Tag Archives: Cryptocurrencies

Market Weekly: The Pivot to Gold Has Begun, by Tom Luongo

Buying either gold or cryptocurrencies is a vote of no confidence in governments, their central banks, and their fiat currencies. From Tom Luongo at tomluongo.me:

For the past few weeks I’ve incurred the wrath of what I’m now calling “Gold-Only” bugs for constantly haranguing them about bitcoin and cryptocurrencies. These are the folks which state only gold can beat the central banks.

I’ve made my position very clear, in a world of digital money and accelerating technology there is room for both assets as stores-of-value for different types of investors and taking a ideological position for either is stupid as well as arrogant.

Like all things, there are reasons why putting all of your eggs in one basket in markets as cocked-up and purposefully manipulated as these is simply bad asset management. Risk is, ultimately, not someone else’s problem no matter how much Wall St. tries to convince of this otherwise.

Risk is your problem.

The gold and crypto communities have been at each other’s throats for months now, as bitcoin continued rallying off the Coronapocalypse low from last March while gold peaked in August and has ground out a truly demoralizing eight-month bear market.

The envy coming from Gold-Only bugs has them missing one of the great opportunities for wealth creation in anyone’s lifetime. You don’t have to love bitcoin to make money from it. Just like you can hate Facebook but own its stock and cash it in when it’s too expensive versus another asset, say… I don’t know? Gold?

But that inverse relationship is finally changing. Bitcoin and gold are getting back into phase. And it’s right on schedule.

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Why the future money is gold and silver, by Alasdair Macleod

Why we’ll be using gold, silver, and convertible currencies and not cryptocurrencies as the official means of exchange after fiat collapses. From Alasdair Macleod at goldmoney.com:

A reminder why they always will be sound money and why bitcoin cannot fill that role

With bitcoin’s price still rising and expected to rise even more, there has been a growing belief in cryptocurrency circles that it will replace unbacked government currencies when they eventually fail.

The assumptions behind this conclusion are naïve, exposing hardly any knowledge in what qualities are needed for sound money. This article agrees that current events are accelerating the path towards fiat destruction, and that historical precedents point to their eventual replacement with a sounder form of money. But what that money will be is decided when governments lose control over their fiat; and the public, its users, through free markets will set the monetary agenda.

Only then will the general public determine the qualities required, and in the past, it has always opted for metallic money. And because government treasury departments and their central banks coincidently possess only gold in their non-fiat reserves, its monetisation is the only option for governments to survive the collapse of their fiat currencies. That is what will eventually happen, with silver perhaps fulfilling a subsidiary monetary role to gold.

Introduction

While increasing numbers of the fiat investment community understand that the quantities of government money are being expanded without any sign of limitation, they have also concluded that bitcoin, not gold, is the pure investment play because over the next few years bitcoin will approach its final quantity.

It is almost certain that like the majority of gold and silver bulls hodlers expect to sell bitcoin for profit measured in their governments’ currencies, creating for themselves relative wealth in dollars, euros, yen — whatever their governments impose on their citizens as money. But it is an investor’s, or speculator’s approach, which is accompanied by feverish examination of charts, confirmation bias from “experts” and only a half-understood concept of what is driving the price. So sudden and wonderful has been the unbanked wealth creation in leading cryptocurrencies, that investors commonly proclaim that gold and silver are yesterday’s story and that we oldies should move with the times.

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Scarcity Cred, by Scott Galloway

Scarcity can be a value, which is one explanation for the people scratching their heads about the popularity of cryptocurrencies. From Scott Galloway at profgalloway.com:

Any firm that approaches $1T in value has tapped into a basic human instinct. Consuming, signalling, loving, and praying have been the fuel of Amazon, Apple, Facebook, and Google’s ascents, respectively. That the crypto asset class universe has reached $2T reveals, I believe, that it taps into two attributes we instinctively pursue: trust and scarcity.

Trust

Our superpower as a species is cooperation, which requires trust. It’s the reason banks, traffic lights, and anesthesiologists exist. Even before crypto, creative minds have been drawn to finance, as trust creates opportunities for leverage and securitization. In 1997, seeking more control over his songwriting catalog, David Bowie raised $55 million with Bowie Bonds. The bonds paid 7.9 percent interest over a 10 year-long term — a scant premium to a U.S. 10 Year Treasury Note at 6.4 percent. What made Bowie Bonds unique was the collateral, or source of trust: future royalties on Bowie’s music, which the bondholder felt people would continue to value. Moody’s rated the bonds A3 and Bowie used the proceeds to buy out his former manager, shoring up the bonds and securing long-term control of his music.

Though innovative in its collateralization, the Bowie Bond was on its face a vanilla financial instrument, no different in form than a bond issued by GM or P&G. In order to connect his art and potential investors, Bowie had to rely on the (expensive) apparatus of traditional gatekeepers in finance and entertainment to imbue his bonds with the essential attributes of trust and scarcity. The royalty stream (trust) was mediated by lawyers and accountants in big publishing houses, and the legitimacy of each individual bond (scarcity) was dependent on the financial powers of Wall Street.

What if Sir David Bowie (note: he declined knighthood in 2003, but it’s my blog) fell to earth in 2021? What might Bowie have done … with crypto?

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“You’d Have To Shut Down The Internet” To Ban Bitcoin, Says SEC’s Hester Peirce, by Tyler Durden

Will governments ban Bitcoin and other private cryptocurrencies? Tread carefully, it’s not clear what the outcome will be. From Tyler Durden at zerohedge.com:

Any government efforts to ban Bitcoin would be “foolish,” said Hester Peirce (aka “Crypto Mom”), a very Bitcoin-friendly commissioner at the U.S. Securities and Exchange Commission (SEC), during a MarketWatch virtual conference earlier this week, according to Cryptoslate reporter Liam Frost.

“I think we were past that point very early on because you’d have to shut down the Internet,” Peirce said, adding, “I don’t see how you could ban it. You could certainly make the effort. It would be very hard to stop people from [trading Bitcoin]. So I think it would be a foolish thing for the government to try to do that.”

Not only that, but the government would immediately wipe out $2 trillion in net wealth – the market cap of the crypto sector – an event that would have profoundly deleveraging consequences, and since much of that wealth is now backed by debt, for example all those debt-funded purchases of bitcoin by Microstrategy, such a move by the government would immediately destabilize the all important debt market.

The statement came on the heels of Ray Dalio, a billionaire investor and founder of Bridgewater Associates, arguing that there’s “a good probability” that governments around the world would ban Bitcoin and other cryptocurrencies.

Dalio told Yahoo Finance:

“Every country treasures its monopoly on controlling the supply and demand. They don’t want other monies to be operating or competing, because things can get out of control. They outlawed gold, that’s why also outlawing Bitcoin is a good probability.”

However, according to Peirce, the main issue for authorities—at least when it comes to cryptocurrencies—is to find an approach to regulation that would be productive and non-restrictive at the same time. She noted:

“We’ve seen other countries take, I would say, a more productive approach. We really need to turn that around. And I’m optimistic, with a new chairman coming in with a deep knowledge of these markets, that is something we could do together—build a good regulatory framework.”

At the same time, Peirce also pointed out that she doesn’t know when—or if—a Bitcoin exchange-traded fund (ETF) will finally be approved in the U.S. Recently, we’ve seen a new wave of major investment companies, such as Fidelity Investments, SkyBridge Capital, and VanEck, filing their applications for Bitcoin ETFs with the SEC.

The regulator, however, never approved a single filing of this kind so far, which as discussed earlier, may be a good thing for not only bitcoin but the entire nascent DeFi ecosystem where hundreds of billions in very real money is now intertwined.

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War on Cash: The Next Phase, by James Rickards

Central bank-issued digital currencies will have only one of the advantages of private cryptocurrencies (ease of transactions), all of the disadvantages of government issued currencies (e.g. debasement), and an additional disadvantage that cash doesn’t have (government tracking of your transactions. From James Rickards at dailyreckoning.com:

With so much news about an economic reopening, a border crisis, massive government spending and exploding deficits, it’s easy to overlook the ongoing war on cash.

That’s a mistake because it has serious implications not only for your money, but for your privacy and personal freedom, as you’ll see today.

Cash prevents central banks from imposing negative interest rates because if they did, people would withdraw their cash from the banking system.

If they stuff their cash in a mattress, they don’t earn anything on it; that’s true. But at least they’re not losing anything on it.

Once all money is digital, you won’t have the option of withdrawing your cash and avoiding negative rates. You will be trapped in a digital pen with no way out.

What about moving your money into cryptocurrencies like Bitcoin?

Governments Won’t Surrender Their Monopoly Over Money

Let’s first understand that governments enjoy a monopoly on money creation, and they’re not about to surrender that monopoly to digital currencies like Bitcoin.

Libertarian supporters of cryptos celebrate their decentralized nature and lack of government control. Yet, their belief in the sustainability of powerful systems outside government control is naïve.

Blockchain does not exist in the ether (despite the name of one cryptocurrency), and it does not reside on Mars.

Blockchain depends on critical infrastructure, including servers, telecommunications networks, the banking system, and the power grid, all of which are subject to government control.

But governments know they cannot stop the technology platforms on which cryptocurrencies are based. The technology has come too far to turn back now.

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China’s Digital Currency Has Nothing to do with Bitcoin, by Peter C. Earle

Bitcoin is a truly revolutionary idea that allows people to transact and store value away from the prying eyes of governments. China’s digital currency is just another state-issued currencies that gives the Chinese government even more control over the lives of its citizens. From Peter C. Earle at aier.org:

China’s digital currency has left the testing stage and is set for a full rollout to the entire country and region. For some reason, the major media stories on the topic circle around the issue of Bitcoin, invented in 2009 as an alternative to government paper money.

Just because a money has the word “digital” in the title doesn’t mean it is a form of Bitcoin. It is not. It is nothing more than a government currency with a different delivery system.

  • The digital Yuan does not live on a public ledger. It is controlled centrally by Chinese authorities, to be changed if, as, and when political whims require such.
  • The digital Yuan is not a peer-to-peer currency but rather requires the use of officially regulated financial intermediation.
  • The digital Yuan does not have a market-based valuation independent of the old version of the currency. They are tied together.
  • The digital Yuan does not have an algorithmic protocol dictating the production of new assets (akin to money creation), much less an end date at which point no more will be created. It is a currency with a discretionary money supply controlled by the government.
  • The digital Yuan is programmable to the point that the currency can be made to expire, thus forcing consumers to use it up by a certain date. This is a twist on an obscure, unconventional monetary policy innovation known as a Gesell currency: expiring money, which gives the issuing government a heightened degree of control over money velocity.
  • The digital Yuan permits a new method for surveilling the population, creating new data which can be tracked by authorities. Bitcoin has pseudonymous protections for user privacy.

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Here Comes Bitcoin’s Big Test: The Empire Strikes Back, by John Rubino

Can governments kill Bitcoin and replace it with something more amenable to their control? From John Rubino at dollarcollapse.com:

One of the flaws in the revolutionary mindset is a tendency towards overconfidence. Combine absolute belief in a new idea with a couple of early wins and you get an absurd level of cockiness. This leads the would-be revolutionary to underestimate the challenges involved in getting from there to ultimate victory.

Why? Because those early successes happened when hardly anyone was paying attention. Once the threat is recognized, the Empire usually strikes back with intent, and the revolution turns out to be a lot harder, and a lot less certain, than it seemed.

History is littered with examples of this principle, from 20th-century geopolitics (where the Nazis and Communists, at various times, each thought they had world domination in the bag) to investing, where the 1990s dot-coms were going to grow forever – until they collapsed under the weight of their own hubris — and 2006 home flippers thought they could build real estate empires without bothering to learn the business.

Which brings us to bitcoin. Its early success has been spectacular …

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Some clear thinking on $50,000+ Bitcoin, by Simon Black

An attempt at an objective analysis of Bitcoin, which evokes strong emotions, even hysteria, from both its detractors and its proponents. From Simon Black at sovereignman.com:

There are famous stories that come out of the Great Depression in which very astute financiers sold all of their stocks just before the big crash of 1929.

Joseph Kennedy famously dumped his portfolio after receiving stock tips from a shoeshine boy. And Bernard Baruch, one of the wealthiest financiers on Wall Street, said after the crash,

Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me [stock] tips. . .”

Now, these comments make it seem like taxi drivers and shoeshine boys don’t have financial sense. And that’s wrong.

Someone’s profession and their level of financial sophistication don’t necessarily go hand in hand; there are plenty of astute janitors, and plenty of idiot fund managers.

But I did think about Baruch’s remarks recently when an Uber driver started talking to me about cryptocurrency.

Again, his opinions are just as valid as anyone else’s. But what I found remarkable is that the only thing he knew about his portfolio was how much he’s ‘up’.

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The dumbest argument I’ve ever heard against cryptocurrency, by Simon Black

Cryptocurrencies are a vote of no confidence in the government managed debt instruments known as currencies. From Simon Black at sovereignman.com:

Two decades ago, General Tommy Franks– commander of the original US invasion of Afghanistan back in 2001– was asked his opinion about a civilian bureaucrat named Doug Feith.

Feith was an academic policy wonk who, despite never having served in the military, was a staunch warmonger who was happy for other people to go fight and die in foreign lands.

General Franks was a straight-talking Texan who wasted no words in his opinion that Feith was “the dumbest fucking guy on the planet.”

Over the years of this publication, I have, from time to time, submitted some candidates for what I call the ‘Tommy Franks Award’.

As you can imagine there’s pretty stiff competition for the dumbest f’ing person on the planet, especially these days. But I feel especially compelled right now to nominate the World Economic Forum.

Traditionally the World Economic Forum’s annual event in Davos, Switzerland has been a pageant of wealth and power.

If you’re there, you’ve made it… at least in the eyes of the global elite; it’s nothing but billionaires and politicians. And in the past, the event was typically just photo ops and pointless speeches.

But lately the World Economic Forum has been much more active in cranking out horrifically stupid policy ideas.

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Don’t dismiss gold and silver… by Alasdair Macleod

After the fiat currencies collapse, which could be soon, they’ll be replaced by gold and silver-backed money, which would impose stringent fiscal control on free-spending and heavily indebted governments. From Alasdair Macleod at goldmoney.com:

There is worrying evidence that 2021 will see the end of fiat currencies, led by the US dollar. US dollar money supply has accelerated at an extraordinary rate, a process that will continue.

Signals from the markets that a monetary collapse is increasingly likely include a weakening dollar on the foreign exchanges, bitcoin’s price reflecting an growing disparity between the rate of its issue and that of fiat, rapidly rising commodity prices, and a bubble in non-fixed interest financial assets.

Current thinking is yet to link these events with a developing collapse in fiat currencies, but it is only a matter of a relatively short period of time, perhaps spurred on by a banking crisis, before a realisation that a John Law-style financial asset and currency collapse is on the cards.

While gold rose in dollar terms by 25% last year, it has yet to reflect an increasingly likely collapse in fiat currencies, which this article concludes is likely to happen in this new year.

Introduction

We enter the new year with a growing realisation that fiat currency debasement is accelerating. It is hardly surprising that bitcoin bulls, who have learned about relative rates of currency issuance, are in the vanguard of those hedging increasing currency debasement. They are being encouraged by statistics in charts such as that shown in Figure 1.
Screen Shot 2021 01 07 at 12.35.13 PM

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