< Back to JVM's Blog

Bitcoins, Bubbles, Burning Bankers; Beanie Babies

Photo of a Bitcoin. Bitcoin is an all-digital currency (no coins, bills, etc.) that is completely outside the control of banks and governmentsIn 1307, King Philip IV of France couldn’t pay his massive debts to the Knights Templar. So naturally he accused them of false crimes and burned them at the stake.

I stole that story from a recent WSJ article called Hooray for Bitcoin. It illustrates two things: (1) it’s an excellent way to eliminate your debt obligations, especially if you don’t like your lender; and (2) governments don’t like anyone messing with their control over finances.

Buying Bitcoins and Beanie Babies

In 2015, Heejin and I bought 20 Bitcoins for $250 each, and a collectible Beanie Baby for $49. We wondered which would be less speculative, and I am pretty sure the Beanie Baby will be worth more at some point.

Bitcoin Is a Bubble

As most people know, Bitcoin is an all-digital currency (no coins, bills, etc.) that is completely outside the control of banks and governments. It has surged in popularity over the last year b/c of its secrecy and b/c it is a convenient store of wealth for people trying to avoid gov’t scrutiny. It is such a big deal that I wanted to blog about it briefly.

Many experts, such as the author of the above article, think it is a bubble riding on a wave of hype, and this is why:

1. Too volatile to be a reliable store of value. All currencies need to be reliable and stable before they can be accepted en masse.

2. Way too tiny. Currently the total of all Bitcoins is about $300 billion. The “M2” Money Supply (cash, checking, money market, CDs, etc.) is over $13 trillion in the US alone. Bitcoin is a veritable spec on the overall financial picture.

3. Taxable asset. Bitcoin holders are taxed by most governments when Bitcoins are sold for a profit. A true currency is not taxed, and is merely a store of wealth.

4. Too difficult to exchange. Heejin and I sold most of our bitcoins before the major run-up (b/c we are dumb :), and it was stunningly difficult. Currencies need to change hands without friction, and Bitcoin is nothing but friction right now.

5. Too much electricity. Per the WSJ, “the bitcoin community is using breathtaking amounts of electricity” (as much as all of Denmark). “When environmentalists notice, there will be a firestorm.”

6. Bitcoin is a vehicle for criminal transactions. Gov’ts will not tolerate this, and they will crack down.

7. Bubbles. Bitcoin looks, feels and smells like a bubble. Dutch Tulip Mania in the 1630s; The South Sea Bubble in the 1700s; 1920s Stock Market; 1990s Dotcom Bubble; Early 2000s Real Estate Bubble. This one looks similar to the rest.

8. Competing digital (crypto) currencies. There are numerous competing currencies popping up everywhere, and it is difficult to see why we will not be overrun with a glut of digital currency options.

9. Central banks and governments won’t give up control of their currencies. This goes back to the King Philip IV story above. Governments need control of their currencies to finance largess, and for other legitimate reasons. If Bitcoin ever gets large enough to compete with real currencies, governments will fight.

Lastly – I could be 100% wrong.

Does anyone want to buy a Beanie Baby?

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167