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The Cryptocurrency Explosion

I do not know that much about cryptocurrency yet but I will take a stab at discussing it as even some “official” sources seem wrapped up in one hysteria or another.  The people who write for zerohedge, for example, live and breathe investing but always seem to write about how the world is ending.  I guess perpetual clickbait is a good business model for them.

Even tech-savvy people are calling cryptocurrency a “bubble” but I don’t think that’s the right way to think of it.  There’s a clear demand and niche for the value it provides.  These currencies are just now reaching a point that normal people can use them easily and a critical mass of businesses and organizations are adopting them. 

So the huge explosion of cryptocurrency over the last year is not so much a bubble as it is the Atlantic spilling past the Pillars of Hercules and filling up the basin of the Mediterranean.

The question is not when it will burst but when it finds its natural level and reaches a steady equilibrium.  How much water does the Mediterranean hold?  I’m very far from being expert in anything financial but I casually notice world bond markets hold 10s of trillions of dollars and precious metals contain well over 10 trillion dollars worth of value.  World-wide derivatives are somewhere in the hundreds of trillions.  The market cap for all cryptocurrencies combined only approached 500 billion dollars in the last day or so.  I could imagine that as a mature sector, cryptocurrency ought to hold at least a few trillion. 
That said, even as the Mediterannean sea fills up, I can anticipate there will be plenty of volatility between cryptocurrencies.  Right now, I suspect bitcoin is golden because everyone is using it.  It might be the microsoft windows of cryptocurrency, for a little while.

Unlike operating systems, cryptocurrencies don’t have as much of a moat.  There’s little to stop a business from accepting multiple crypto-currencies.  Also, bitcoin is way too slow and it already has many alternatives, even bitcoin cash, a more scalable hard fork of itself out there. Bitcoin alone is worth more than all the other cryptos combined which is pretty impressive, but that’s still a lot of market share out there it doesn’t control which has also been growing.

The real killer about bitcoin’s slow transaction speed is miners will be able to blow up fees for priority customers to get to the front of the line until bitcoin becomes the San Francisco, Manhattan, or Arlington of cryptocurrencies.  As wait time and fees mount, the pressure rises to spread ballast to other crypto-currencies, especially those that have been specifically engineered for better scalability.

So the real question regarding bitcoin is how strong the network effect is before it starts to settle into equlibrium with other cryptocurrencies.

When Imperial China’s College Bubble Popped…

“In 605 CE, a year after murdering his father and seizing the throne, the Chinese emperor Yang Guang established the world’s first meritocracy. Weary of making bureaucratic appointments solely on the basis of letters of recommendation, Yang set aside a number of posts for applicants who performed well on a new system of imperial examinations. In theory, any peasant who took the trouble to memorize 400,000 characters — which is to say, anyone who conducted six years of study with an expensive tutor — could join the country’s political elite…

As time went on, more and more people took — and passed — the exam’s first round. Test prep academies proliferated. Imperial officials started to worry: there were now more degree-holders than there were positions, which threatened to create an underclass of young men with thwarted ambitions. When the Ming dynasty fell in 1644, their successors, the Qing, resolved to make the test more difficult. By the middle of the 19th century, 2 million people sat the exam, but just over 1 percent passed its first round; only 300 candidates — .016 percent — passed all three.

Failure could be discouraging. In 1837, after botching the exam’s second round for a second time, Hong Xiuquan, an ambitious 23-year-old from a village near Guangzhou, suffered a nervous breakdown. The precocious Hong had come in first on the county-level test, but after he turned 15 his family could no longer afford the customary tutor. Nor could Hong afford to bribe the examiners, as many test-takers did. The notional possibility that anyone could pass the test concealed a bitter truth: for a poor countryman like Hong, making it past the second round was all but impossible.

Eventually he convinced himself and a band of other young men defeated by the test that he was Christ’s younger brother. A consensus emerged among the converts that it was Hong’s destiny to build a heavenly kingdom purged of sexual depravity. He assembled an army and began the work of conquering China…

So began the Taiping Rebellion, the bloodiest conflict of the 19th century. By the time Hong’s forces were defeated in 1864, 20 million people had died.”

The Taiping rebellion seriously ranks among the top 10 ten most destructive wars ever fought.  There were clashes between massive armies numbering well into the hundreds of thousands. It lasted a full decade.   The Taipings effectively had their own empire with its own government and capital city.  The state religion was an odd hybrid of Christianity and Chinese philosophy.

They were popular with ethnic minorities such as the Hakka and regularly sent regiments of female warriors into combat.

A lesson here: Elites can be lulled into complacency by ruling over proles who will accept domination and oppression without complaint so long as just enough of them have just enough food in their stomachs.

Problems arise when society fails to incorporate educated young men:

French revolution: an urban phenomenon started by disaffected “overeducated” and “entitled” types.  Not only did rural peasants not participate, they were typically loyal to the King and were even brought into the cities during riots to beat up urbanite hippy protesters.

Russian revolution: started up by an odd mix of urban Jewish intellectuals, Caucasian gangsters, lead by a man who was part Tatar.  They were outsiders from the fringes of society.  Hardly a grassroots movement arising from downtrodden ethnic Russian peasants!

Taiping rebellion: same as the other two.  “Entitled” guys lose patience and try to take matters into their own hands.

A critical mass of precocious young men who haven’t been cut into the game end up causing trouble sooner or later.

I certainly don’t mean to predict armed revolution in our own time because there are a thousand more effective, less risky means for disillusioned men to quietly express their displeasure.

And of course outright revolution typically makes things even worse, especially if it succeeds.

Indeed, I would hope these current generations of bright, outcast men choose to focus on making something better than what came before.  To create something that can gradually, peacefully displace a decrepit old system by inherent superiority instead of trying to conquer by mere superior force.

The single most important thing that can be done right now:  For groups of disaffected men to cultivate asset bases that free them from the conventional wealth system controlled by women and “successful” men.  Without a basic amount of wealth that frees men from pressing financial necessity, nothing of significance can be done.

Step 1:  Escape our Sisyphean dilemma of hating the system but being too broke to escape.  To be full of ideas but never have time to develop them in full, to want to reach out to the like-minded but be bound to the land by wage slavery…

LINK

Credit to: Captain Capitalism

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