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.”
Instead of apologizing for terrible grammar, fix it before publishing it. I can’t take this article seriously, nor would I pass it on to anyone else in such sloppy form. Really lame.
Ps : I’ve set the guy on ignore a while ago,,,
There is some relevant content in this piece though.
because you don’t like his opinions?
I did not like the poor quality / very little added value of most of his posts.
He is look biased as a speculator, we can’t tell if he’s just spewing anything that come to mind to raise his post count, or if he’s trying to manipulate the price by his fact-less opinion.
So yes, I do not like that most of his forum post one line, baseless opinions.
actually the grammar is not terrible. the only thing i might have done is capitalize the first letters of each sentence.
i think you’re probably more upset with the message.
No, I mean what I said. I know a lot of real metals traders – folks who supply the steel industry, trading nickel and copper and hedging because they have real inventory. I like to share information about bitcoin with them. When I read the title of the article my interest was piqued because I thought it might be something relevant. When I read it, I was disappointed because it wasn’t really about bitcoin vs. metals, it was actually just an unformatted cut-and-paste from the forum that can’t be taken seriously. It’s really inexcusable that you couldn’t spend 30 minutes tidying it up so it doesn’t read like some high-schooler’s mobile-phone rant.
so your premise is that forum posts can’t possibly be well written? how seriously can that be taken?
fyi, i did take the time to edit the post with additions and grammatical corrections applied.
you clearly are so focused on the wrong thing here that you can’t even comment on the ideas or facts that i’ve presented.
that usually comes with being long the metals.
My premise is that I WANTED TO FORWARD YOUR ARTICLE but it looks like CRAP without proper punctuation. How lazy are you?!
Do you know yet why your nat. gas bet was so wrong?
By the laws of physics, there are only a few pure elements, like gold, that can perform well some of the functions of money. Crypto-currencies can be as numerous as the human imagination, somewhat like national fiat monies.
Gold cycles are still driven by the world’s poorest in India, China, Asia who won’t be exposed to crypto-currencies any time soon. These cycles follow generational time-scales, i.e. around 40-50 years, loosely speaking gold should top sometime in the 2017-2022 time frame.
Gold ain’t finished yet, it is just posting some of the most bearish sentiment numbers of any asset, and it is just below its highs … Some day maybe, but you are too far ahead of yourself I think, I’ll take your negative gold stance as one more bearish indicator and if your nat. gas bet is anything to go by …. diversify into bitcoin is not such a bad idea but if you bet the house you’ll have a large risk space to monitor, which is costly to maintain in itself.
I agree with this save for the fact that it has some wild generalizations as well. You really can’t reliably talk about 40 to 50 year life cycles in any meaningful way.
You can if you have back-tested the 40 to 50-year life cycle as I have. I have an exit point for Gold/Silver that has not yet been hit. I applaud guys like cypherdoc for getting out while he had chance to make a nice profit, but I have a very specific exit point I settled on when I purchased my commodities that I am waiting for, and I’m not about to abandon it based on emotion.
I used to buy and sell on sentiment and I dropped all that once I found what appeared to me to be a “sure thing” if I just played the long waiting game of 40 years. I bought Gold after it had already tripled in value, knowing it would triple again on me (and it has).
That said, Bitcoin is more like a commodity that can be used as a currency, not a currency in its own right. People have to want to use it as a currency before it qualifies as such. Right now there is only a modicum of support for that. With multi-sig, that’s about to change.
i actually ended up slightly from the 2007-8 crash. the crash in UNG and the miners neutralized my shorts on stocks. it was a great opportunity.
The more I understand about the functioning of fiat money and our financial sector the more disgusted and flabbergasted I am at some of the things that have been going on and still are going on (nothing substantial has changed as some actually have the balls to argue)
I firmly believe we need to transition to some “good money” (non-elastic supply) in order to enable our economies to function efficiently and according to our needs (and wants if possible). The paradigm of continual growth (in terms of natural resource usage) is unsustainable, so we either have to become more efficient or less people. Free market capitalism in combination with “good money” are the key to this.
If you think about it, that “good money” really _can_ only be bitcoin (or something like it, but bitcoin has the first-mover advantage and no serious unsolvable problems are in sight). Everything else has problems: Fiat we don’t need to talk about. Metals: Only if everything breaks down really badly can I imagine having to fall back to using silver/gold coins within some local environment. Some electronic money backed by gold would have huge trust issues and even governments wont be trusted with managing that after a paper money collapse.
So I agree with you, bitcoin is here to stay.
We are actually closer to testing the equity market highs of 2007 than lows of Mar 2009. I think some of your analysis is correct, but it misses the larger point of thinking that governments have a choice when they hyperinflate. Zimbabwe and Weimar didn’t hyperinflate for the fun of it; they are left with no other good options. We aren’t near that yet with the Fed and ECB but we do get closer every day. You can be sure that when the choice is between mass unemployment/hunger vs. more false paper prosperity, the CBs will choose paper. If you don’t agree with that premise, name one regime that successfully permitted a capitalistic system purge through massive austerity.
Gold and bitcoin will co-exist and both will appreciate against central bank fiat. Personally, I wouldn’t advocate the discounting of metals until the >50% network vulnerability problem, the transaction fees after mining issue, and governments regulating telecom/Internet access are all resolved.
the problem with comparing the US to Zimbabwe or Weimar is that both those countries don’t/didn’t have highly developed debt/bond markets like the US or other currently developed Western countries.
when those countries got into trouble they just printed themselves into HI. there was never any overhanging debt to default. what we’re seeing now in most Western countries is the issuance of even more debt to the recipients. yes, there is some printing going on but nowhere near enough to cause a HI. and i don’t think they will have the will or the support to do it in the future. and even if they do try it the debt defaults will overwhelm them.
The “will” and courage that you speak of will actually be the “will” and courage to allow the natural economic contraction and debt defaults to occur without intervention.
Printing money demonstrates a lack of will…it is not the other way around.
“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.”
Ouch, I don’t think so. It may be the norm in your 1 to 1 chat session or the Speculation sub-forum… but I’s the first time in my life that I see a page long post without any new sentences capitalization.
i think your judgments have been predetermined.
*shrug*
I read the ‘net for content, not for GPA. And cypherdoc’s deconstruction of financial/investment markets is brilliant.
When something goes to actual print on paper I expect perfection – and have, in fact, been known to send pages-long corrections of entire newspaper editions to the editor.
By the way, Transisto; the intitial quote of your post should have read:
“…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.”
The initial ellipses before the word ‘sloppy’ would indicate that you’ve truncated the beginning of the quoted sentence.
Y’see?
the problem with any anti-gold message is that most Bitcoin supporters are also gold holders. they see their purchase of physical bullion as a bridge to a new era or a massive transfer of wealth to themselves when we return to a Gold Standard.
my message will induce plenty of anger. i’ve already experienced it on the 2 threads concerning gold on the Forums.
i only ask that everyone who reads this consider the possibility of what i’ve said.
I do consider the possibility of what you say; it is wise to also consider a declining metals price (and to profit from it). Those declines occur in the context of a secular bull trend for gold simply due to the nature of central banks (they rarely shrink their monetary base).
Regarding your anti-gold message, my impression is that you are hedging what you say. Or, are you really saying that $1921.00 is the high in gold for the next 10-20 years? And, do you believe that $285.00 support in gold during the 1990s is at risk? Otherwise, please explain why you are anti-gold.
Hey Cypherdoc!
Really nice write-up!
I think that there is definitely a place in the marketplace for both gold and BTC. Gold has been here for a very long time, so it will take many, many years for it to phase out of popularity.
Bitcoin, has only been around for three years, but it showcases a lot of new features and benefits that currencies have never had before. But that being said, there are still a lot of things it cannot do better than a centralized currency.
I think that an economy that used BTC for daily transactions and stored long-term wealth in gold would be very healthy. This is part of the reason that Coinabul exists, we believe that by creating an easy-to-use portal to exchange gold and BTC, we’re allowing people to not have to choose between gold or BTC. They can have both.
Anyways, thanks for the article. It was a pleasure reading it,
-Jon
“…Sold 99% of my gold … and moved it all into Bitcoin”
For how long did you knew about Bitcoin before making this decision.
Have you invested a significant part of this gold money into mining hardware ?
What were the obstacles faced that made you take this route ?
i heard about it in 2010 but blew it off.
come Feb 2011 i really began understanding it and investing.
then May rolled around and silver entered a parabola to $49. understand that i had bought all my junk silver btwn $9-12 so i decided to take profits. Bitcoin made me realize just how illiguid bulky metals can be.
gold entered what i think is its final parabola in Aug. took profits from $550 too.
Bitcoin i think has a long way to go. thus the switch.
well, i thought i did explain my anti gold stance and no, i just hold a couple dozen Krugerands but thats it. i think the top is in.
i’m much more positive on Bitcoin and if todays article is any indication this is going to be much bigger of a payoff: http://www.reuters.com/article/2012/04/02/us-traders-bitcoin-idUSBRE83108120120402
Bad grammar, spelling, punctuation, etc. in a forum post is fine as long as the meaning gets across. Excessive use of abbreviations and internet tag-like-stuff is another matter. Regardless, I would suggest that, if you’re going to complain about grammar and spelling and the like, you should take the time to make sure you’re avoiding the same.
My understanding of gold/silver prices is somewhat limited but it sure seems to coincide with the relative value of the dollar. Inflation goes up and gold gets pricey. Same for oil because the USD is the oil standard (or whatever the correct term is). Everything else I’ve read seems to be complicated predictions of a speculative outcome based on a very few set of assumptions. Personally, I think this form of gambling is one of the problems that needs to be solved in our economy. It’s not unlike predicting who will win the World Series in baseball, best left to bookies and home enthusiasts.
Personally, I believe that our government is working towards a ruined USD, or as close as we can come to it without utter destruction, so as to push law makers in to a financial corner. Once in that corner a shiny new path will emerge in the form of the North American Union. The AERO (or something like it) will be our currency along with Canada and Mexico and possibly Central America as well. Al Gore tried to get his Green Credits positioned for that new currency but he was too early and just too stupid about it. Those in the ‘know’ will be ahead of the game in order to preserve their fortunes and the rest of us will have to muddle along. The super rich and the dirt poor will come out best in the beginning. Since we can’t choose to be super rich it shouldn’t surprise anyone to see folks flocking to the other end of the pool if they get the chance.
The government solution to any problem is to make itself larger and more encompassing. Too many of our law makers are in love with Europe and with the European socialized way of governance. The Democrat side of the house has been pushing the socialist agenda really hard ever since Pres. Obama got in to office. When else have you ever heard the Speaker of The House say, “We have to vote the bill in to law so we can see what’s in it.”. They even went as far as calling the Health Care Bill “Socialized Health Care” for a while (yes I watch C-SPAN a lot). Our president and congress have leaped on to every possible opportunity to throw money out the door and they’ve done so as recklessly as possible and with as few controls and checks in place as possible. There has been no budget for a long time because, without a budget, all spending is emergency appropriations type stuff and is easier to pass through congress. Not to mention easier to lose track of as well. I think the printing of cash that has gone on has been more of a release valve to date than any thing else. When ‘critical-mass’ time comes the printing will either stop or explode. It all depends on which one is best suited to push law makers in the desired direction.
Assuming the individual mandate clause in ObamaCare gets deemed unconstitutional, I still predict that Democrats will try to keep the rest of the law in place. What they’ll do is then use the leverage of “we have to pay for this important legislation” to expand government further. I could see the US adding a value added tax (VAT) in to our tax system at that point. So either “we the people” bear the burden of an additional 10% hidden tax or it becomes an excuse to do away with a lot of the current tax system. In which case the VAT would go up to 30% or more (keep in mind we would still keep a lot of other taxes currently in pace to also include fees and fines and whatnot).
Each step is designed to do one of two things. Push us up against the financial-crisis-critical-mass that would thrust us suddenly in to martial law followed by a North American Union. Or slowly socialize us, baby step by baby step, to the same NAU end.
In the end money only has the value people assign to it whether it’s based on gold, fiat money, bitcoins, or bags full of chickens. Things and skills, however, are a different matter. Things and skills are what money is really used for … so s/he who has the skills can make the things that everyone else fights over. It’s a lot like open source; the value is NOT in the software, it’s in the skills to create, manage and operate that software.