Entries from November 2017 ↓

Do not buy Bitcoin. No matter how easy it is. How powerful the pull of greed. How seductive the effortless, unearned gains. This will not end well.

On Thursday morning as Bitcoin traded at $9,201 (about twelve hours after being worth $11,500) the exchange Coinbase was offering BTC at $12,037 in beaver bucks. All it takes to buy is an email address, a smart phone for two-factor identification, a bunch of clicks and a credit card. There’s no personal information required, no identifiable data (except your card number or bank account info), no suitability requirement, nobody wondering if you’re a 13-year-old using mom’s plastic, or an 80-year-old with dementia. Click. Buy. And you own the world’s most volatile, dangerous asset.

Bitcoin, of course, isn’t money or currency. As a medium of exchange it fails every test. Few vendors will take it and transaction times are glacial. Even though bitcoin volumes are a tiny fraction of those handled by Visa, for example, the network is clunky, pedantic, massively inefficient. Nobody is going to be buying groceries, cars or ETFs with bitcoin. Fentanyl and automatic weapons, maybe.

So bitcoin is an asset, just like gold or (more likely) dot-com companies in 1999 that had sexy specs and huge hype but no profits, positive cash flow or any intrinsic breakup value. They existed in the ether of market capitalization created by greed-motivated, pile-on speculators. Buying bitcoin is not investing, it’s gambling. By proffering your credit card to get some, you’re not sticking it in the eye of central banks, governments or The Man. You’re probably blowing off your own foot.

Bitcoin doesn’t pass the investment smell test. There’s a reason its volatility has been 100%,  with zero reliability. No government underwrites or stabilizes it through a central bank, which controls the supply and price of money. Digital currency offers no income stream, no guarantee of liquidity, no underlying security, no assets backing it and no failsafe way to safely store it, as with equities, bonds or funds.

The exchanges selling these privately-created tokens are unregulated, answer to no oversight body and, as Wednesday’s outages showed, are incapable of scalability. Moreover bitcoin exchanges have been famously subject to fraud, hacking and massive theft. There is only one reason anyone would jump in at this point – because bitcoin is sexy, and going up. Yep, just like Vancouver condos, detached Toronto houses circa March of 2017, Bre-X in 1996 (Google it, kids) or pet.com in 1999.

And while the blockchain technology that allows digital currencies to exist appears brilliant, recent investors in bitcoin will probably lose most of their money. The threats at the moment are legion, and anyone ignoring them, hoping to double their wad by Monday, is the greatest of fools (as opposed to those selling).

Without a doubt, bitcoin and its forked offspring will eventually be regulated since they’re securities, not money. It’s only a matter of time. Investors need to be protected from their own idiocy and greed. Millions of them are about to be preyed upon. As digital currencies become more widespread they may also threaten government’s ability to run stable currencies or collect taxes. In a battle between the Fed or the US government and bitcoin, guess who’ll get creamed?

Hacking is a constant concern, as is terrorism activity using bitcoin. And consider the devastation caused by a network outage that would blank the entire value of  ‘money’ which does not exist and is backed by no government.

There are no institutional players in the bitcoin space yet, so valuations are being driven by emotionally-charged retail investors. Yes, just like tulips in 1620. It’s amazing what people will allow themselves to believe. All this may change next month when the first futures exchange opens for bitcoin. Suddenly there’ll be an efficient way to short this thing. You can bet billions of dollars are waiting to do just that.

Sadly, most people who use their credit cards to buy bitcoins have absolutely no clear idea what they’re doing. Hundreds of millions disappeared this week into assets with the stability of dust bunnies. The risk is as extreme as the parabolic, groundless rise to date.

Do not buy bitcoin.

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Speaking of delusion, let me introduce you to Tracey. Yes, it’s time for another little trip into Garth’s email account:

From Victoria yesterday came this:

My hubby and i did the unthinkable last December. We sold our home. Paid off monstrous, crippling student debt and put money aside for the future. Then we (gasp) found a nice rental and have been renting since. We were both certain the market would correct and that when we bought a home again we would be up….

We figured around this time this year we would buy a similar home to the one we left at much less than we sold it for. But, it’s Victoria and people have been fooled into thinking the market should/could go up forever and go up it has. The same house we sold last year would now sell for 100,000 more.  We may have jumped the gun on our timing.

I am still hopeful that the fall will come. The interest rates are rising. lending laws tightening. I am hopeful that if we stick it out another year, that we can buy a family home. I have been reading your blog for years and I want to know your opinion on Victoria. Think it will fall? I just can’t see how the local incomes can afford such insanity. Thoughts?

So, I sent Tracey what she requested. My thoughts:

That was whiny.

You congratulated yourself on selling and paying off crippling debt. Then you lamented not having made more money. Then you want another house.

Sheesh.

Not what the lady wanted, and this was the immediate, offended response:

I was asking for advice.

Your website says you offer “Caring, competent advice, wisdom, perspective and Experience”

I had been an avid reader. I was not expecting that kind of reply. I was nervous to reach out. I guess I shouldn’t have bothered. Never mind!

“Would you prefer I lie to you, in order to offer you free advice?,” I replied. “I am doing you a favour, Tracey. You will understand this some day.” But probably not.

First an update on Bitcoin. It was dangling below the $10,000 US mark when this blog last strayed into the morass of cryptocurrencies (Monday night). Well, on Tuesday it smashed that barrier, then roared ahead to $11,500 yesterday making geniuses of all the blog dogs who bought hours earlier. Then it crashed, losing 20% of its value in five hours before settling well below the ten grand mark.

Predictably, bitcoin saw a surge of buying just as it hit the peak – so intense major exchanges crashed under the traffic. Of course, all those new bitcoiners joined the party just before losing their shorts. Surprise!

Don’t like volatility? Shun this sucker.

Now an update on Evan. I heard from the poor sop again. After being humiliated here by two hundred strangers, his love life savaged, you’d expect his tail to be firmly planted between his legs and his confidence puddled. But lo, he started to man up.

“So I read your blog and to say I was startled by what I read was an understatement,” he reports. “I’m not that persona of a man that is portrayed. Emotional, definitely. Incompetent and pathetic, definitely not. You owe me a drink. I’ll tell you my story as a man.”

Evan. Dude. We’re pulling for you. Heed the comments. Better yet, have her read them. Stay well clear when it happens. A helmet would help.

And an update on Vancouver. What a disaster on wheels. As this blog’s being written, the snooty elves and lefty clowns making up YVR’s council are voting on a ‘bold’ housing strategy aimed at making real estate more affordable. If passed, there’s a 100% chance it will succeed – in fact the house-horny citizens of Van could witness a mother of a correction.

Of course, BC was the first jurisdiction to pass a xenophobic, anti-Chinese 15% surtax on real estate purchases by offshore buyers. Then it imposed an empty-house tax which is really just another hit on wealthy people masquerading as a way of getting more rental units to market. Of course a rich guy with a $5 million house who stays there five months of the year will now pay more than $4,000 a month in tax unless he rents it out. How insane is that? Is there a big need in YVR for places leasing for $20,000?

Of course, mortgage rates are rising, and will be going up again as the Fed and the BoC raise the cost of money next month and into 2018. Plus we have the universal stress test adding 2%, starting in a few weeks – expected to reduce overall credit by about 20%. Mortgage guys and realtors are petrified at the potential.

Meanwhile Vancouver has lowered the hammer on AirBnB, while the socialists running the province have further restricted investment by non-residents, and are actively plotting a serious speculation tax. But there’s more – which brings us to this new strategy. The crushing final blow.

If enacted, Van will actually ban all non-residents from owning real estate. That will come with an extra speculation tax, an increased luxury tax and the rezoning of vast neighbourhoods to allow higher densities so nice, old retired couples can live next door to hipsters with whiskers, and learn all about the country’s new cannabis laws.

Maybe Mayor Gregor Robertson didn’t catch the latest news from CMHC. The federal housing agency, responsible for insuring every high-ratio mortgage in the land, reported Wednesday the volume of business it did in the latest three-month period crashed by 44% from year-ago levels. The reason? Buyers with less than 20% to put down on a house must now pass a stress test to prove they could handle the payments if rates rose a couple of points.

Of course, most can’t. So they didn’t buy, or borrowed the down at the Bank of Mom to avoid the test. And it’s for exactly this reason that, starting in four weeks, every single purchaser – regardless of the amount they have as a down payment – must face the same hurdle. You can imagine the result.

Vancouver prices have gone stupid in recent years because of speculation, as real estate was transformed into a financial commodity. Like bitcoin. That was supposed to be money, but has ended up being simply a way to make it.

So once it becomes clear politicians have diddled enough to ensure that making profits buying and selling YVR houses is impossible, the market will react. The mayor says average families should be able to afford average houses there. That’s his holy grail. Fair enough. Household income is about $80,000 in Vancouver, so real estate would have to correct by about 70%.

At least we now know where to send Evan.