Wednesday was the second day of the Woodstock Music Festival. At this time, 48 years ago, I was not -- along with many others -- exactly of sound mind!

This Wednesday morning's rambling, nearly five decades later, may seem like I am still stoned (!) -- but many people (like Mikey, BadGolfer) may identify with my concerns and observations:

In a world where central bankers have created $10 trillion in new reserves out of thin air since the mortgage crisis, who, with any knowledge of markets and money and finance, has not wondered how long the relative stability of the purchasing power of the dollar and euro and yen will be maintained?

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The miracle has been that the inevitable inflation has so far turned up largely in financial markets (too much of a good thing sometimes seems like a good thing) and housing -- where the results are good for those who owned going into the new housing inflation and bad, bad, bad for prospective new entrants to home ownership and for renters. I have to admit that the runaway creation of "reserves" -- counterfeit savings -- has worried me with respect to the prospect of an acceleration in more widespread inflation and made me think about bitcoin, et al.

The other thing that has made me consider digital currencies is the trifecta of negative interest rates, the prospects for bail-ins spreading to the U.S.A. in the next crisis and the war on cash, meant to keep our money where it can be confiscated by bail-in or negative interest rates, not to mention destroying anonymity.

Thus far, I have not converted any U.S. dollars to bitcoin (late to the party as usual -- or rather, not even at the party yet). Why not? One reason, as mentioned Tuesday, is that the argument that bitcoin is not subject to willy-nilly dilutive creation has been shown to be false. True -- for the moment, at least -- bitcoin creation is nominally limited, but if there is one thing 77 years have taught me is that rules -- any rules -- can be changed.

Who among us has actually seen and understood the bitcoin code? What is my assurance it cannot be modified to permit creating two times, or 10 times as much bitcoin as originally envisioned? But moreimportant, it seems bitcoin's purported limitation on quantity has not constrained the creation of other digital currencies. The resulting free-for-all has exposed another very real concern of mine that I have not seen adequately highlighted, and that is the very thing that has attracted so many tulip buyers: the volatility.

Anything can be money if enough people accept it as money -- as a store of value. But that confidence is unquestionably a function, in part, of the volatility of the value conversion represented by a currency. Increase that volatility, and confidence must move inversely. Can anyone confidently operate as though the volatility of crypto currencies can remain only one way? Not when that volatility begins to exceed the interest rate available to the currency, and so far, in every cryptocurrency, that interest rate is zero.

That may soon change. I have been surprised that no one has yet created an instrument that pays bitcoin interest. Heck, it wouldn't surprise me to learn there are already bitcoin bonds out there. But if they are corporate, they do not yet have the backing of a government taxing power or central bank printing press to assure such bitcoin interest. Right now, zero institutional bitcoin interest rates = very low bar for the currency conversion volatility to become a market problem.

Said differently, while I have some rough idea of what one U.S. dollar can buy and that is reasonably stable, I have no similar idea about what 1 Bitcoin should be buying today, tomorrow or next week. It might be more, but it sure as heck could be a lot less. And that means you can't have too much in cryptos, just like any position size is constrained by the volatlity or even the potential volatility of the holding.

This veteran forecaster just slammed Bitcoin.

Yes, like 48 years ago at The Woodstock Music Festival, I am rambling. But, to summarize:

The notion that there is an un-dilutable, fixed amount of cryptos is simply wrong. Without some notion of the value in goods or services, the volatility of the crypto limits the amount one can or should hold -- at least until a longer history of common usage begins to fence the value/BTC to an acceptable range.

As stated yesterday, these are some of the reasons I prefer gold over bitcoin and other crypto currencies.

Position: None.

Originally published Aug. 16 at 10:18 a.m. EDT

Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings. This week he blogged on:

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