WHY PEOPLE WHO ARE USUALLY SANE ARE BUYING BITCOIN

Who in their right mind would take their hard-earned cash and convert it into a unit of supposed value that is:

·         not insured;

·         not backed by gold or silver or any commodity of any kind;

·         extremely volatile in its price movements, so much so that its daily movements would be considered insanity on any stock market in the world (including those in the Third World);

·         traded on exchanges of which nearly 50% have been shut down and its largest exchange brought to a halt by hackers, traderbots and DDOS attacks;

·         kept in digital “wallets” of which some brands have been hacked, and others simply closed down;

·         and which poses the biggest threat to central bank power since…well, since central banks were invented, making it a prime target for the banking monopolies (and their friends in government) that dominate world finance?

Who in their right mind would do this?  One would hope very few, except that more than a few, normally right-minded people around the globe have done just that (this author included).

The question is:  Why?

A thought experiment:  Imagine you are standing with your back to the edge of a cliff.  A river courses through the bottom of the ravine two hundred feet below.  In front of you a pack of twenty wolves slowly advances in a semi-circle. There is no escape.   If you stay where you are, there is 100% certainty that you will die.  If you jump, there is a 95% chance that you will die, and a 5% chance that you will survive after plunging into the river.  Would you jump?

The behavioural psychologists Kahneman and Tversky, in their research paper Prospect Theory: An Analysis of Decision under Risk (1979), showed that most people would jump.  In the summary/abstract to their paper, Kahneman and Tversky summarised a key finding as follows:

“In particular, people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty.  This tendency, called the certainty effect, contributes to risk aversion in choices involving sure gains, and to risk seeking in choices involving sure losses.”  (Kahneman and Tversky, 1979)

In summary:  sure gain = low risk appetite;  sure loss = high risk appetite.  In other words – standing on that cliff, faced with the ‘sure loss’ of your life in the jaws of 20 wolves, you will look down at that river two hundred feet below and most likely come to the conclusion that you have got quite a good chance of surviving  – better than 5% - and jump.  You will probably also be thinking something along the lines of: “If I don’t jump I’m dead anyway, so any chance of survival is better than none.” Kahneman and Tversky called this phenomenon “loss aversion” – the willingness to take high risks when faced with certain loss. 

I would argue that a significant portion of the world’s population is either certain, or at least strongly suspects, that the world’s financial system is in trouble. Deep trouble. This portion of the world’s population knows with 100% certainty, that sooner or later (and probably sooner) there will be a catastrophic collapse of financial markets that will be worse than the crash of 2008.  It also knows that in the event of such a collapse, the vast majority of the world’s population will feel very serious pain, something akin to (or worse than) the pain of the Great Depression of the 1930’s, which only came to an end with the gigantic public works project remembered as the 2^nd World War.  Except this time many of the governments of the West and East are already so indebted and have already printed so much money that they would not be able to pay for a public works program on the scale of the 2^nd World War to pull the world economy out of its mire.

So to return to the thought experiment:  The wolves are the “real crash” that’s coming  (to use Peter Schiff’s phrase), and the river in the ravine two hundred feet below is Bitcoin. Under normal circumstances, i.e. when not faced with certain death-by-pack-of-wolves, no right-minded individual would jump.  But these are not normal circumstances, and so, standing on the edge of the current economic cliff, usually sane people conclude that while jumping into the Bitcoin river may very well prove to be fatal, not jumping certainly will.