Brett Scott has recently posted a new article, The Whale of Mass Destruction: How a fundamental weakness in Bitcoin might (technically) crash our economy, in which he provides an excellent analysis and clear explanation of the valuation processes in the financial markets in general, and the forces that shape price movements of Bitcoin (and other similar virtual commodities), in particular.
In the world of finance, a whale is an entity that has the power to move large amounts of capital or to exert an inordinate influence on markets. Among these are venture capital funds, central banks, and governments.
If you want to understand the essential nature of Bitcoin, the factors that drive its market price, and the implications of the current government plans to establish a Strategic Bitcoin Reserve fund, that article is a “must read.” The lessons you will learn extend far beyond Bitcoin and into the realm of global money, finance, and economics.
I will add that the expected government manipulation of the Bitcoin market by means of massive purchases is analogous to the massive purchases of US government bonds and notes by central banks, commercial banks, and others who still have faith in them despite their lack of any solid backing in the real world. Just as Bitcoin will never be “redeemed” for anything of real value, the massive accumulation of US government debt will never be repaid. That itself is a bubble that will eventually burst in spectacular fashion. God help us!
Beyond Money 