip bubble in her 2007 book, Money, Honor, and Knowledge in the Dutch Golden Age, that “the f1000 one might pay in January 1637 for one hypothetical Admirael van der Eyck bulb,” could have bought “a modest house in Haarlem,” or “nearly three years’ wages” of a master carpenter. Comparing that to U.S. dollars in 2007, the year her book was released, Goldgar says it would be like one Tulip bulb selling for $12,000.
Goldgar notes that as historians have looked back at this episode, the tulip mania of the 1630s in Holland has become a “byword for idiocy.”
In his 1841 classic on market bubbles, Extraordinary Popular Delusions and the Madness of Crowds, the Scottish journalist Charles Mackay wrote this about the Tulip bubble: “The rage among the Dutch to possess them was so great that the ordinary industry of the country was neglected…”
Four centuries have apparently not cured the propensity toward idiocy when the lure of riches beckons. The market cap of Bitcoin is now in excess of $1 trillion, despite the fact that it is backed by absolutely nothing.
No amount of disdain toward Bitcoin by the smartest guys in the room can stop the creature’s incessant climb. Bitcoin has multiplied more than five-fold since September, trading yesterday at over $56,000.
Bitcoin has been thoroughly discredited by some of the smartest people in the investment community and global finance, but that hasn’t stopped the oldest futures exchange in the U.S., CME Group, from offering futures and options trading on Bitcoin. CME Group’s federal regulator, the Commodity Futures Trading Commission (CFTC), explains in this podcast that all that CME Group had to do to launch its Bitcoin futures was to “self-certify” its plan with its regulator, the CFTC. The self-certified plan may be just fine – it’s the underlying product based on nothing that the regulator seems to have ignored.
(We’re thinking of submitting a self-certified plan with the CFTC to trade futures on spinning straw into gold. We’re toying with calling it the RumpelstiltskinCoin.)
The CME Group has exchanges that provide for futures trading based on real things: like milk, wheat, soy beans, oil, gasoline, ethanol and so forth. These are real things that fuel economic growth in the United States and/or feed a nation of 331 million people.
To paraphrase Mackay in Extraordinary Popular Delusions and the Madness of Crowds to sum up today’s Bitcoin craze in the U.S.: The rage among speculators to trade Bitcoin was so great that the harm this would do in the long-term to the reputation of integrity in U.S. markets was simply ignored by Congress and regulators.
One of the most respected investors in America, Warren Buffet, summed up Bitcoin like this in May 2018: Bitcoin is “probably rat poison squared.” In January of the same year, Buffet told CNBC in an interview that “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.”
Also in 2018, Bill Harris, the former CEO of Intuit and PayPal, wrote a detailed critique of Bitcoin for Vox, under the headline: “Bitcoin is the greatest scam in history.”
Read the rest here.