The Bitcoin Plunge is not a Market Correction

It drives me batty to read respected people in national publications talk about the nosedive of Bitcoin and other crypto as a “market correction.”

A market correction happens when the price of a security or a general market of securities overruns any sort of historical baseline for value. When you talk about stocks, there are the simple metrics of how much money a company makes or the value of that company’s assets. There are metrics like that for real estate, municipal bonds, and even manufacturing.

A correction comes when the market realizes that the price has been bid up far past what the underlying value of the asset is. This happens fairly often: people buy stock based on what they expect the performance of the company to be. Sometimes people get excited.

When people say that crypto is no different than the stock market, they are either lying to you or to themselves. There is no P/E report on Bitcoin. No debt-to-asset report on Etherium. Because there is nothing there. There is nothing, absolutely nothing, supporting the value of those tokens.

The price is based on blind faith, sell-shaming, and billionaires spinning a story that ends with them having your money.

The tower is crumbling now; we have been on a roughly monthly cadence hearing about the failure of some sham company that banked everything on crypto always going up. The market plunges, then holds steady for a while, cryptobros in their executive suites sweating as the scam crumbles until they rush for the doors calling back over their shoulders “#HODL!” and another crypto company based on the “always-up” model craters, unable to even tolerate the market that is merely steady.

A true market correction would reduce Bitcoin to just a little bit over zero. I will grant the little bit because Bitcoin is just a little bit useful for things besides being a store of value. Oligarchs have to shift their cash, after all.

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7 thoughts on “The Bitcoin Plunge is not a Market Correction

  1. I’m a not a crypto bro. The use cases for crypto are very limited — way below the advertised value — but not zero. I’m not including any crypto (including Bitcoin) that requires more power than the resulting “value.” And anonymity is a bug, not a feature, in my world. But a smart contract you and I could execute, knowing that funds are on both ends and the “escrow” holder is charging a pittance for a guaranteed execution, is useful: think e.g. a bet I’d like to make with someone I don’t know from England on the USA v. England world cup match. Replace the word “bet” with “invest in the market” (what is the difference?), and I now have a portfolio of bets that can only be sold under certain conditions that I can e.g. get a loan against, because I don’t want to sell my assets when the market is down. These are very limited cases — like .1% of the ecosystem — but they do have value, and they could grow over time, including in ways we can’t see.

    • You makes a good point.

      In fact, I am a little bit interested in the semi-distributed-ledger but more-private currency that is being built into Signal. It makes transaction certification much cheaper by choosing to trust some entities enough to not wait for the whole network to agree.

      Banks, pretty much. And the tokens are actually non-fungible, so not individually traceable. (Bitcoin is essentially 19MM NFT’s, and law enforcement is now gleefully tracing the history of of each one. People might go by pseudonyms on the blockchain, but it turns out it’s not that hard to associate “addresses” with actual people.)

      If people would just stop speculating on crypto it might have a chance to fill a more useful role. Which means that Bitcoin only has to drop another 99% to become utile.

      • Here’s a thing I’d be interested: *A* blockchain, as opposed to THE blockchain. All the “proof-of” effort becomes redundant in a trusted network. Mini-DeFi, where a bunch of us split dinner costs and travel expenses and pay off stupid bets about the future of crypto … or lend each other money, or sell shares in a house, or whatever you might need a middle man and escrow for, plus things that traditional trusted provider (i.e. banks) would never touch due to complexity, difficulty in verification/valuation, or lack of trust. It could also function as a tontine, or settle parts of estate without probate to deal with. Basically peer-to-peer finance, with a ledger that accurately tracks payment histories, and maybe includes some smart contracts.

        There are so many *potential* uses for the technology (distributed, verifiable, permanent record, programmable, proof of unique ownership, record of provenance/securing the supply chain, etc.) that I can’t count it out yet. But, yes, Bitcoin is stoopid with at least two ‘o’s.

        • Distributed ledger is a great idea, and blockchain is a piss-poor implementation of it (but the best we have at the moment). The key with distributed ledgers is you need a way to achieve consensus among all the copies of the ledger about which transactions were actually legit.

          Blockchain is based on establishing a history of transactions, so that if you want to alter a transaction you have to rebuild the entire history of the chain from that point forward, and you have to rebuild that history significantly faster than the “real” timeline is being added to. Once your revisionist timeline passes the timeline formerly known as legitimate, the revisionist timeline is by definition the truth.

          Interestingly, when your false timeline becomes the truth, you are rewarded will all the bounties offered by the system for certifying blocks – so the cost of your attack is paid for. The math goes bad for blockchain as money because the cost of every transaction increases linearly with the potential profit from an exploit. The Great Wall of China was not particularly successful because it had to be strong across thousands of miles while invaders only had to overwhelm it at one point. Similarly, blockchain has to be strong all the time, while an attacker only needs to be stronger for a few minutes. This makes transaction costs very high, as someone has to pay for all that security.

          The more value represented on a given blockchain, the more an attacker can gain, so the more an attacker would be willing to spend. The defenders of the blockchain have to spend more than that *constantly* to keep the bad guys out. And then there are attackers motivated by sabotage.

          So, yes, there are many potential *and actual* uses for the technology. I’ve read that self-driving fleets use this to build knowledge between vehicles, for instance. Lots of big-brain stuff.

          Distributed ledger is good. Blockchain is clever enough. If it weren’t for bad guys it might even work for money (but probably not). Blockchain is being adopted in many places that are not very sexy.

  2. Here’s an interesting discussion:
    https://www.schneier.com/blog/archives/2022/06/on-the-dangers-of-cryptocurrencies-and-the-uselessness-of-blockchain.html

    Like a lot of this blog, some of the commenters appear to know more than the author, and the comments inevitably decay into off-topic noise and ad hominem attacks. But I do think there are a !few! use cases indicated for cryptocurrencies or blockchain indicated, some of which don’t have a better answer yet, but all(?) of which come with downsides. The plural of anecdote is not data, but the guy who took all of his wealth out of Ukraine without being stripped of it en route or having it seized by (occupying) authorities, by memorizing a single password to his wallet, seems to point at something … anonymity is required in the world of whistleblowers, resisters, protesters and (increasingly) the press, and all of those people need money to eat without a paper trail that gets them killed. Of course, that anonymity is a double-edged sword (ransomware), and not the compelling feature to me, but when the “land of the free” has their hands in everyone’s digital pockets, and “allies” like Israel will sell protester-killing spyware to the highest bidder (with a “please don’t use this for harmz” clause covering their legal backside), and TOR and NIST are compromised and “best practices” RSA has a backdoor, and your router is almost certainly breached, and really smart crooks are busted while using “trusted” phones and “unbreakable” security, and parallel construction is commonplace, and and and … I can’t see trusting any centralized network when lives are on the line. I think everything that touches the internet that isn’t peer-to-peer or distributed ledger (and even some of that, thank you Meta) is compromised, and the reporting/whistleblowing simply lags by a few years. And representative democracy isn’t, or at least not for long. Decentralized, unregulated consensus has its uses (just not the ones it’s generally used for).

    Someone please kill proof-of-work ASAP, though.

    • I was recently reading an article about just how NOT anonymous most cryptocurrencies are these days. Every transaction is by definition public. Although individuals’ names aren’t on the transaction, their ID numbers are, and can often be traced back to when they used an online exchange to make an initial purchase, or buy something from someone who is already known.

      I am definitely NOT disagreeing with the idea that it is possible to have cryptocurrency, and that such a currency has desirable characteristics. But none of the current batch actually have those characteristics.

      As I mentioned above, I am more interested in MobileCoin, the currency built into Signal and promoted by Moxie Marlinspike, because it is (they say) *actually fungible*. (The blockchain is encrypted, rather than public). Bitcoin is essentially 19,000,000 NFT’s, and the history of each can be traced back to when it was first mined, and the entire history of every transaction is steadily being unravelled – with names.

      I think MobileCoin has had some bumps trying to get up and running, but it’s closer to the promise than any of the others.

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