Kaecilius: How long have you been at Kamar-Taj, Mister...
Dr. Stephen Strange: Doctor!
Kaecilius: Mr. Doctor?
Dr. Stephen Strange: It's Strange.
Kaecilius: Maybe. Who am I to judge?
I was reminded of that classic exchange from Dr. Strange on Friday when, amid a painful lull in the normally manic news cycle, I ran across this headline from Bloomberg:
- BITCOIN SEEN HITTING $36,000 BY END OF 2019: DOCTOR
Upon further inspection, that's a reference to Fundstrat’s Sam Doctor who, in keeping with the over-the-top bullish Bitcoin bias of the firm he works for, was out with a note that purports to make the case for Bitcoin roughly quadrupling from where it was trading earlier this week.
Here's the actual "rationale" for anyone interested in driving themselves crazy:
Hilariously, Bitcoin plunged some 15% on the heels of "Mister Doctor's" $36,000 call, with a sizable portion of the losses coming on Friday:
To be clear, the financial world's fascination with Bitcoin and cryptocurrencies more generally has waned this year, in part because folks tend to become disenchanted with something when it plunges by some 60% in the space of a couple of months, as Bitcoin did following the early December euphoric highs when folks were whipping out the old plastic to finance cryptocurrency purchases after falling for the hard sell over Thanksgiving dinner.
It's also possible that after watching the short vol. trade blow up, people began to question the relative merits of sticking around in these high risk trades. You might recall Deutsche Bank suggesting that sometime late last year, Bitcoin replaced short vol. as the "new frontier of risk taking".
Regulatory concerns and (more) theft also conspired to dampen sentiment.
Of course none of that means there's not still appetite for crypto-related dip-buying. In fact, crypto assets were up some 75% for the month of April at one point, according to the MVIS CryptoCompare Digital Assets 10 Index, which I'm not even going to waste my time updating.
The most absurd thing about Bitcoin and cryptocurrencies more generally, is not that people are "investing" on the greater fool theory. That's actually the only "rational" way to think about these things. The most absurd thing about Bitcoin and cryptocurrencies is that some people who are apparently devoid of anything that even approximates common sense actually view these non-assets as the exact opposite of risky vehicles for speculation; that is, some people actually view Bitcoin as "digital gold", where that's meant to confer some kind of "safe haven" status on this make-believe P.O.S.
There's a sense in which that's appropriate because after all, gold is only a "safe haven" in the context of a world that isn't completely on fire. As I'm fond of reminding folks, if we ever end up living out Cormac McCarthy's The Road, the only thing gold will be good for is as a blunt object for beating back the cannibals.
So to the extent gold is absolutely, positively useless as a hedge against the apocalypse, Bitcoin is indeed "digital gold" because in the event some catastrophe ushers in a post-apocalyptic hellscape, the only thing that's going to be more useless than polished pieces of yellow metal are made-up digital tokens.
Here's how I put it the other day while talking about whether 3% on 10s is set to usher in the end times:
The implication there is that a rate shock is in the cards and that informs BofAML’s year-end forecast for 3.25% on 10Y Treasury yields, a number which, if you go by the shrieking panic crowd, would mean the Dow crashes to zero on the way to global famine, cannibalism and ultimately, the zombie apocalypse (which is why you need gold and Bitcoin, because there’s nothing like shiny metal and “assets” that rely on an internet connection to protect you when everyone is starving and there’s no infrastructure).
But not everyone understands this and for proof of how stupid people in fact are, look no further than Wences Casares and his startup Xapo which, as Bloomberg details in truly amusing new piece, "has built a network of underground vaults on five continents, including one in a decommissioned Swiss military bunker" in order to warehouse some $10 billion worth of Bitcoin.
The English language is not a sufficient tool to communicate the absurdity inherent in this story and the list of investors and advisors that Xapo boasts on its website is a testament to something, although I'm not entirely sure what.
Just read this crazy shit:
Secure bitcoin storage is what we do best. We've developed a new standard in bitcoin security that protects your assets by using man, machine and even a mountain to keep your money safe.
Our Vaults are located deep underground in geographically dispersed locations on three continents. Confidential information like private keys and cryptographic materials are physically stored on offline servers that never have and never will have access to the internet or any other kind of network. The servers are guarded by intense human and automated security measures 24/7.
Try to appreciate the sheer amount of nonsense they managed to cram into so few sentences. They are storing nothing. Bitcoin isn't an "asset". It isn't anything at all. It has no intrinsic value, it has no rate of return, it isn't backed by anything and at the end of the day, it simply doesn't exist. It's a "concept". It's not a "thing" that one can "store".
But perhaps more germane to this particular discussion is the fact that this setup implicitly posits a scenario where the world is ablaze and the barbarians are at the gates, but where people are simultaneously still interested in transacting in digital currencies.
I appreciate why Bitcoin needs to be stored offline. But I would love for someone to explain to me what series of events they imagine unfolding that would conspire to create a situation in which your Bitcoin is only safe buried in the side of an actual mountain like Thorin Oakenshield's dwarf treasure, but in which people are still going to want Bitcoin.
Let's go back to Bloomberg's piece on this for a minute:
At Xapo, retrieving Bitcoin from the vault takes about two days. The company verifies a client’s identity and authenticates the request before manually signing the transactions with private keys from multiple vault locations. Approval from three separate vaults is required for any transactions to be authorized.
So that's the verification process, but just how secure are your digital non-assets in these underground bunkers? Well, not quite as secure as they would be if you stored them in the Lonely Mountain under the protection of Smaug, but pretty fucking close.
Here's Bloomberg again, quoting Sean Clark, founder of First Block, Canada’s first fully registered crypto firm, which picked Xapo as its custodian after what Bloomberg describes as "months of due diligence, including touring the Swiss vault":
“Every part of their DNA is geared to security,” said Clark, who noted the vault’s fingerprint scanners were equipped with a pulse reader to prevent amputated hands from being used.
For the life of me, I cannot reconcile the idea of a world where people are running around chopping off hands and carrying around amputated limbs with a world where people still care about Bitcoin prices.
I mean I guess if you really wanted to, you could posit a situation where rogue intelligence operatives (or something) kidnap whoever is running the show for an institutional client, chop off his/her arm, stuff it into a duffle bag, then infiltrate one of these heavily guarded mountain fortresses before trying to use the severed hand to access the Bitcoin stash, only to be foiled by the pulse reader, but besides being exceedingly unlikely, it seems like that would be a one-off event.
So what is the purpose of this? Is this really necessary?
In a word, no. In two words, absolutely not.
First of all, what they're storing is going to zero because Bitcoin is a joke in the first place. So at some point in the future (presumably before some catastrophe creates the conditions where people actually do start chopping off each other's hands, only to eat, not to access buried Bitcoin keys) Xapo is going to end up in a truly laughable predicament where they're the proud owners of a global network of heavily fortified, underground bunkers housing a bunch of private keys to made-up digital "coins" the value of which has converged on their intrinsic value which is obviously zero.
Second of all, if you're concerned about this, buy a damn thumb drive. Bloomberg goes on to explain what's wrong with that:
The most popular alternative is called cold storage, keeping the key in an offline device such as a thumb drive. But risks remain.
Traditional criminals have committed home invasions and kidnappings. Some Bitcoin tycoons have resorted to hiding their identities, fortifying their homes and studying self-defense.
So just to be clear, when changing your name, barricading your house and becoming a karate expert collectively fail to assuage your paranoia, you can call up Wences Casares who will solve this problem for you by burying your keys underground.
I appreciate that there's security risk here, but I think once you've hidden your identity, bought a Purge-style home fortification system and turned yourself into Bruce Lee, you've done about all you can do.
And don't you tell me I'm the ridiculous one here, because remember, I'm not the guy building underground vaults equipped with pulse-reading fingerprint scanners explicitly designed to foil criminals who try and use amputated hands to access Bitcoin held in cold storage, Casares is.
I guess it's possible that there will be institutional demand for this and as if the whole thing needed to get any more cartoonish, it turns out that Xapo has enlisted Pete Najarian to bring in the money manager crowd. Here's Bloomberg one more time:
Xapo is doubling down on its pursuit of institutional clients, with President Ted Rogers enlisting Peter Najarian, a veteran of emerging-market trading at UBS Group AG and Royal Bank of Scotland Group Plc, to oversee outreach to investors including pension funds, private banks, assets managers, family offices and hedge funds.
Can you imagine this sales pitch? This is Pete Najarian pitching a military-grade, mountainside cold storage solution for make-believe digital currencies complete with failsafes that include safe words for FaceTime interactions and pulse-reading fingerprint scanners to deter thieves who have dismembered clients.
That's enough. I can't fucking take it. It's Friday night and I'm done.