* "What is your return policy, by the way?"
* The price of bitcoin is down another -$2,600 (or -7% ) this morning after the Department of Justice recovered the Colonial Pipeline ransom
* The recovery pricks the anonymity and safety arguments of bitcoin devotees
* I remain manifestly bearish on Bitcoin
"Dead Dove, Do Not Eat. I don't know what I expected... You didn't eat that did you? Cause I have only a couple of days to return it."
- Arrested Development
My ursine view of Bitcoin is well known by subscribers:
As I have written:
"The problem with fiat currencies, like the U.S. dollar, is that monetary authorities can create an unlimited amount of new dollars or other currencies - making it look, to some, like a Ponzi scheme.
The problem with cryptocurrencies, like Bitcoin and Ethereum, is that anyone can make an unlimited number of new cryptocurrencies- making it, too, look to some like a Ponzi scheme. Ponzi schemes and scams are only visible to those that have no sense of history or want to believe in magic.
I believe cryptocurrency is like Tinkerbell's light - its power source is based solidly on enough children believing in it."
Over the weekend, uber smart Jack Dorsey said (at the Bitcoin 2021 Conference in Miami):
"Bitcoin changes absolutely everything. I don't think there is anything more important in my lifetime to work on... if I were not at Square or Twitter, I would be working on Bitcoin."
Who am I to argue with Jack (who founded both Square and Twitter)?
Nevertheless, though some real smart people (like @Jack) are committed to Bitcoin - as you all know, I have expressed that I can't think of a bigger game of hot potato than digital currencies (h/t Smails).
A few hours ago it was learned that the U.S. government recovered most of the ransom ($2.3 billion) stolen from Colonial Pipeline by the Russian hacker ring DarkSide ("ransom ware as a service") apparently by taking over the rented server that housed the virtual currency wallet holding the ransom.
The response, below, from the Department of Justice is important as it relates to the view of Bitcoin's "safety":
"The sophisticated use of technology to hold businesses and even whole cities hostage for profit is decidedly a 21st century challenge... But the old adage, follow the money still applies."
- Deputy Attorney General Lisa Monaco
This raises the question (first brought up by Mikey in our Comments Section) as to what makes Bitcoin safer than fiat money? Where is the secrecy that forms one of the arguments in favor of Bitcoin?
So, if as reported, the U.S. Government took over a rented server housing the Bitcoin wallet of the monies paid by Colonial Pipeline - why does this make Bitcoin different than fiat money?
The answer might be that the safety factor, previously thought to exist, is simply not there as Bitcoins were confiscated in a designated wallet.
Most had thought that Bitcoin was impenetrable - that holding crypto in your own wallet was fail safe.
Does this prove that if a human creates something, another can break it?
Bitcoin's Price Is Under Pressure
The price of Bitcoin has been rolling over for months.
The Bitcoin/gold ratio has been under very real pressure since early February. It was near 40 to1 nearly four months ago and it's under 20 to 1 now (to 17.4:1).
I would not be surprised if the ration goes to 10 to 1 shortly and, ultimately, maybe even lower.
Whither Coinbase's Shares?
One could argue that the stealing back of the Colonial ransom favors Coinbase's (COIN) shares, which will may be seen as a safe depository for digital currencies. Remember, Coinbase has materially expanded its prime brokerage capabilities.
On the other hand, if the price of Bitcoin and other digital currencies erode further, it would seem that COIN's shares could move lower in sympathy.
As previously written, I viewed the holding of a position in COIN as, importantly, a hedge against my negative view of Bitcoin and some other digital currencies.
It now appears that my ursine view of Bitcoin is being realized.
Based on the ransom recovery and the further decline, and clear rollover, in the price of Bitcoin - if I held a large position in COIN, I would likely sell some now and reduce the position's size.
Bottom Line
Like wrestling icon "Rowdy" Roddy Piper, "I have come here to chew bubble gum and kick ass... and I am all out of bubble gum."
Despite protestations from some very intelligent digital currency observers, I remain a Bitcoin bear.
(This commentary originally appeared on Real Money Pro on June 8. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)
