I’m a Boomer generation successful businessman and investor and was asked to remake a post I put up on the Bitcoin Forum into an article for BitcoinMedia.
As a bit of background, I sold 99% of my gold and silver bullion last year in 2011 near the tops in both markets (accumulated between 2005-6) and moved it all into Bitcoin (hundreds of thousands of which I will be paying enormous taxes). I’m a firm believer in the new open source Internet paradigm and think it is high time for a new form of digital currency which is fixed in supply and not manipulated by governments or central banks. I’m diversified in real estate, cash, stocks (I’m short), and Bitcoin.
I see Bitcoin as The People’s Money. It preserves privacy, not secrecy. Bitcoin represents the marriage of technology and gold. In fact, I will go so far as to say it is Digital Gold and could easily be used as an international reserve currency much like the metal itself was used until 1971 before Nixon took the world off the Gold Standard.
Why was Bitcoin invented? It was invented as a poison dart targeted directly at the heart of the problem; fiat currency debasement.
I apologize ahead of time for the sloppy English, abbreviations, and lack of capitalization seen below. In case you’re not aware, this is the norm for Forum posting on the Internet. Here is my post with some minor modifications specifically for this article:
“Look. investing in Bitcoin instead of gold is risky and shouldn’t be done at home by children.
it takes visionary and long term thinking as well as a discipline to buy when no one else sees the prospects, assuming i’m correct of course. i also think there will only be one winner, not two (it will be Bitcoin or gold). markets usually demand this be so. altho there are many features that are shared btwn the two, there are also too many differences. on balance, I favor Bitcoin due to its frictionless properties.
based on 7 yrs of holding hundreds of pounds of bulky silver/gold in safes at home and going thru the process of buying and then selling it, i just don’t see how this thousand year old means of transacting can possibly match the needs of the present day internet connected economy. the taxes to be paid (almost half in my case) will alone take much of my profit, not to mention the 4% hit I had to take from my local coin dealer off the spot price. lugging all those bags of junk silver and gold sleeves took several trips and was back breaking. i even had allocated gold at Credit Suisse in Switzerland back in 2008-9 but sold it and paid my taxes cuz i was terrified it would be confiscated with what went down with the banks. i honestly don’t think gold/silver holders have estimated just how illiquid their physical can be if they turn out to be wrong.
if i want to pay a talented 18 yo coder in Azerbaijan to provide a coding patch for me i can’t do it with gold even if i could shave it down to the right amount (big if and might find some tungsten). i can with Bitcoin. if central banks or gov’ts want to balance their payments nightly in the future with a stable, non-inflatable reserve currency, they can’t with gold, but can with Bitcoin (see George Selgin at 40 min: http://twitcam.livestream.com/8eouu).
the gist of the gold argument is that its been money for thousands of years and that central banks are buying it as we speak. to all this, i say True.
the flipside of that argument though is that we’ve only had broadband global wide interconnectivity for about 10 yrs now on a retail basis. there is no question this has been disruptive. we have NEVER seen such a seamless spread of information to this degree and these effects are being reflected in worldwide economics and politics ever since the NASDAQ crash in 2000-02. the curtain that has veiled price discovery for hundreds of years has been yanked away. why do you think Wall St IB’s so resist the establishment of a formal exchange for CDS? its b/c this is one the last vestiges of where they can transact in opaque OTC and strip rents from their hedge funds clients. i also think the malaise that we’ve seen so far in markets after last weeks Greek CDS trigger is premature and soon we’ll start seeing ripple effects of a magnitude unexpected.
we’ve had two major stock crashes of over 50% and an ongoing housing crash in 12 yrs. economic indicators worldwide are deteriorating again. no recovery here. all the contract rules have been broken, Constitutional rights have been violated, and the bad debts foisted onto the people by the banks. The banks have re-levered on free money from their enabler, the Fed, and the situation is worse from a fiscal standpoint than it ever was back in 2007-08.
in terms of gold accumulation, central banks don’t necessarily represent prescient or forward thinking. what did the Bank of England do in 2000? Gordon Brown sold all of it right at the bottom as did many other CB’s during the decade up to around 2008-9. so that now they are buying means nothing to me. they seem about as good at predicting market dynamics as the rest of us.
for me to suggest that things are different this time is surely a dangerous strategy. but to persist in linearly extrapolating that all assets including gold/silver will continue their inflationary rise after 12 yrs is dangerous too. this internet phenomenon is manifesting itself in many ways we have never seen before. look at the revolutions in Egypt, Syria, and the rest of the Middle East facilitated by Facebook and Twitter. look at the largest sovereign debt default ever recorded in Greece. look at the ongoing housing crash. look at the trimming down of Wall St that is ongoing. we’ve seen 150 yo companies like Lehman, Bear Stearns and Merrill Lynch get taken out or taken over. Obama has doubled our national debt in just 4 years and spent 3x more than George Bush, Jr. just trying to stave off deflation.
its quite possible the Dow is in a major topping pattern over the last 100 yrs. look at that 100 yr chart in a non log setting. we are either about to tip over and fall to new lows or we are consolidating for the next move higher. i’m betting on the former. i think we’re going to do a Japan and start to deflate despite decades of money printing. the pushing on a string analogy is apropo. i think the Greece sovereign default will be analogous to Bear Stearns in 2007.
gold bugs insist that the end of the bubble has to be manifested by a huge parabolic blowoff. i say they already had their parabola back in April 2011 for silver and August 2011 for gold. i think these were blunted by the same seamless flow of information facilitated by the internet which was not a factor back in 1980 during the last gold/silver parabola.
in addition, after having watched stock/bond/commodity/USD movements daily almost tick by tick for about 10 yrs, what bugs me most about gold/silver is that there is clearly an inverse movement with the USD as with every other asset. yes, yes, you can point to periods of time where this has disconnected but in general it strongly applies and it really is apparent during downdrafts in asset values especially in 2008-9. this all one market effect has been well described in many articles and represents a speculative financial culture which is based solely on USD debasement. imo, pm’s just represent another manifestation of this liquidity effect, and yes, just another asset whose utility has long since been discarded.
i obviously owned my bullion back then in 2008 which was well and good but i got caught badly buying dips in pm miners and natural gas. knife catching so to speak. unfathomably, the USD and UST’s went soaring while everything else fell. you want to see deflation in a natural resource? just look at the carnage called natural gas (UNG). this whole process forced me to analyze what went wrong during that time and i came to the conclusion that as much as we don’t like it, the USD both hard and virtual (debt based), is the primary driver. you have to primarily factor in the amount of debt in the system that has contributed to the run-up of all assets including gold/silver. people have gone out leveraged up and borrowed to buy pm’s, stocks, bonds and commodities. what happens if they can’t make their interest pmts just like their mortgage or if these markets start to roll over? answer: they default and have to sell driving up the USD which will hurt pm’s again.
what happens when Greece’s debt defaults as it did just last week? the total fiat money supply decreases from a contraction of the debt portion thus forcing UP the value of the remaining hard fiat. what happens if we get another huge deflationary wave in stocks; same thing b/c of the forced selling. counterintuitive yes. the dynamic that gold/silver have not been able to show me yet is whenever we have downdrafts in stocks or commodities or bonds, the USD is forced up from the virtual USD contraction and scrambling for cash and inevitably gold/silver go down. until it escapes that relationship, i remain unconvinced.
gold bugs will then say that Ben will print. well has he? yes, to the tune of 3.5 x the 800 billion that the Fed started with in this financial crisis since 2008 but nowhere near what the contraction in overall debt in USD’s has been. the ratio of bad debt in the system to M2 is huge.
gold bugs will then argue, why has the price of my food/gas gone up? answer: the money that has been printed has gone only to the banks at 0% interest who have used it to speculate on commodities, junk bonds, and stocks, those areas of the economy they can influence and create an illusion of a fake recovery. so you do see inflation in certain areas of the system. the sales pump is that we all need to invest in HARD assets to preserve the value of our USD. this inevitably gets retail investors involved and leads to commodity/stock bubbles and an unsustainable blip in economic recovery measures. this is what we have now. and this is why oil plummeted from $149 to $32 in 2008 once the bubble burst. i think we’re at the top of another one of these pumps with oil acting as a cap on further economic growth at $103 now.
the conspiracy theorist in me says this is all being managed to lure the retail investor back into the stock/commodity markets to fleece them once again at the top. however, the non conspiracy part in me also recognizes this is how speculative markets behave in response to nudging by the likes of Ben Bernanke. either way, it doesn’t matter. ask yourselves; when was the time to buy Apple; now at $600 or in 3/09 when it was $70? look at the deteriorating charts of China and all other foreign stock markets. is it reasonable to suggest that the US will decouple? i don’t think so. we’re heading into the tank again.
the same type of investment logic applies now; when is the best time to buy Bitcoin? now or when it goes past $32 again towards new highs? the gist of the matter is that Bitcoin has lasted over 3 yrs now, the source-code has fended off all attacks, the new implementations all have gone smoothly, we have an increasing boatload of talented devs like Gavin and etotheipi, and we have lots of positive press coming out lately, etc. to my eye, based on the technicals, $4 is the new $2 and we’ve just finished a minor wave 2 down within a major wave 3 up. we’re just consolidating waiting for the big move.
yes, its possible that Bitcoin will get caught in a deflationary wave down. the charts tell me otherwise (oh yes, those voodoo charts). and i’m willing to take that speculative chance. it’s quite possible that if all other asset classes fall including gold and silver, Bitcoin could rise as a safe haven. after all, it is cash, just digital cash.
gold bugs will then argue that Ben will explosively print to fill up the debt hole. will he? can he? is he? i say no. why would he destroy his only franchise, the USD? self destruct so to speak? answer: b/c he wants to keep the game going. all these 0.01% guys just got done exchanging all their bad debts for newly minted USD’s at the Fed. these guys own their wealth in the form of USD’s so to expect them to allow Ben to destroy the USD via hyperinflation just to help you guys , the 99.99%, get out of your new debt burden is folly. instead, they’ll just sell this latest rip, let all asset markets crash, and move to their private islands where they can watch us all on their big-screen TV’s fight amongst ourselves to solve our newfound debt liabilities. then, when asset prices bottom out they will sweep in and buy at rock bottom prices like they did at the end of the Great Depression. they will have miraculously exchanged their bad debts for equity. after all, we are in the Age of Deleveraging.
bankers also learned their lesson back in the 1970′s when interest rates went to the high teens which represented a type of hyperinflation and destroyed the value of the mortgages they had lent out to homeowners. this was a transfer of wealth from them to mortgage holders. i don’t think they let this happen again.
i think as we move down to test the lows of March, 2009 in stocks we will look back and say that last 4/29/11 represented the top of this reflationary wave when all commodities, especially silver, topped and began their slow grind down. whereas they lagged the Dow down back in 10/07 to 8/08, they are now leading. you have to be concerned as an inflationist as to why these commodities and pm miner stocks are lagging so badly the recovery in Apple and the general stock market. and i don’t think a move like this will represent Armageddon as gold bugs would have you believe. there will be lots of pain but the main losers will be those speculative hedge funds and banks that try to hold on hoping their bubbles will continue inflating and that the general retail investor will take overpriced shares off their hands. this is all a rebalancing of the system facilitated by enhanced internet communications and the pulling of the veil.
as an idea, concept, and as a potential new means of transacting, Bitcoin stands on its own as far as i’m concerned. gold and silver depends on further liquidity injections by Ben. to me this is a problematic way to invest for gold and silver holders.
yes, investing in Bitcoin is risky and may represent a pipe-dream, but for me, the future potential FAR exceeds gold/silver which i think topped last May and August. i could be wrong but i doubt it. Bitcoin is here to stay.”