This article was first published by Cryptodaily.co.uk in December 2017. Because the bitcoin “bubble” topic becomes periodically of interest — I have lost count nowadays how many times BTC has been in a bubble and dead since its genesis — I have decided to re-publish this article. Purposedly I have avoided any modifications and left it as it was originally written in 2017. So please take this into account when reading this today, but you will see that the arguments and the reasoning are still very much valid today. In fact, I have referred to this article in my new post:
For most mainstream media and financial commentators Bitcoin is “just a bubble”. Sure, despite most of them knowing very little about it, suffice to look at its parabolic chart and it is clear that it is like the Dutch Tulip bubble in 1636, just another mania.
But what if…
What if for instance Bitcoin is behaving today like Gold behaved in the 70´s after Nixon broke the Bretton-Woods Gold-Dollar standard and reneged on the US obligation to exchange 35$ with one ounce of Gold? 10 years later one ounce of Gold peaked at 677$ , which is almost a 20 times increase. Afterwards, while the monetary madness increased in the following decades and peaked with the Great Recession when all the Central Banks made the world awash with new credit, one ounce of Gold peaked at 1.825$ in August 2011. That’s a 52 times increase.
What if Bitcoin is not a bubble but more like the people´s revolt against a fraudulent monetary system based on infinite credit creation. Against the erosion of the people´s honest savings caused by the Central Banks´ aberration of zero or negative rates. Against this crony capitalism and “socialism for the wealthy” which has increased wealth inequality to levels not seen since 1929 and made the debtors and the issuers of credit (i.e. the banksters, the speculators, our governments and the political elites) rich at the expenses of honest workers, entrepreneurs and savers?
Think about it:
Bitcoin was created in January 2009. In a note, its creator was referring to the bailout of English banks by the then Chancellor. The reference is not casual. It is a “time stamp” that defines more than anything else the rational and the intent behind the genesis of Bitcoin: the repudiation of the fraudulent monetary system we live in. The creation of a Money which cannot be debased at will. Bitcoin´s money supply is fixed by mathematics and cannot be changed. Unlike Fiat money issued by central authorities it is capped since its inception. Who should people rather trust to issue Money the Fed, the ECB, whatever government, whomever politician or a mathematical algorithm? Who knows monetary history would rather err on the side of math (and Gold).
Bitcoin is “democratic”, in the sense that it does not advance the interest of anyone, it does not belong to anyone and specially not to the “elites”. Unlike Fiat money, which is the privilege of the Banksters who benefit from seniorage and create it fraudulently thanks to the fractional reserve system. Anyone can mine Bitcoin — even if one must note that the investment required in terms of computing power and energy is now getting into another league.
Bitcoin is world money, it does not belong to any particular State, and it does not confer anyone the “Exorbitant Privilege” cited by De Gaulle which the Dollar confers to the US. Since the end of the ´60s the US has massively abused this privilege by printing its currency to advance its imperial conquests both militarily and economically.
Bitcoin cannot be sized, cannot be confiscated by governmental decree like Roosevelt did with Gold. Short of a simultaneous ban by all the governments worldwide or a worldwide shutdown of the internet it is difficult to see how its use could be stopped. Shutting down local servers or nodes or miners does not prevent the distributed ledger to continue to perform its functions.
Bitcoin is just the tip of the iceberg. Blockchain technology which lies at the heart of Bitcoin is the real disruptor. Thanks to Blockchain based applications, finance can be finally “democratized” and taken away from the powerful grasp of the financial elites. Millions of unbanked people around the world will have the opportunity to access capital to invest, to create new businesses and raise their standard of living. The world desperately needs something like Bitcoin to “lubricate” an “economic renaissance” based on Blockchain applications.
Bitcoin is also more than what appears. Like any Blockchain application is a “living” thing. It represents a “society”. Its citizens are the investors who mine it, the users and consumers who hold it, the developers who contribute to its technical advancement. Like any society Bitcoin lives by consensus. When consensus lacks then society breaks down. See for instance the forking of Bitcoin Cash, which some usually bright monetary economists reduced to the arbitrary “doubling” of its monetary base as if a bank spin-off would be done by doubling the deposits out of thin air . Sure this is arguable, but it misses both the important technical reasons behind it and, most importantly, the fact that the deciding factor for the future success or failure of Bitcoin, or any other Crypto or businesses based on open Blockchain technology, will be the societal consensus behind it. Most commentators who only think of Bitcoin in financial and monetary terms completely miss this point.
But more importantly, what if Bitcoin is a sign. The most worrying sign of the implosion of the current monetary system awash with debt and credit creation. All mainstream media point to the absence of inflation. But honestly, who buys that? Yes consumer price inflation is contained, although the reasons for that and the data officially circulated by the authorities are dubious at best. But what is the impact of monetary inflation on asset prices? They are through the roof. It is like the “everything bubble”. Just name it, real estate, arts, classic cars, bonds, stocks. The artificial compression of interest rates and the massive credit creation pushes all this credit into the hands of the elites, not of those who may want to invest in new machinery for their small business and increase production thereby paying the lender an honest rate of interest. Of course not, this credit moves from one asset to the other in a speculative manner and the effect is for everyone to see: this is like an “hyperinflationary” asset price environment. The American politician Ron Paul asked more of 70.000 of its constituents what they would rather want if someone made them a gift worth the equivalent of 10.000$ and they had to keep it for the next 10 years. The answer was 54% would rather want to hold Bitcoin, 36% Gold. Only 8% would hold 10yrs Tresuries and only 2% would hold a Dollar credit note. No need to comment.
Since the beginning of the 19th century the world has transitioned, not without pain, through four different monetary systems. From the Pure Gold Standard which contributed to the longest time of financial stability and prosperity in modern history from ca. 1820 to the first world war (1915), to a system of floating exchange rates where most countries abandoned the Gold Standard to run the printing presses to finance the two world wars from 1915 to 1944. Then came Bretton Woods and a period based on the Dollar-Gold standard until it was unilaterally repudiated by Nixon in 1971. Since then it is the current regime of Fiat money creation and artificial compression of interest rates. Four monetary systems in less than 120 years. That is an average duration of 30 years each. The clock is now ticking and more likely than not the time for a new monetary reset is fast approaching.
Since that time when 1 ounce of Gold could be bought with 35$, it takes today, 16th December 2017, circa 1260$. But since Gold is the true Money and the Numeraire, it must be emphasized that it is not Gold which “goes up or down” but it is the purchasing power of the US$ that is being destroyed. And the same is true for the Euro, the Yen, the Cable and all the other Fiat currencies. Just take the trouble to do what nobody seems to do. Get any chart in any currency and plot it against Gold and look back 30–40 years. Bill Gross, rightly worried about the risks with the current status of the monetary systems, in his latest monthly newsletter writes: “Someone asked me recently what would happen if the Fed could just tell the Treasury that they ripped up their $4 trillion of T-bonds and mortgages. Just Fugetaboutit! I responded that that is what they are effectively doing. “Just pay us the interest”, the Fed says, “and oh, by the way, we’ll remit all of that interest to you at the end of the year”. Money for nothing — The Treasury issuing debt for free. No need to pay down debt unless it creates inflation. For now, it is not. Probably later.”
As the monetary madness continues, Bitcoin is up intraday 29%…
In conclusion, what will happen to Bitcoin is impossible to forecast, if it will take 1M$ or 1$ to buy 1BTC in the future, but two things seem pretty sure: first, dismissing Bitcoin as a “bubble” is likely made out of “ignorance”. Meaning, literally ignoring what Bitcoin is and what stays behind it. Second, we are certainly transitioning to a new monetary system, because the current fraudulent one has been running for too long and the signs that it is now exhaling its last breaths are plenty to see. What the role of Bitcoin (or other Cryptos or Gold for the sake of it) will remain to be seen. What’s sure is that Blockchain applications and an honest money based on Blockchain will revolutionize the current system and they are here to stay and shape the future of mankind. For Bitcoin there are still many challenges ahead, its scalability, its energy footprint, technical issues, the risk of regulators´ crackdown and the societal consensus behind it, just to name a few. But if not Bitcoin, it will be another digital world money, not controlled by the elites but belonging to all mankind and to benefit all.
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