By Dimitri Elkin
After several days ago I wrote a short article for the ICOBuffer site about bitcoin futures, someone pointed to me that the article’s main point about what determines the price of bitcoin futures is very trivial. Yes, my critic said, the price of a future contract for any asset is a little bit higher than the price of the same asset today, because futures are driven by interest rates, not expectations about the future. But this is a rather basic fact of finance, known to every first-year investment bank Associate.
I agreed with my critic. But before I had an opportunity to call my editor to tell her to remove the said article from the ICOBuffer site, the following incident happened.
Yesterday I was driving my Porsche on Sunset Boulevard in Los Angeles, listening to a program about bitcoin on the National Public Radio, NPR for short. The NPR host was interviewing several experts on the subject of the rising bitcoin price, and the new phenomenon of bitcoin futures, which had just started trading on the Chicago Mercantile Exchange. The focus of the radio program was on the “B-word,” where “b” stands for bubble.
As I turned onto Fairfax Avenue, some experts said that we are in the midst of a bitcoin price bubble that will soon pop. Other experts said that we are in the middle of a paradigm shift, and bitcoin price will continue to go up. I did not recognize the names of any of these experts, but since these people were on NPR, they must know what they are talking about, I said to myself.
After a few minutes of the typically sophisticated NPR banter, as I drove past the Beverly Center, the program host invited one last expert to clear the confusion and shed light on bitcoin price future.
“Well, – said the expert, – I usually don’t make predictions, especially about the future. But I can tell you that the institutional financial investors are very optimistic about bitcoin. The price of bitcoin futures a year from now is higher that it is today.”
When I heard this, I almost crashed my Porsche into a palm tree on the corner of Wilshire and Robertson.
You see, NPR holds a cult status in America, with millions of people tuning to 89.3 FM every day to get their news and their opinions. The quality of NPR programs is considered to be stellar. If you hear it on NPR, it must be true, so goes the common wisdom in America.
“How is it possible – I thought, waiting at a red light on Olympic Boulevard – that such an august news program invited an “expert” who clearly has now idea of what he is talking about, and transmitted his mistaken views to millions of listeners?”
That’s is a rhetorical question that can be argued to death. But three practical observations can be made.
First, many of the people who sell themselves as bitcoin experts, in reality, know very little about finance. It does not mean that their optimistic views about the future of bitcoin are wrong. It just means that they are no better at predicting the future than a coin flip.
Second, after my NPR experience, I think that my previous article about how the price of bitcoin futures work should remain on the ICOBuffer site.
And third, listening to fake news while driving can be very dangerous. At least for now, until we can travel around in cars that drive themselves.