I'm John Nagle, the person behind
Downside. Over the last decade, we predicted, well in advance, the dot-com crash (company by company), the oil spike, and the mortgage crisis. We've also explored some financial scams - Enron, Madoff, and their ilk. Downside was written up in Business Week, CNN, Fortune, etc. Our track record speaks for itself.
I've been looking at the Bitcoin world. It's amusing watching the classic forms of financial trouble happen in miniature. I have no financial position in Bitcoins, so I'm looking at this neutrally.
So what's wrong in the Bitcoin world?
First, it looks like a bubble. Here's Bitcoin before the Mt. Gox debacle:
![](https://ip.bitcointalk.org/?u=http%3A%2F%2Fwww.downside.com%2Fcharts%2Fbitcoinjun2011.png&t=665&c=5eOU0K2Ox4gW9Q)
That just screams "bubble" to anyone who's seen one. Bear in mind that the Bitcoin system generates no revenue. All funds must come from new investors. This is not like a startup company. This is a zero-sum game. If you've been in the game for half an hour and you don't know who the patsy is, you're the patsy.
Second, Bitcoin is supposed to be a currency, but it's actually a speculative vehicle. If Bitcoin were a successful currency, there would be many merchants using it for small transactions, with perhaps some speculation on the side. In practice, the speculation dominates. This is the real problem with Bitcoin. If it had been launched as the payment system for something like music tracks or smartphone apps, it might have worked out better. Or not; "Digicash" and "Beenz", the two previous rounds of this idea, also tanked.
Third, the organizations in Bitcoin's ecology are very flaky. Mt. Gox is two guys in Tokyo who are in way over their heads. We don't know much about Tradehill, which is somewhere in Chile. Neither of these "exchanges" has a published business address, a Dun and Bradstreet rating, published audits, or regulation as a bank or money transfer firm. Yet they're acting as depository institutions for sizable funds belonging to others.
It's amusing watching the Bitcoin community flail around. Most of the classic financial disasters are being re-enacted in miniature. We have pyramid schemes, tulipomania, bucket shops, pump and dump... This would be fun if it were an MMORPG.