Well, I think I’ve about seen it all now.
Reading through Phil Anderson’s book, The Secret Life of Real Estate and Banking, was a revelation. Just to see the all the crazes, repeated in every real estate cycle. The many ingenious ways that were found to carry out all the land and ‘rent’ speculation as each real estate cycle heated up. All sorts of schemes and frauds were cooked up.
But this one, happening now, could top them all.
It’s in Georgia. And the whole country and the entire government seems to be getting involved. Georgia is in the midst of a bitcoin gold rush.
Here’s how The New York Times reported Georgian events last month:
‘For three years, a windowless warehouse on the edge of town has been whirring with enough energy to power nearly 50,000 homes. Day and night, the warehouse, and dozens of cargo containers in a windswept valley, are generating Bitcoin, the cryptocurrency that has created a virtual gold rush in the former Soviet republic of Georgia.
‘Bitfury, a bitcoin technology company, is churning out millions of dollars’ worth of the digital money using ultracheap hydropower harvested from waters rushing down the volcanic peaks of the Caucasus. Even as the currency has tumbled in value, thousands of Georgians have jumped into the game and sold cars — even cows — to buy high-powered computers to mine Bitcoin and join what has become a state-supported dash toward data supremacy.
‘A former prime minister encouraged Bitfury, then based in San Francisco, with a $10 million loan in 2015. The governing Georgian Dream party sold 45 acres for $1 for Bitfury to set up shop. The government has been selling energy at half the rates charged in the United States or Europe, and it has created tax-free zones to draw in tech-savvy entrepreneurs.’
A place where bitcoin is exempt from all taxes
Street protests ousted the last soviet era leader. That was back in 2003. Ever since then, Georgia has begun to sell itself as a business-friendly, low-tax haven. It’s a place where Bitcoin is exempt from all taxes and can easily be exchanged for real money.
Mining for cryptocurrency involves a lot of complex calculations. Miners compete to solve complex formulas on the blockchain. All are looking for the right answer and new bitcoins as the prize. But all this calculating superheats computers. It uses a lot of energy, in powering up and cooling down.
Bitfury’s computer operation alone, uses enough electricity to power nearly 50,000 homes. Georgia is now an energy guzzler. The World Bank ranks Georgia as one of the of the most active cryptocurrency places in the world. Simply based on all the power they’ve consumed over the last few years.
Rumours circulate that former Prime Minister Bidzina Ivanishvili, (who lives in a $50 million complex), is profiting from the Bitfury operation. He initially gave Bitfury a $10 million loan through his investment fund.
In a cozy deal, the government expanded the power station near to the Bitfury complex so that electricity can be given to the company at no extra cost. Rates charged are half — or less — what the company could expect to pay elsewhere.
Anyway, even Georgian farmers are getting involved in what’s going on.
Continued from The New York Times:
‘In villages across Georgia, an estimated 200,000 people secured mining computers to set up in basements and garages. For young people especially who struggled in a tough economy, Bitcoin seemed an alluring alternative to just making ends meet.
‘Joining the rush was George Kirvalidze, 35, the former owner of a small internet company in the town of Kvareli, three hours from Tbilisi…About half the town’s 6,000 households have some kind of a mining rig, he said.
‘“Most people who bought in thought high prices would last forever,” said Mr. Kirvalidze, who has managed to mine 20 Bitcoins. Even farmers got involved. “At one point it was more profitable than owning a cow,” he said.’
This is all the madness of crowds it seems to me.
How this craze relates to the real estate cycle
This is how all real estate cycles build. First, we have to extricate ourselves from the land-price-led downturn. That’s what happened back in 2010–2013. Though most were clueless as to what was happening, it’s simply history repeating.
Then stock markets usually get back close to, or into, all-time new highs. That happened in the US in 2013. That’s how you know that the wealth of the nation in the US is increasing. And that the new real estate cycle is well and truly underway. It’s still yet to happen in Australia though. Which is a historical first.
Then the banks, after having cleaned up their balance sheets, get back to lending and credit creation again. We’ve seen all that happen too in the US.
The banks also start lobbying Congress again — as they always do — to get the prior new rules put on them, lifted. This too has happened in the US.
And then, as history shows, we usually get a few friendly real estate men enter politics and get to the top. Mr Trump is nothing new in this regard.
Australia is not big enough to create its own real estate cycle. This is why you should always keep an eye on what’s happening in the US. This is where the real estate cycle begins — and ends. It’s been that way since 1800.
And then we start to see a few ‘crazes’. Usually they are real estate related, but not always. About this time in the prior real estate cycle, (1999), we saw the dot.com craze. That busted, eventually. Though of course we also got some serious new inventions in the process.
And so now in Georgia they’re in the midst of a bitcoin craze. It’s the same every cycle.
How that ends up is anyone’s guess, but the eventual timing is not in question.
Chartist, Phil Anderson’s Time Trader
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