The Bubble With Bitcoin

Followers via LinkedIn will have seen a string of my recent posts focused on the fact that bitcoin miners are borrowing to buy bitcoin, aping the "very novel strategy" of MicroStrategy, the loss-making former software company whose boss, Michael Saylor, continuously hypes the cryptocurrency. We've been here before, in 2022 when several miners collapsed, ruining many amateur investors, but the stakes are gradually rising each time...

In November '24, Allianz, the German insurer, bought 24% of MicroStrategy's $2.6bn convertible bond issue that was used to purchase bitcoin (raising the price by 4.3% to $98k). It seems that Allianz wants to gain exposure to bitcoin without actually going to the trouble of buying and holding it, even though it could have got that exposure more cheaply through ETFs. After all, the convertible feature of the bond only gets Allianz shares in a company that consistently loses money and whose share price is tied to bitcoin volatility and price: 

On November 21, 2024, MicroStrategy issued $3 billion of 0% convertible notes maturing on December 1, 2029... Its stock was trading at $430 at issuance, and the conversion price was $672. Investors were willing to accept call options instead of interest payments. The equity options have value if MicroStrategy shares rise by more than 50% over the next five years. If the stock does not get above $672, investors will earn a 0% return on their investment. MicroStrategy And Its Convertible Debt Scheme

By purchasing the bonds with cash that it knows will be used to buy bitcoin, an investor like Allianz is effectively boosting the price of bitcoin - and by direct correlation MicroStrategy's share price - to the conversion price. As Michael Lebowitz explains, MicroStrategy's share price began correlating with the price of bitcoin the more the company borrowed to buy the cryptocurrency - a total of $7.27bn since 2020.

So it was interesting to see the USD price of bitcoin subsequently hit $106k for two days in December (for which Donald Trump weirdly congratulated everyone, so presumably he's in on the trade).

But why did the price stick so firmly at $106k (before sliding ominously below $100k)? 

Well, on 7 Jan 2025, the FT reported the estimate by CoinShares, the investment group, that:

“Including depreciation and stock-based compensation charges, the average cost to produce a bitcoin was $106,000.”

This is somewhat new, as previous cost estimates at the time of the bitcoin mining bankruptcies in 2022 only seemed to factor in the (very significant) energy/computing costs, not those wider costs.

Meanwhile, the FT reports, not satisfied with mining rewards that halved in April, miners are continuing to borrow more and more to buy and hold bitcoin in a bid to support the price (and eventually ‘profit’ from sales to ‘greater fools’). For instance, at the latest peakRiot Platforms borrowed $595m, maturing in 2030, using it mainly to buy bitcoin. Others have also concluded that bitcoin miners aremimicking MicroStrategy by borrowing to buy bitcoin.

But all this capital is clearly failing to support the price of bitcoin at the cost price, as the slide below $100k from the recent peak has demonstrated. This suggests that the miners (and MicroStrategy) will need to borrow again and buy more bitcoin as the overall mining costs rise, hoping that the price of bitcoin at the time of bond maturity is enough to repay the principal owed.

Some miners are looking to diversify into supporting AI and to cut mining costs by producing their own electricity from smaller, remote landfill sites (though surely the power generated should still be accounted for as a cost at market value?). But both of these moves highlight miners' - and bitcoin's - vulnerability to competition for resources from businesses pursuing more profitable ventures, or actual energy producers. Note that crypto mining is responsible for up to 2.3% of US annual electricity consumption. 

All of which suggests that it is not sustainable to endlessly borrow to buy your own product without being able to sell it.

Defying Idiocracy: Connecting The Fediverse: Open Social Media

If you've followed my musings on Idiocracy (the inevitable 'dumbing down' of content quality when any media platform reaches a certain scale), then you too may be worrying about how to defy it. 

I joined the Fediverse (via Mastodon) two years ago. From the beginning I noticed the tendency among users on my 'mastodon.world' instance to worry about the rate of adoption versus other Mastodon instances, like 'mastodon.social', or instances running other fediverse protocols, like BlueSky. These were then contrasted with the early adoption of, say, X/Twitter or Threads, as if a failure to mimic the growth rates of proprietary platforms was somehow a shortcoming, rather than a strength. 

In other words, even as all these X/Twitter refugees emigrated to the brave new world of decentralised open platforms, their instinctive FOMO was driving them to hope they'd landed on the 'best one' which, rationally, they should have therefore concluded was actually the worst in terms of its likelihood to end up exactly like X/Twitter...

So, how do we protect ourselves from human nature? How can we ensure that humans communicate about their 'wildly different refined, aesthetic and noble interests' and avoid voting for an even worse version of Donald Trump? 

The answer may lie in being able to interact with many small scale networks without exclusively joining them or their communities. As with tools, like TweetDeck, which enabled you to communicate across multiple X/Twitter accounts on one interface, there are new federated tools, like OpenVibe that enable you to communicate with users across the Fediverse of decentralised platforms. 

Of course, I hear you wonder whether this will still deliver Idiocracy, once the aggregation platform itself reaches the critical mass of X/Twitter. But my sense is that there should always be new decentralised platforms joining the Fediverse, enriching the content.  

Hell, it's worth a shot, right? 

Starmer Has Nobody Left To Appease

It's fitting that Starmer had his Chamberlain moment on his way to appease the oil & gas lobby at the deeply flawed COP summit in Azerbaijan (of all places). Asked to choose between Trump and the EU in the imminent trade war, he preferred not to upset the vengeful, malignant narcissist who's sparked it, by waving the flimsy, blank sheet of paper that every British PM claims to contain the text describing 'the special relationship'.

It would be kinda sweet if Starmer were to genuinely think that Trump will be looking after Brexit Britain while allowing Putin to expand Russian territory, arch conspiracy theorist RFK Jr to cancel the US vaccine program and demanding that Elon 'Space Cadet' Musk pull a $2 trillion rug from under a population that relies on the world's largest outright public spending program, including government-funded free school meals, subsidised mortgages and business loans and much, much more. 

But I suspect Starmer is simply pretending to be that dumb, because that's what most people seem to want these days.

Meanwhile, yet another governor of the Bank of England has urged Britain's politicians to unite with its biggest market, when there's no sign of any political courage to do so in the face of our own local Trumpian mob.

How many more Prime Ministers the UK economy must burn through before Reality creates an opportunity for one of them to claim hero status by leading what's left of the country back into the Single Market and Customs Union remains to be seen, but... 

Next!

  

Will We Ever Tire Of The Vulgar, Prurient and Dumb?

The US Presidential election results have confirmed a trend that first surfaced in television and has spread into the social media and politics.

“Television is the way it is simply because people tend to be extremely similar in their vulgar and prurient and dumb interests and wildly different in their refined and aesthetic and noble interests.” David Foster Wallace, 1993

At scale, we humans unite at 'base' level, the lowest common denominator. 

Nearly 40 seasons of The Simpsons can't be wrong.

Donald Trump has run for President numerous times, but it was only via The Apprentice TV show that his schtick truly resonated with the nation, infecting tens of millions of people with his special brand of the 'vulgar, prurient and dumb'. 

His weird press conferences, shameless lies and hypocrisy, junk food obsession, narcissistic posts, bizarre rally rants, tawdry courtroom dramas and near assassinations all fed the ravenous hordes.

Losing to Biden merely proved grist for the media mill.

Regardless of whether US voters self-identified as Democrats, Republicans, multi-billionaires, teachers, SillyCon techno-optimists, professors, college kids, middle class professionals or illiterate fools - everyone was transfixed - whether in horror or ecstasy - by the Homer Simpson of politics. 

And that effect meant that he resonated with enough people to secure Homer's a Trump victory over a candidate who offered nothing vulgar, nothing prurient and nothing dumb. 

Where will it end? Or will it end at all?

The question is whether this trend has peaked, like television viewing figures did in 2010, and whether social media and streaming platforms will be disrupted the same way that their early versions disrupted TV with something that seemed more refined, aesthetic or noble - and maybe even was, until it gained critical mass. Or whether society will continue to be 'dumbed down' and end up as portrayed in the film Idiocracy.

Well, TV viewing figures may have peaked, but they haven't dropped far, despite the surge in eyeballs aimed at social media and streaming platforms.

If anything, the two types of media are working in concert, or echoing each other.

In my early posts on this site, as exemplified in Lipstick On a Pig, I used to think that Greed and Stupidity were winning, but only through our institutions - top down - while 'people power' was a force for something better. 

How wrong I was!

While it was true in 2011 - and true now - that 'Bailouts Fail and People Power Will Succeed' the problem was that 'success' meant uniting around the vulgar, prurient and dumb.

Welcome to Idiocracy.

Starmer Makes A Spectacle Of Himself

No sooner did we rid ourselves of the crony Conservatives than it turns out the Labour PM, his wife and senior ministers accepted clothing and spectacles from donors. Not to mention all the football tickets and so on.

Never mind that they declared the gifts. The point is that they thought it okay to seek or accept them in the first place - at a time when others can't afford new clothing of their own - from political donors. 

Never mind that BoJo and his cronies did far worse and without declaring it. Starmer and Reeves promised an end to all that.

And it's all so petty! 

I mean, if Britain's Prime Minister can't buy his own specs and a half decent suit, how easily could he be bought by really big donors...? 

Look for Tory rorts that never get scrapped, like freeports...

Never mind that they've ended the free-clothing practice - that merely demonstrates the greed and stupidity of doing it in the first place.