Bitcoin - The road to freedom

I believe every human is the sole ruler of their own body. I think people who don’t agree on the non-aggression principle are evil and that those who say government today isn’t an infringement on that moral stand have been subjected to too much government propaganda.

The evidence of capitalism’s greatness is undeniable. Unfortunately there have only been a few places, for a brief period of time, where free will has been allowed to rain.

After America got defeated by the idea of democracy and socialism, the beacon of freedom that once shined so bright faded and we entered what I like to call the libertarian dark ages. It wasn’t until the invention of the internet that liberty drew blood again. The internet alone wasn’t enough to escape authoritarian power but it was a huge leap forward, freeing up information from gate keepers like the television and newspapers. With the internet freedom struck on a global scale and maybe, just maybe, Bitcoin will take us all the way to the Promised Land.

Bitcoin hasn’t stood the test of time, but so far I think it’s fair to say it has performed beyond almost anyone’s belief. Bitcoin is and has been for a solid few years now, the free market’s currency of choice. Anyone with sufficient tech-skills can set up a marketplace on the decentralized web-browser TOR and choose which/if any rules the users most follow. If you pirate movies/music you know that decentralization is k(c)ryptonite to the powers at be.

Since Bitcoin is a decentralized and anonymous value transmitter, the power to tax dies with fiat currency. If politicians can’t spend more than what they can collect from voluntary donations then government as we know it seizes to exist. Both people and politicians would have to change their view about what the governing body ought to do be doing, now that it’s operating without the power to steal.

I’m surprised politicians haven’t begun to spew out more anti-bitcoin propaganda yet, since this cryptocurrency thing is getting kind of major, but then again they are a slow moving bunch. Hopefully it will be a peaceful revolution but it wouldn’t surprise me if the state goes down swinging. Actually I can’t imagine anything else. But regardless of their efforts to hold on to their ill-gotten power, I think decentralization and Bitcoin will come out on top in the end.

I believe the price of BTC will go to the moon in the process, but what I’m most excited about is getting freedom here on earth.

Lär dig mer om smarta kontrakt och blockkedjan på www.smartakontrakt.se

The case for Bitcoin

This article will be dealing with why Bitcoin is a good investment/hedge, without going in too deep of the underlying technology behind it. Although the technology part is of great importance, it's better explained by math/computer geeks - aka smart people. In short, Bitcoin is a peer-to-peer network containing units (bitcoins) that can be transferred in the system with zero to low costs. Every transaction is verified by the computers running the system. The math behind it makes it impossible for any entity to mess with this process of continuous update of the ledger. The ledger being a sort of receipt which contains all previous transactions in the network. To break the system you would need to muster up more than half of the systems combined computer power. Discounting the possibility of quantum computing this would be incredibly expensive and/or impossible. Which is why banks around the world are working with this technology (not Bitcoin but the block-chain tech) to make trading systems where traders can buy/sell stocks. But to understand why Bitcoin is a good hedge we need to understand money and the fragility of our current economy.

Money
Money is one of man’s greatest inventions. Since we left the barter system and started using mediums of exchange, different types of mediums has been used for trading. Gold, grain, salt amongst others, gold obviously being the most famous one. Every one of them was granted the status of money due to specific attributes such as divisibility and what I would like to call a "reliable core demand". The right to redeem state currency into gold ended in a peculiar fashion with the death of Bretton Woods (1971), and ever since then we have been trading in worthless pieces of paper.(1). 

As fiat became the predominant transmitter of wealth in our economy, governmental control over money increased. From a naive standpoint that power shift could seem insignificant, but I would argue it has given us a profound shift in real economic activities. Money in the form of gold had a certain inflation built in to it, since people continuously dig it up from the ground. Yet the gold-economy saw price deflation as production became more efficient, thanks to the invisible hand of the market and advancements in technology. These deflationary powers were at times greater than the inflation coming from new gold findings. Price-deflation has historically been the norm, and shouldn't be viewed as dangerous. In todays fiat-world however, we hear about central banks trying to fight deflation, believing such an environment would be negative for the economy. One argument being that workers have a hard time accepting lower nominal wages, and that this causes overwhelming troubles for companies when they have to cut labor costs. Another argument for price inflation comes from a belief that consumers will hold off with spending in a deflationary environment (seeking a better deal tomorrow), but if that indeed was the case, why are we buying all of these cellphones and television sets? Although some of these ideas at first can seem fairly logical, I think they are disputed by our economic history and in my opinion they shouldn't be seen as facts. However, today when we hear about central banks fighting deflation, what they are really fighting is a credit crunch. Debt, also a form of money, has been growing increasingly. Although taking a short break 07/08, the debt in ratio to almost everything, is a lot greater today than ever before. A deleveraging of debt would shrink the amount of debt-money (largely concentrated in stocks/bonds/real estate) and this is what central banks are fighting, their job is basically to get this overly leveraged economy more leveraged. Needless to say, we're in uncharted territory and there are huge systemic risks because of their policy.

Government deficits and unfunded liabilities
At which rate would you be willing to loan money to Greece? This one is really a no-brainier, meaning you shouldn't have to think to come up with an answer, since Greece wouldn't pay you back either way. Greece has a enormous debt and a whole lot of unfunded liabilities. These unfunded liabilities are mostly consisting of workers pensions and health care obligations to the Greek people. Greek politicians will always rank these payment obligations as a higher priority expenditure than to give "greedy speculators" their money back. That simple fact holds true for most government bonds. Therefore I think almost all government bonds are worth substantially less than they are being priced today.  Right now the market deems these bonds as low-risk assets. For example, the U.S 10-year bond yields around 2%. In other words; you'll get close to no return (if the FED manages to reach close to its inflation target) for loaning out your money to the worlds largest debtor nation for a period of ten years. This anomaly is so great and profound, it should be viewed as a major indicator of how messed up things have become.
How did we get these absurd yields? Well, demand for bonds drive the yields down, and ever since the financial crisis central banks like the FED and ECB has been on a buying spree. Speculators joined them in their buying and have been betting on the the continuing bond purchasing from the CB's, or holding a belief that the CB's will be unable to reach inflation targets, basically taking a bet on deflation. In a real market economy (not driven by central banks) with a low savings rate like the United States, these bonds would yield a lot more. The fact is the U.S, much like Greece, can’t repay its debt, ever, it’s impossible, nope, can’t be done. The U.S national debt is around 18 trillion dollars and their unfunded liabilities sums up to another whopping 210 trillion (as testified to congress by Boston university economic professor Laurence Kotlikoff).(2) Even though a lot of these future expenditures as Kotlikoff is including in his measurement could be slashed, some of them, like pensions, are going to be extremely unpopular to cut. The writing has been on the wall for quite some time.

Fear of haircuts
If this whole experiment with low interest rates fails, and some sort of economic meltdown indeed ensues, I expect governments around the world to act in a similar fashion as seen in Greece/Argentine. Bank depositors will most likely have to take a 'haircut' on their deposits to refinance the bank in which it is deposited. This is the most crucial part of why you should own bitcoins. I believe the threat of this bail-in approach to reach debt-equilibrium in the financial system will drive people to assets which cannot be confiscated. As Reuters report, this bail-in legislation is now being extended to other EU countries, regardless of whether they're in the Euro or not.(3).
We’ve already seen some correlations of the Bitcoin price with bad economic sentiment, and I expect that trend to catch on as time proceeds. The most clear cut example of this we got during the summer, with the increase in demand for bitcoins during the Greek-crisis. The day Greece reached an agreement with its creditors - Bitcoin dropped 12%. Yet, recent volatility in global stocks has not been accompanied with upward pressure on Bitcoin. When Dow Jones fell a thousand points intraday, Bitcoin fell as well, suggestion the link between financial instability and the value of Bitcoin at least for now is rather weak. But if we take a look at Argentine and their post collapse economy (after suffering a bond market collapse and soaring inflation), we find it is here where bitcoin is having the most impact as an actual money transmitter. As NYT notes ”Argentine has been quietly gaining renown in technology circles as the first, and almost only place where bitcoins are being regularly used by ordinary people for real commercial transactions.”(4)

Valuation and risk
First of all, one should obviously not invest more than what's bearable to lose, since there's a nontrivial chance of bitcoin having the value of zero in the future. Our current medium of exchange only has value due to a reliable core demand, thus it's a system that requires confidence for central banking, since it has the power to expand the money supply. As the unforseen consequences of all of the market intervention becomes more apparent this confidence will fall short, and perhaps every currency with it. Bitcoin doesn't have a reliable core demand at this point, but it has a good underlying trend. Perhaps the idea of a digital currency won't feel any more outlandish to the average guy on the street than the fiat currency he's trading in today. Wierd as it is, the average person doesn't seem to care that we're trading in an imaginary currency unit today. Remember, fiat isn't failing due to it's non-existing fundamental value, but rather the destruction of its buying power. Today the Bitcoin market cap is about 3.4 billion dollars. Besides a small market cap, the uncertainty of demand and lack of intrinsic value is two of its biggest weaknesses. Even if you believe in the idea of a digital currency, Bitcoin is far from the only one out there. There's competition in the form of other cryptocurrencies with similar but different properties, and only the future will tell which of these (if any) will come out on top. As for now though, Bitcoin has established itself as the clear frontrunner. There is also a high governmental risk involved. If our political leaders start seeing this digital money as a threat to its powers of taxation, or fears grow about what it might do to enable shady transactions, it will certainly go out of its way to try and stop it. Even though Bitcoin as a system itself is resiliencent to government intervention, one could easily foresee regulation aimed to strangle Bitcoin companies operating in the real world, making mass adoption a lot less likely. So far the western world haven’t cracked down too much on Bitcoin, in some places it has even been declared as a currency, not a commodity, meaning any potential gains in one's holding in those countries would be free from taxation. I'll leave the risks of the underlying technology to be explained by someone else, but google the words Bitcoin+fork and you'll find another very good reason not to go full retard in bitcoins.

Lär dig mer om smarta kontrakt och Blockkedjan på www.smartakontrakt.se

References:

(1) https://history.state.gov/milestones/1969-1976/nixon-shock

(2) http://cnsnews.com/news/article/barbara-hollingsworth/economist-tells-congress-us-may-be-worse-fiscal-shape-greece

(3) http://ca.reuters.com/article/businessNews/idCAKBN0OD14Z20150528

(4) http://www.nytimes.com/2015/05/03/magazine/how-bitcoin-is-disrupting-argentinas-economy.html?_r=0

Allt är Ingves fel

Världens centralbanker har kopplat greppet om ekonomin, eller rättare sagt fått i uppdrag att styra den. Du vet, balansera den så att det inte går för fort där ute! Det är ingen tvekan om att vår centralbankschef, Stefan Ingves, är en skön karaktär, men han har antagit ett omöjligt uppdrag. Ingves och hans kollegor på Riksbanken har ett arbete ingen människa/grupp människor kan uträtta, och enligt min mening inte bör ha befogenhet att utföra. Att man kan förbättra människors levnadsstandard, genom att införa pristak, importtull, eller på andra sätt manipulera prisbilden, är en teori som motbevisades redan på 1700-talet. Adam Smith skrev utförligt om hur välstånd uppstår i sina böcker om internationell handel, sedan dess har politiker, genom att utföra otaliga socialistiska experiment världen över, styrkt en logiskt tes med data. Detta till trots har världens visionärer (ofta nationalekonomer likt mig själv) insisterat att de har ett ekonomiskt system som fungerar bättre än den naturliga "laissez faire" ordern. Världsekonomin ser så klart annorlunda ut idag än på 1700-talet, den organism som är produkten av våra handlingar har lagt på sig flera lager av komplexitet, med nya produkter och tjänster, materiella som finansiella. Smith's verk må fortfarande ses som grunden till läran om nationalekonomi, men ekonomer har med tiden adderat nya ekonomiska modeller till akademin, modeller som ibland direkt strider emot vad Smith och vår ekonomiska historia enligt mig redan bevisat. Ett bra exempel på detta är Philipskurvan (relationen mellan inflation och arbetslöshet). Teorin om att man får lägre arbetslöshet om man devalverar sin valuta, ledde också den till ett monetärt experiment som fick katastrofala konsekvenser, (googla stagflation). Philipskurvan lever på något vis kvar i den akademiska världen, men har mer eller mindre ersatts av andra modeller som lustigt nog också kommer fram till att vi bör devalvera vår valuta. Jag misstänker att det ligger en hel del moralism i många antaganden för dessa modeller, samt en övertro på vad som är mätbart.

Världen är annorlunda, men ekonomin lider av samma gamla problem idag som när Adam Smith föreläste på universiteten i Storbritannien, den är förtryckt av politiker och deras undersåtar. Förhoppningsvis drivna av solidariska känslor om rättvisa, påtvingar de marknaden sin moralism genom statsväsendet, vilket i sin tur berövar andra människor på både välstånd och frihet. Att bedöma en politiker idag är lite som att bedöma en biskop, det är svårt att avgöra om de verkligen tror på vad de själva säger, eller om de bara tycker att det är roligt med makt och pengar. Jonas Sjöstedt, som odiskutabelt har de mest absurda förslagen för hur man skapar jobb och välstånd, känns enligt mig mest genuin - lustigt.

Pris styrs av andra krafter än vad vi vill eller tycker något ska kosta. Riksbankens tjänstemän är inte tillräckligt kunniga för att sätta priset på något så enkelt som tomater, ingen är. Pris är inte något man bestämmer från välvilja eller ekonomisk teori, det är något som uppstår av marknadens alla miljontals aktörers beslut. När en auktoritet ska gissa vilket det optimala priset bör vara, kan det därför bara bli fel. Fundamentalt tror jag de flesta tycker att det låter jävligt osunt, när de hör Ingves säga att den optimala styrräntan just nu är negativ. Jag skulle vilja påstå att det är helt absurt, rent utsagt fånigt, samt tillägga att det aldrig hade skett på en marknadsplats som inte styrdes av ett fåtal. Ändå är det få som reagerar, ännu färre som säljer sina bostäder, många med flera hundra procent i avkastning. När jag växte upp bad jag ibland min mamma o pappa att prata om tiden då räntan i Sverige var 500% och bostäder praktiskt taget gavs bort. Ännu idag älskar jag att höra den historien, det är så lätt att fantisera sig bort om att få uppleva en sådan uppenbar felprissättning och tjäna en mindre förmögenhet på att köpa bostäder billigt. Jag skulle vilja påstå att bostadsmarknaden är lika förvrängd idag, om än kanske mer, fast åt andra hållet då så klart. Prisbilden på räntekorrelerade varor så som bostäder och aktier, värderas alltid med den "riskfria" räntan i åtanke. Nutidens experiment har lett till att prisbilden på bostäder och värdepapper är artificiellt höga på samma sätt som att räntan är artificiellt låg. Som en konsekvens av detta har många helt vanliga riskaverta Svenssons, belånat sig 50-90% i en marknad vars pris ökat paraboliskt de senaste åren, detta efter att ha mångdubblats under några årtionden. Människor som med största sannolikhet skulle beskriva en person som belånat sina aktier som en speltorsk, en speltorsk som får skylla sig själv om hen förlorar sitt kapital på en uppenbart volatil marknad. Dagens negativa ränta är en fortsättning av en serie monetära experiment som pågått under så lång tid att jag estimerar att vi, i tomater mått mätt, slängt bort några miljontals skördar vid det här laget. Det är tomater jag hade kunnat använda i min berömda köttfärssås, eller för att kasta på någon trött politiker.

Det diskuteras flitigt vart priset på pengar (räntan) är på väg (vad centralbankernas nästa besked är), men sällan eller aldrig diskuteras hur vi ska liberalisera oss själva från dessa tillväxthämmande planekonomer.