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I just bought put options on MicroStrategy ($MSTR), Coinbase ($COIN), and Purpose Bitcoin ETF ($BTCC-B.TO), all at a strike price not far off the current (late June) price, expiring around Christmas. Here’s the thinking.

Context · But first: This is part of this blog’s Investing theme, whose Intro makes it clear that I have no investment expertise and nobody should take this as investment advice, because it’s not. It’s just a bloggy disclosure of some of my own financial positions, which I owe readers anyhow.

Disclosures · I have personally made money buying and selling Bitcoin.

While I’m an admirer of the technology, I’ve repeatedly criticized Bitcoin specifically and blockchain in general, on the grounds that I’ve seen no practical real-world applications.

bitcoin logo

Attribution: Flying Logos, CC BY-SA 4.0, via Wikimedia Commons

Beliefs · I believe the following things about Bitcoin. This is not a scholarly article so I’m not going to provide references, but I’ve seen enough evidence that I’m willing to bet my own money based on them.

  1. A high proportion of all Bitcoins are owned by insiders; miners and people close to the exchanges. Their cost basis is much lower than the current Bitcoin price, and that cost is in practice sunk.

  2. Bitcoin is not usable as a currency because the transaction costs and latency are both too high. (Yes, I know about the Lightning network.)

  3. A high proportion of Bitcoin trading is intermediated by Tethers (USDT). There are strong reasons to suspect that Tethers are a highly unstable stablecoin. The facts about whatever backs them up are mostly unknown. In practice they’re quite difficult to convert to real money. There are repeated allegations that Tethers are created out of thin air to prop up the price of Bitcoin.

  4. The Bitcoin market is largely unregulated, and it’s easy to believe that much of the trading is seriously sketchy, whether that’s based on ad-hoc Tether creation, wash trading, or other well-known pump/dump schemes. These practices have run rampant on every financial market in human history that hasn’t regulated against them fiercely. Why should Bitcoin be any different?

  5. The net effect is that money flows in from, in effect, suckers and rubes, then into the pockets of the insiders. A bit goes back out to non-insiders but, as I know personally, converting Bitcoin into cash is a high-latency high-friction operation. Converting Tether to cash? Good luck with that.

  6. Bitcoin’s Byzantine-generals solution, based on proof-of-waste, is unacceptable in the face of the oncoming climate crisis.

  7. To the extent that Bitcoin has an ideology, it’s some sort of mutant greedhead libertarian claptrap. Most people on the scene can’t spell “ideology” and are there to make a quick speculative buck. Since Bitcoin has no practical uses, the buyer is a fool who is counting on eventually finding a greater fool.

My best guess is that pretty soon the supply of greater fools runs out. At that point the insiders holding the bulk of Bitcoins will rationally be willing to unload for dramatically lower prices, which probably leads to a dramatic deflation. This could be provoked by a Tether collapse, or legal action from any one of a number of governments, or the public exposure of egregious insider sleaze. Or some surprise of the kind that history is full of, the kind that nobody was expecting.

When will it happen? I dunno. I’ll be astonished if we get through 2021 without an explosion.

How to short Bitcoin? · The classic short would be to borrow Bitcoins and sell them, in the expectation of being able to buy them back for much less when the time comes to return them. But I’ve sold Bitcoin and I didn’t like the experience. Also, if I’m wrong, the downside is unlimited, which violates our #BeCareful investing principle. So no.

Some of the crypto exchanges offer options, including puts. But I personally have little to no faith in the integrity or durability of these organizations. Should Bitcoin take the kind of dive I expect, the chances of getting your Put exercised would be about zilch. So, no.

BTCC.B Canadian Bitcoin ETF

In Canada, there’s the Purpose Bitcoin ETF (BTCC.B on TSX), which actually trades on the mainstream market. Which I take to mean that a put option should exercise fine even during a meltdown because whoever wrote it would have had to establish their ability to cover margin. Nothing fancy about it, as I write this its assets are 21597.3588 Btc.

Then there’s this company called MicroStrategy ($MSTR) which has been around since 1989 and sells business-intelligence and analytics software. I have no idea if the software is any good.

They became infamous in March 2000 upon revealing “accounting problems”. The share price collapsed, marking the start of the dot-com crash. The US Securities & Exchange Commission sued their asses for fraud and eventually the company settled, paying big fines without admitting any guilt.

21 years later, the company still has the same CEO, Michael Saylor. His Twitter avatar now has Bitcoin-y laser eyeballs, as you can see in the tweet below.

Saylor announces more $MSTR Bitcoin buys

Between August 2020 and June 2021, MicroStrategy bought a lot of Bitcoin. There’s a prominent Bitcoin-labeled pointer on the front page at microstrategy.com which leads to hope.com — Bitcoin is Hope. It’s absurd.

Recall the words “rube” and “sucker” that I used above? I think Micro­Strategy is one of those, corporately. Maybe their share price can survive the Bitcoin bet going south? But I doubt it. So I bought puts.

Finally, Coinbase. I see no reason to think they’re dishonest or stupid, and I know people who’ve used them for Bitcoin trading and came away happy. If you believe in the long-term existence of a lively Bitcoin marketplace, they’re probably a good investment. But I don’t. So, I picked up puts.

Looking forward · Puts are pretty cheap. If I’m totally wrong and Bitcoin is still sailing along at the end of 2021, I’ll be annoyed but not impoverished. If it crashes I’ll be sad for the unfortunates who lost their stakes, and entirely unsympathetic to the insider community.

Will report back.


Comment feed for ongoing:Comments feed

From: Earl Grey (Jun 28 2021, at 23:07)

What a complete crock that article is


From: david (Jun 28 2021, at 23:54)

As a recent btc buyer I'm one of the suckers but I didn't realise everything you say is true until too late. Hoping the value stays up until I can offload on another sucker! Good luck with the put.


From: Geoff Arnold (Jun 29 2021, at 00:45)

If you don't follow David Rosenthal's blog, you should do. (Another ex-Sun DE.) His analysis of cryptocurrency in a series of posts over the last couple of years has been devastating. https://blog.dshr.org/


From: conanoc (Jun 29 2021, at 01:50)

Reasonable reasons. But, why this year? It could collapse next year or some year later. You didn't give the reason why the supply of greater fools runs out that soon.


From: Curt (Jun 29 2021, at 07:11)

I probably sold you your MSTR puts… good luck!


From: kal (Jun 29 2021, at 09:23)

There is no law that will uphold this fake currency. Military, law and order support currency, else it is useless. Fake money from thin air is exactly that fake money.

$ is valued because might of the gov't supports its currency. No one will come steal your home because it is backed by law in a country that supports its labor by its own money. Bitcoin has no country or world organisation there to uphold its value, it is truly fools gold.

Limited money also doesnt work in a growing population, money held should never increase in value. As more people are born, those that hold onto bitcoin get richer and richer for no reason at all.

Its a flaw, no wonder satoshi decided to stay hidden for creating the biggest scam in history.


From: Anitram B (Jun 29 2021, at 15:30)

I concur entirely with the facts of this article but am not so confident that the fantasy will implode this quickly.

IMO gold is almost as stupid as Bitcoin and that has held strong for centuries. So, that means there's no fundamental reason Bitcoin has to evaporate just because it's on even stupider ground.

That said, good on you for making bets. I wish you much success.


From: Doug K (Jul 02 2021, at 08:59)

There is nothing so disastrous as a rational investment policy in an irrational world.

John Maynard Keynes


The market can stay irrational a lot longer than you can stay solvent.

A. Gary Shilling

I agree that cryptocurrency is essentially a long con. How long, is the $64 question..


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June 26, 2021
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