Bitcoin or Bitcon?

I've never posted before on Bitcoin but a non-anonymous commenter requested that I take a look at it.  Non-anonymous comments show tangible interest and therefore are worth a response IMO.  For everyone who has never heard of Bitcoin, here is the Wiki.  it is an attempt to come up with an honest electronic money supply.  I find it very intriguing to say the least.  As I wrote in this post some years ago, money is an invention.  It is a technology which is designed to serve several important purposes:

1. To act as a store of value
2. To be a means of exchange
3. To serve as a unit of account

For #1, value comes from the labor of man and is multiplied by tools and energy.  When society passes a certain point of evolution, the people no longer live hand to mouth.  They begin to produce more than they consume.  When this happens they want some place to store their excess wealth in some form that doesn't decay over time so that it will be there for use during retirement when it can essentially be exchanged for the labor of others.

For #2, if you go to buy something you need something to trade.  You need some kind of token that others will immediately recognize.  The token has to be trusted against counterfeiting and other frauds lest the intended recipient decide that he will not take it in trade.

For #3, the marketplace needs to be able to talk about the relative values of all items in the market place in a fluid and universal manner.  If you are proposing to build a bridge then you need to be able to discuss how many labor units it will take to build it.  Thus, having some monetary yardstick like this is important even if a transaction is not imminent.

Bitcoin does an interesting job of all of the above and quite a bit more.  In particular I like the electronic nature as well as the transparency aspects.  I also like that the end supply is fixed.  The problem with trying to use it, at least in these early stages, is the massive volatility.  Because of this it is, at least for the time being, the playground of speculators and gamblers.

Below is the recent chart.  There are no good charting tools for tracking the USD price of Bitcoins.  The ones I found do not enable me to zoom in very well.  But I think the high level chart is instructive anyway.  As you can see below, I model the recent exponential run up as 3 of 5.  I expect a sharp pullback soon as modeled in red.  EW followers will know why I write this: namely, the rule of alternation.  In other words, 2 of 5 was sideways so 4 of 5 should be a vee retracement.  Then a final 5th wave to around the 550 level before a massive turn of fortune for the Bitcoin herd as everyone decides to move south at the same time.  The expected retracement should take it back to the level of the prior 4th at about $75.

I need to find out where to buy 2016 $200 puts on bitcoins!  Maybe these con men and others who are calling it "the new gold" will get their ETF in place in time for the final thrust so I can short it back down to reality. Seriously folks, I don't know where Bitcoins will end up and neither does anyone else.  The 5 waves that make up what I model as red 5 above might just be a massive 1st wave.  Perhaps it will only retrace 38.2% and then skyrocket into a seriously wild 3rd wave like some on the web are saying. 

But for all of its benefits, Bitcoins are not tangible.  If the government is threatened by it, the government could shut it all down literally overnight with the stroke of a pen.  Don't think they are above doing this because they are not.  This is why I love physical gold and silver so much.  Government cannot shut it down even if they wanted to.  Gold and silver are not some new, trendy, barely understood thing that government liars and thieves can easily vilify.  They cannot easily claim that drug runners and other crooks are using it to their benefit.  Why?  Because gold and silver have too much history as free man's money.

If the government made Bitcoins against the law tomorrow, lots of sheeple would be upset but they would just take the hit because government would do a great job of calling it "terrorist money" and blaming it on the ills of our "chillllllldren".  Government-believing sheeple who don't understand the significant technology behind Bitcoins would be glad to see them go because, let's face it, they are not benefiting from the existence of them. 

But if government tried to do the same thing with gold then one of two things would happen:  Either people would laugh at them like we laugh at the joke of Obamacare or people would rise in armed revolt and throw the bums out at gun point.  Seriously, that is the power of gold.  It has been too trusted for too long to vilify and anyone trying to do it will pay dearly one way or the other. Confiscation will never happen again either.  That ship has already sailed.  It is very, very difficult to effectively run the same con twice when people have not yet forgotten about the first time.

So good luck with Bitcoins folks.  Maybe it really is different this time.  But then again maybe not.  And no matter what you think about them, don't chase them into the stratosphere thinking that trees will grow to the sky because, as soon as you do, the trap door will open under your feet leaving you to freefall back to Earth clutching desperately at digital nothingness.