For those who were unable to join us on Wednesday, the Bitcoin panel discussion at the Oregon AFP was a great success. With us were six of the finest minds in Crypto-currencies in the Portland area. These minds, together with some of the finest financial practitioners in the city, worked to bridge the gap between the Bitcoin universe and mainstream commerce.
We were pleased to find that the two are really not that far apart.
While there were a number of keen insights shared at yesterday’s meeting at the Multnomah Athletic Club, three stood out in our minds:
1) Transactions volume in Bitcoin has soared over the past two years and the USD/Bitcoin price action has settled down as a result. Further, Venture Capital is pouring into the Bitcoin industry, proving that crypto-currencies, once on the exciting confluence of technology and money, are now entering the relatively boring yet infinitely more profitable economic mainstream.
2) Bitcoin innovators have largely solved the problem that has thus far kept most bankers at bay: KYC, Know Your Customer.
3) Concerns about Bitcoin’s wild fluctuations in value are addressed by services that instantly exchange Bitcoins accepted in trade into national currencies. This is especially important for those who transact day-to-day business in Bitcoin, as it is technically considered property for tax purposes and could otherwise create an accounting nightmare. It also allows for a clear delineation between Bitcoin speculation and Bitcoin circulation, two completely different activities before were often unwittingly commingled by virtue of one’s use of Bitcoin in trade.
Bitcoin has come a long way since we published our 48 hour crash analysis of the emergent monetary revolution back in 2013, and our panelists did a superb job of presenting a balanced discussion of the present state of crypto-currencies.
A special thanks once again to all of our panelists, Lawrence I Lerner, Ian Pulicano, Anna Guyton, Mike Fors, George Fogg, and Rhys Faler, who was planning on spectating and found himself on the panel in the midst of an incredibly rich, informative, and relevant discussion of the merits and challenges of Bitcoin.
Ian had the difficult task of breaking the ice of ignorance and/or skepticism that is often associated with presenting the concept of Bitcoin to someone for the first time, which is never an easy task. Beyond explaining the technical side in a concise manner, the slide near the end which highlighted the exponential growth in transactions and VC funding over the past 3 years got everyone’s attention and set the stage nicely for the discussion that followed. Anna did a great job of stepping up as moderator and added valuable insights throughout, Lawrence did an excellent job of bridging the knowledge gap between industry and Bitcoin through helpful analogies, Mike and Rhys provided the evidence that Bitcoin can and is being used in everyday transactions, and George added insight into the inherent challenges and opportunities of Bitcoin on the regulatory and securitization side of the house.
At the end of the hour, the audience was left with one inescapable conclusion: Crypto-currencies are here, are here to stay, and will be part of one’s economic experience in the not too distant future.
For the benefit of those who were unable to join us on Wednesday, we offer the following bootleg recording of the event:
We also offer the hope that these types of panels will be held in other venues where finance and technology intersect, and that mankind will be all the better off for it.
For those who are in the Portland area, the Oregon & SW Washington Association for Financial Professionals is hosting a panel discussion on Bitcoin, Cryptocurrencies, and Alternative Payment Systems on Wednesday, February 18th at 11:30am at the Multnomah Athletic Club.
As you can see, the panelists are top notch:
Lawrence I Lerner of LERNER Consulting – Change Agent in digital strategy, payments, security, change management, and retail: http://lawrenceilerner.com/
Ian Pulicano – Digital currency specialist and co-founder of Bit Consultants. Building the new paradigm
Anna Guyton – Co-Founder of Bit Consultants, Bitcoin educator and integration specialist, encouraging individual and local self-sufficiency https://bitconsultants.org/
Mike Fors – Founder of BitcoinNW, Bitcoin evangelist, and owner of a Bitcoin Kiosk located in Pioneer Square: www.bitcoinnw.com
George K. Fogg – Partner, Perkins Coie, LLP, national co-chair of firm’s Financial Transactions and Restructuring practice and a member of the firm’s Virtual Currency Team
Your’s truly will be moderating and generally trying to stay out of the way of what promises to be an interesting, informative, and timely discussion amongst those in the Pacific Northwest who are at the forefront in this exciting and perplexing space.
As all hallows eve approaches, we are glad to inform you that we will be in attendance at the AFP annual conference in Washington, DC along with Dr. Ben Bernanke, Thomas Friedman, and 6,500 other Financial ghouls and goblins over the early part of next week. If any of our readers will be there, feel free to drop us a line, we would love to connect with you, it will be a welcome respite from the deluge of mainstream economic/finance/banking information that has already started to bombard us in the mail!
We leave you today with what may just be the world’s first “Bit o Latern”:
The World’s First Bit o Lantern?
We wish you all a safe and fun Halloween here at The Mint!
We were recently contacted by someone who had seen our volume on Bitcoin, cryptically entitled “Bitcoins: What they are and how to use them” which was written on one of those weekend trysts which economic thinkers are prone to, in which a flurry of ideas flies at one’s mind from all quarters and scream to be put on paper.
Bitcoins: What they are and how to use them
The book, which was literally cobbled together over the span of four days, has been our bestseller recently, which naturally has more to do with Bitcoin than ourselves.
In their inquiry, the reader had three further inquiries which we present below for those who are interested in such matters. Enjoy!
Q: What do you think about the relation between physical and virtual currency?
The Mint: Generally speaking, the relation between physical and virtual currencies can be judged by examining the price for the physical currency expressed in the virtual currency. However, I think it will be helpful to make a distinction, as the concept of virtual currency is simply another extension, or “strata”, as I like to call it, of something I refer to as the “Monetary Premium.” Allow me to explain:
Over time, as the division of labor has increased, the need for credit and, by extension, something by which to exchange the monetary premium (i.e. serve as money) in order to settle the debt, has increased as well to the point that, today, all currency issued by government’s is a credit instrument (a liability of the Central Bank) and has only an indirect relationship to anything physical.
Given this, virtual currency, to the extent that it is accepted in trade, is synonymous with all other forms of currency in that it represents an indirect claim on physical wealth.
What many consider to be hard, or physical currency, such as gold and silver, will then have a relationship to either virtual currencies (such as Bitcoin) or credit based currencies (such as US dollars or Brazilian reais) which is expressed as a ratio, or price. By extension, both virtual and credit based currencies will serve as pricing mechanisms for goods and services.
I hope the above makes sense, as it is getting to a key misconception that many have regarding money in general.
Q: What is the future of Bitcoin?
The Mint:As with any currency, bitcoin will have value and be traded until people lose confidence in it. That said, bitcoin has two flaws that will make it increasingly difficult to use in trade:
1) By design, there can only be a very limited amount of debt denominated in Bitcoin. While most see this as attractive (indeed, it is what helps support its value), it will severely hinder the expansion of Bitcoin proper in trade as the algorithm ticks closer to the limit of ~21 million Bitcoins (never mind that many Bitcoins that previously circulated are trapped in wallets on hard drives which are in rubbish heaps now, never to be “mined” again!).
2) The limitation on Bitcoin creation will dramatically reduce incentives to support the Bitcoin transaction validation process (known as “mining”) right at the time when it is most necessary. This is where Bitcoin will shoot itself in the foot, and nobody knows what will happen then, but what is certain is that transaction processing will become a paid feature by providers or that it will become so slow that people will gravitate away from Bitcoin to other digital currencies who have no such flaw.
What is likely to occur is that Bitcoin will assume its place as the “gold standard” against which all subsequent virtual currencies will be measured. In the same way that many national currencies are still measured against gold on the open market, so it will be that Bitcoin, given its finite production, will become, as gold has become, little more than an important point of reference for whatever virtual currency is currently predominately used in trade.
Q: What is the effect on the world economy?
The Mint: While the origins of Bitcoin and other virtual currencies may have been experimental and ideological in nature, their increasing acceptance is owed to the fact that they are filling a void in trade. Namely, mediums of communication facilitated by the Internet have expanded trade exponentially and created needs for mediums of exchange (a way to transmit the monetary premium mentioned above) that national currencies cannot keep pace with.
The current system of national currencies and banking provide a number of barriers to currency creation which leaves a void that solutions such as Bitcoin are able to fulfill, in the process creating a windfall for those who have successfully speculated in such currencies.
The effect of virtual currencies such as Bitcoin on the world economy, then, has been and will be to further facilitate trade and, by extension, the division of labor in the world economy. This is a very good thing as it will ultimately lead to a more perfect balance of trade, one that is not subject to the whim of a Central banker’s assessment of the need to expand or contract the money supply.
The latter has implications for the current nation-state which I won’t go into, but the people of the world now can, through the Bitcoin and broader virtual currency story, begin to envision a world economy that is not dominated by currencies emitted by National Central banks, what will happen with that vision is something that is likely to play out in our lifetimes.
While the digital currency Bitcoin continues to rise in value relative to the US Dollar, one of the mainstays of the Bitcoin universe, Mt Gox, appears to have exited the industry after a series of digital heists in the form of hacks into the exchange’s hot wallet (the exchange’s interface with the broader Bitcoin market) left what was once the world’s most important Bitcoin exchange insolvent.
Bitcoins: What they are and how to use them
When Mt Gox imploded on February 25th, it took with it one of the largest bridges between the Bitcoin universe and the national currencies of the world. It also took with it one of the largest pools of liquidity in the digital currency realm. As a result, the digital currency traded below $300 for the first time since November 2013.
While the events which unfolded on that fateful February day last week have caused many a Bitcoin naysayer to blurt out, “I told you so,” evidence of the actual demise of Bitcoin and other digital currencies has been lacking. After all, it wasn’t as if the Bitcoin blockchain itself that imploded. On the contrary, the demise of Mt Gox may have been the best thing to happen to the Bitcoin industry.
Mt Gox grew from its humble beginnings as an online exchange for Magic: The Gathering cards to dominate the Bitcoin trade, which it entered into in 2011. On June 11th, not long after it entered the Bitcoin game, it suffered the first of what would be several security breaches. After all, in the Bitcoin Universe, all Mt Gox had was just another wallet. The fact that it was seen as one of the largest wallets made it a natural target.
In April of 2013, when Mt Gox was in its heyday, processing roughly 70% of all Bitcoin trades, it suffered another well publicized hack.
Through all of its setbacks, Mt Gox was able to soldier on and execute trades, despite being short, as revealed over the past week, roughly 750,000 Bitcoins. It is our suspicion that Mt Gox was able to cover shortfalls in the past by mining Bitcoins to cover those that had been stolen. Over the course of the past year, with Bitcoin touching roughly $1,200 USD at certain points in time, mining again became lucrative as the rate of Bitcoin generation began to plateau, leaving any player who was short Bitcoin in an extremely difficult situation.
While those of us who, until recently, looked to Mt Gox for the Bitcoin market price as a silver trader looks to the Comex, it will take some minor adjustments, but life in Bitcoin land will move on and, from the looks of things, be more stable and vibrant.
For those who stored a great deal of Bitcoin denominated wealth directly on Bitcoin’s wallet, the outcome, it would appear, is much more tragic.
Does Mt Gox’s demise signal the demise of Bitcoin? On the contrary, it may have ushered in Bitcoin’s golden age as the standard by which all subsequent digital currency offerings are measured.
The case for Bitcoin remains extremely compelling once one grasps what Bitcoin represents. Bitcoin is operating as an indirect claim on assets, nothing more, nothing less. In this sense, it is similar to equities and central bank currencies. Once this is properly understood, a quick look at Bitcoin’s fundamentals will reveal why the Bitcoin/USD ratio is on a roller coaster ride tilted upwards until the rails come off the track.
Enjoy the ride, but keep an eye on the exit, you may need a parachute!
Here at The Mint we are preparing for a record-breaking year in 2014. As we look out upon the horizon, we see that the eternal tension between inflation and deflation that is the bane of the insane debt is money monetary system is beginning to subside. While many at this point are standing on the beach watching the monetary tide recede to an unimaginable extreme, those who watch the weather know that this phenomenon is but the precursor to a tsunami.
Inflation will soon be here, and it is time to adjust revenue targets accordingly.
We make this forecast not out of any sort of clairvoyance, but largely as a hunch. The Federal Reserve, which just passed its 100th anniversary and appears to be going strong, has no choice but to inflate, as it is their only tool and default bias.
What is changing in 2014 are the Federal Reserve’s tactics. The FED will spend much of 2014 and beyond fighting inflation as a matter of policy. Each coming policy, such as the recent $5 Billion/month token (or courtesy) taper that was recently announced, in theory will serve to reduce the monetary base. What many do not realize is that the monetary base will not shrink as a result for at least three and a half years.
At this point our long-suffering readers are welcome to point out that The Mint was wrong. We had predicted that the Fed would increase the target rate before tapering, as the target rate was more of a random subsidy while the taper recipients have come to expect it as a form of state banking welfare. We humbly admit that, given the latest announcement, we were technically wrong.
What the taper reduction is accomplishing, in practice, is a form of marginal stimulus. The Fed is herding the banks and other lenders out of Treasuries, as holding too many Treasuries in a taper environment is categorically inadvisable. Some reports have the Fed representing 80-90% of the market for treasuries. As they scale their participation rate back via the taper, Treasuries will be forced to find a market price, and if what happened to the 7 year after the announcement (a roughly 264 bp drop) is any indication, the market has an opinion of Treasuries that is quite different from those held by the Fed.
The point is that, as the banks have the spigot open at .09%, this money will, at long last, find its way into the hands of credit hungry consumers and businesses.
The giant of the US Economy is waking up. Part of the activity can be attributed to the Christmas season, however, in early 2014, much of the initial uncertainty surrounding Obamacare will begin to sort itself out, and both businesses and consumers will find themselves both willing and, for the most part, able to do what they do best: spend.
The Fed has worked tirelessly to shore up the monetary base for five years, and, despite what one may think of Yellen’s dovish bias, she is likely smart enough to realize that the best shot the Fed has now to stimulate the economy is to appear to head to the closet to pick up the liquidity mop.
The Importance of Tribute, and the Fed Alternative
After 100 years, the Federal Reserve has done much. Their most amazing exploit, one that is lost on most, is that they made the US and much of the world believe that debt was money, and indeed, a great deal of the monetary premium has gravitated to Federal Reserve notes.
Clairvoyant Political Cartoon circa 2012 by Adam Crozier
{Editor’s Note: Click here to see more clairvoyant political cartoons circa 1912, just before the Fed was granted its monopoly on the US money supply}
In the end, what is a Federal Reserve note? It is a Central Bank liability, which is an irredeemable hot potato that at best represents an indirect claim on wealth but in the end maintains its allure on the part of those forced to transact in it because the US Empire requires that all taxes be reported and paid in them.
Think about it, the hammerlock that any currency has on a citizenry, no matter how putrid its fundamentals may be (and they don’t get much worse than the paradox of debt based money), is that the sovereign requires tribute to be rendered in said currency.
The logical proof is this, were the US Government to require payroll and income tax remittances in Euros or corn bushels, how long is the Federal Reserve Note likely to retain its value and usefulness in trade?
The requirement to use a monetary unit or currency in rendering tribute is a important component of what we call the “monetary premium,” which is loosely defined as the portion of aggregate value that something carries related to its relative function of a transmitter of value. It is embedded in the supply and demand dynamic of all quasi-monetary instruments, such as gold, silver, and most recently, Bitcoin and other crypto currencies.
While most fix their eyes on credit markets to determine the value of currency in trade, they would do better to observe the Monetary Premium, for it represents the collective hopes and dreams of humankind in the material world, and where it goes, relative riches follow.
For this reason, the Federal Reserve and other Central banks of the world will fight to the last (insert your preferred noun) to retain a share of the monetary premium, for it is their only value proposition in what is a terminally defective, if not purposefully fraudulent, product mix.
In 2014, the Fed will lose its iron grip on the Monetary Premium and take its place amongst currencies relegated to tax remittance and nothing more.
Bitcoin’s resilience is but one item in a long list of evidence that the monetary premium attributed to central bank notes is attaching itself to other indirect claims on wealth and items representing unencumbered claims on wealth.
The economic activity that this tacitly coordinated shift out of Federal Reserve notes will cause in 2014 and beyond will be breathtaking. They will call it inflation, and it will be the Fed’s death knell.
We are settling in for a long, productive winter here at The Mint. While there is a whirlwind of activity outside, the key to maintaining one’s sanity is to maintain an internal balance, no matter what happens.
The best way we have found to do this is to maintain a state of constant rest, the eternal Sabbath, if you will, together with the creator in the very core of our being. Rather than experiencing God in one’s mind or even heart, true peace is found when you experience Him in the abdominal region, often referred to as the soul.
It was in the midst of this rest today that we had a profound revelation. While the revelation was centered on the present Bitcoin phenomenon, it has implications far beyond the Bitcoin, and, for those of us who are paying attention, may reveal something of the nature of the divine as well as that of humankind.
Longsuffering readers of The Mint know that our musings on Monetary Theory often lead us to dabble in Eschatology, the study of what are commonly called the end times in world religions that hold apocalyptic worldviews. Today’s revelation, as you will see, is a further dabble into this inherently speculative subject.
Before we dive into today’s revelation, we must provide a bit of context with regards to Bitcoin.
Bitcoin, an Unregulated Ponzi Scheme
We have watched the rise of the Bitcoin/USD ratio, which now stands near $909, ever since April. In this short time frame, we have observed that every time there is a surge in the Bitcoin price, it attracts an increasing amount of attention, both positive and negative. As it is with most things in life, the negative opinions are played at a higher volume. In the case of Bitcoin, those who hold it in disdain throw around two flavors of arguments:
1. It is a Ponzi scheme and, 2. There is no regulation of it.
The detractors are correct on both counts, however, what they fail to recognize is that the same is true for fiat currencies, equities, and all other indirect claims on wealth.
“But what about the FED, SEC, the Government, etc.? Don’t they regulate currencies and equities?” come the shrill voices from the public.
Again, this rebuttal is correct if one takes the narrow view of both of the unregulated Ponzi schemes in question. The Federal Reserve does attempt to regulate its Ponzi scheme within the framework of the IRS and Banking system, and the SEC attempts to regulate various Ponzi schemes within its purview on various stock exchanges.
However, the unregulated universe in both equities and currencies is much larger than most realize, and Bitcoin’s apparent lack of regulation stems from the fact that it is a mere four years in existence. Given time, sovereign governments and Bitcoin exchanges will begin to erect a regulatory framework for the Bitcoins that pass amongst their citizens or participants. Indeed, these efforts are already underway.
The narrow analysis of Bitcoin that its critics lean on is that Bitcoin is either an equity or a currency. In this faulty analysis, they point to the fact that as an equity or currency, there is nothing immediately recognizable within its framework that would lend it valuable. Therefore, they state smugly, Bitcoin is a Ponzi scheme to be avoided and derided, case closed.
Yet supposedly educated, computer literate persons are willing to pay $900 USD per Bitcoin despite the risks. What gives? What the failed analyses of Bitcoin do not recognize is that Bitcoin is neither a currency or an equity, but rather the purest reflection to date of something that is pursued by nearly every person on the planet the world over on a daily basis in some form or another.
It may come as a shock to you, fellow taxpayer, and indeed much of humankind, that a great majority of humanity pursues what Bitcoin represents without even knowing how to articulate what they are pursuing.
While a portion of Bitcoin’s value stems from its functionality as an open source international money transfer channel, we believe that most of Bitcoin’s value stems from the fact that it is the purest reflection of what we call the Monetary Premium. In an academic sense, the Monetary Premium is the relative increased value attached to an item that is attributable to a specific, ephemeral part of the item’s value that is related to its function, no matter how minimal it may be, as money.
As the common person’s view of money is generally limited to fiat currencies, it is understandable that most would not know what makes a fiat currency act as money. It then follows that Bitcoin, which is the purest form of the Monetary Premium, would be widely misunderstood by most of humankind.
Bitcoin, The Monetary Premium, and Eschatology: The Revelation
With the lengthy but essential matter of defining what Bitcoin is out of the way, the revelation that follows should now be clear.
The revelation is best presented in the following bullet points:
1. Bitcoin may be the purest reflection of the Monetary Premium known to humankind.
2. The Monetary Premium is manmade and cannot be seen.
3. Pursuit of the Monetary Premium in some shape or form is what a majority of humans dedicate a large portion of their daily activities towards through the acts of producing, consuming, and investing.
4. When God warns of the choice between God and money, as He does in Matthew 6:24:
24 “No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other. You can’t serve both God and Mammon.”
The Mammon (money) being referred to is not an inanimate object, but rather the Monetary Premium.
5. The Ultimate choice between full, dedicated worship to the invisible God and continuing to pursue the invisible manmade Monetary Premium will be presented to those who are still present on earth with the ultimatum presented to mankind described in Revelation chapter 13:16-18 (for those who are familiar with eschatology, this last statement makes it clear that we hold a pre tribulation rapture view):
16 He causes all, the small and the great, the rich and the poor, and the free and the slave, to be given marks on their right hands, or on their foreheads; 17 and that no one would be able to buy or to sell, unless he has that mark, the name of the beast or the number of his name. 18 Here is wisdom. He who has understanding, let him calculate the number of the beast, for it is the number of a man. His number is six hundred sixty-six.
Click the image above to read more on Eschatology and Money
What does it all mean?
The Bitcoin is not the Mark of the Beast or any such thing. However, Bitcoin’s unique reflection of the Monetary Premium is illustrative for purposes of understanding money in Biblical contexts where the worship of money is juxtaposed with the worship of God, as it is in Matthew 6:24, and the implications for such an understanding within the context of eschatological studies, specifically when pondering the events described in Revelation chapter 13.
Beyond the monetary realm, Trusting Jesus today is the single most important step that one can take in the search for inner peace. For chasing the fickle monetary premium around will never allow for rest, peace with God can be found in Jesus. He is closer than you think, waiting to commune with every one of us in the eternal Sabbath.
As the most recent arctic air blast rushes across the Northwest, the economies of the world appear to be at a crossroads. The coming three months are critical in determining humanity’s path forward. Will we cower with fear or step bolding forward with faith and courage into the unknown?
The past five years have taken a toll on the psyche of the financial markets and those who participate in them. On one hand, the cards have been stacked for raging inflation to take hold and decimate the debt based currencies the world has come to rely on, on the other, this obvious outcome has been stayed because 1) it is obvious, meaning bets are disproportionately placed on the side of inflation and 2) in a debt based currency system, new currency creation by definition means new debt creation, as debt obligations have rolled over into lower interest obligations over the past five years, a heavy undercurrent of deflation has been running against the inflationary pressures.
It is becoming clear that the ACA is having a more dramatic impact on the US landscape than anticipated. The good news is that after a few months, most consumers fates will have been sealed, for better or worse, and many will be able to carry on. By extension, many companies will be ready to deploy the capital that they have accumulated over the past several years through cost cutting and debt restructuring (for lack of a better term). Again, the table is set for inflation, will the scenario play out?
Hugh Hendry seems to think so, ceding the obvious case that inflation in asset prices is to be a part of the investment landscape for the foreseeable future. In his December 2013 Eclectica investment letter, which can be read over at Zero Hedge via the link below, he appears to be throwing in the towel on the bear case. In doing so, he makes a revealing statement on the current state of equity markets:
“…I have had to put aside qualitative analysis and be in this trending market.” as “…Playing it safe may be the greatest risk of all.”
Ultimately, the case for inflation or deflation rests with the consumers of the world. Will they cower in fear or step out boldly in faith and courage? We believe the next three months will yield the answer to that question, and that they will step out boldly.
What’s with the Bitcoin Roller Coaster?
Bitcoins, which continue to garner attention on numerous planes, as a novelty, a speculative vehicle, and the answer to creating a worldwide currency and payment system, has seen its price swing from $550 to $1,200 and land around $760 at this writing.
The price swings are normal for such a small, relatively illiquid market. Any large scale adoption event, which in the final analysis, is the driver of Bitcoins’ price at this stage, triggers a sell-off by those who have learned to speculate in the crypto currency.
The latest large scale adoption event in question this past week has been the increased interest in the currency by the Chinese.
In a recent interview, Bobby Lee outlined the reasons he believes that Bitcoin has garnered considerable interest in China over the last several weeks. Lee has a front row seat to this phenomena from his post at BTC China and cites two main reasons that the Chinese have taken a keen interest in the crypto currency.
First, the Chinese are, on whole, extremely gifted in math and sciences, which makes the concept of a digital currency fit into the cultural nomenclature more readily. As simply understanding what Bitcoin is may be the biggest hurdle to adopting and using it, the Chinese have a cultural leg up on many other cultures.
Second, and perhaps more importantly, is that the Chinese are net savers. As such, they are constantly seeking out investments and places to park their savings for a rainy day. Bitcoins appear to offer a strange form of asset protection, despite the breathtaking volatility in their price, as they are limited in the number that will be created by an algorithm.
Finally, one must remember that China does still impose capital controls on its citizens. Bitcoin, while not its chief aim, gives the Chinese investor a handy tool by which to move his or her capital out of the country with their mobile phone or PC. Something that simply cannot be accomplished with a bank account.
The Chinese, like the Cypriots and Argentines, are finding their culturally specific use for the world’s most popular crypto currency, and the price action, which has ranged from $1,200 USD to $700 during the past 72 hours, reflects just how volatile a freely traded, finite global currency can be.
Bitcoins are a rough equivalent to gold in the digital realm, and, as Lee notes, volatility is not going away any time soon. Yet if one can see past the price movements to understand the value in what is essentially the world’s largest collective math problem, one will see that Bitcoins at any price serve a very important purpose: They capture the monetary premium in action.
The virtual currency known as the Bitcoin has achieved what has become a badge of honor in the finance industry, it has become the subject of a Senate hearing.
Senate hearings have, in the past, starred noble characters such as MF Global and its lead actor, John Corzine, who still roams free after punting roughly $1.6 Billion USD to another Wall Street leading man, Jamie Dimon, who remains the head of JP Morgan, who added a $13 Billion fine to its list of greatest hits related to its dealings with other entities during what has become known as the Financial Crisis of 2008.
And who can forget the Gorilla, Lehman’s Richard Fuld, who starred in one of the earliest versions of such hearings and gave us the phrase, echoed by insolvent bankers throughout the world, “why us?”
As the Bitcoin has no central authority to speak of, the Senate Committee on Homeland Security and Government Affairs called Jennifer Calvary, head of the Financial Crimes Enforcement Network, Edward Lowery of the Secret Service, and Mythili Raman of the Justice Department to testify on its behalf.
As may be expected by three persons who are cast in the role of antagonist to anything offering anonymity to private citizens, a privilege that the government refuses to recognizes, they expressed concern about “what could happen” and “who may be using” virtual currencies such as Bitcoin.
However, the antagonists did show a measure of empathy for their crypto-foe, the same way viewers feel empathy for characters like John Q or Walter White. While taking the government line that what people may do with Bitcoins may be bad, the Bitcoins themselves are generally harmless and, in fact, may provide a great benefit to society.
As pageantry that generally accompanies a finance related Senate hearing unfolded, the Bitcoin market went ballistic, touching $900USD before the elevator moves inherent in the Bitcoin/USD (or any other debt based currency) market took hold and thrust it back to $600, it is now climbing past $700 as we write.
While it is interesting for Senators to listen to how various branches of government propose to regulate Bitcoins, it is clear that, while they may have a glimmer of a chance of understanding the technological framework of Bitcoins, they have no clue what it means in the monetary realm, for they do not understand money.
Alas, much of humanity is in the dark as to monetary theory. It is for this reason that we started The Mint, to explore this deep “mystery” that lies in the wallet of each and every one of us.
To be sure, Bitcoins have an Achilles heel, but it is not what many people think, want to know what it is and when to get out of Bitcoins? Someday we will give them away, for now, it will cost you $0.99 USD, or 0.00141 BTC to find out. Please pick up our hastily written guide to Bitcoins, which, to our knowledge, is the only one that has examined Bitcoins through the lens of monetary theory with clarity and coherence.
All we can say for the moment is that Bitcoin is a buy, you can sort out the details later.
As for the government’s concerns regarding Bitcoin’s inherent anonymity in the monetary realm, we propose the following Quid pro quo. Rather than the public being obligated to respond to the straw man argument of “If you have nothing to hide, what are you worried about?” what if the public’s retort to the government became a universal, “if you have nothing to fear, what are you worried about?”
The Dow has briefly touched the 15,000 mark once again and frankly, from a money supply standpoint, it may just be getting started. Ditto for the S&P 500, which is cruising past 1,600 and shows few signs of looking back.
The stock market is front running something. Conventional wisdom, that of seven years ago, would say that it is front running the economy, that a brighter future is on the horizon.
Here at The Mint, we see the stock market as an indicator of the bloat in the money supply and the default primary beneficiary of those who are unloading the monetary premium embedded in the US dollar.
From the dawn of time, up until 1994, the M2 money supply ran ahead of the stock market. Logically, money needed to be created before it could be invested. Then, in 1995, the Glass-Steagall act, which had created a chasm between the commercial and investment flavors of banks since 1933, was effectively repealed as Citicorp and Travelers merged, forcing (or anticipating) the effective repeal of 28 firewalls that Glass-Steagal had set up between the banking sectors.
Graph of normalized DJIA and Gold assets classes vs. M1, M2, and Federal Funds Rate measures
This repeal allowed commercial banks to fund purchases of “Section 20” affiliates, effectively unleashing the credit of the Commercial banking sector into the stock market, and stock indices have front run the M2 money supply ever since (with one notable exception at the height of the 2008 crisis right before the FED threw caution to the wind regarding monetary policy).
The FED will not make the same mistake again. They have embedded expectations that they are willing and able to print money in quantities necessary to avoid another wholesale collapse in the nominal price of financial assets, what we call the chocolate disaster.
However, the FED cannot avoid a collapse in the relative value of financial assets, which is currently underway. While the Dow may be headed to 17,000 before its next scheduled breakdown, the wise among us (that’s you and I, fellow taxpayer), must move our gaze to the diminishing relative value of those 17,000 Dow points.
Take the example of gold. Despite its recent collapse in price, gold, which may have yet another leg down, has shown itself to be incredibly resilient in the face of insurmountable odds, for the same credit mechanism that is used to shamelessly juice the stock market is also used to shamelessly short precious metals.
What is surprising, then, should not be that gold has collapsed some $350 in recent months, but that it has bounced back at all against a financial enemy with an unlimited supply of ammunition.
The physical supply of gold is another story. As anyone who has attempted to source gold or silver at these rock bottom prices can attest, it has been difficult to say the least, and it will be mid summer before supplies recover from the recent price shock.
Another non productive asset that is gaining on the Dow in relative terms is the Bitcoin. While the digital currency continues to be too volatile to trade, it is still attractive anywhere under $80. While not the panacea that many believe it to be, the Bitcoin fulfills a human need that will not soon go away.
Finally, corn, which took a similar early April bath along with a number of commodities, is raging back as well.
It will be an interesting summer indeed as the vanilla disaster continues to pile up. Soon, owning real assets will be not simply a luxury, but a necessity, as gains in the stock indices are dwarfed by real inflationary pressures.
Much has occurred since our last correspondence. First, tragically, another act of terrorism has rocked the land of the free. Our thoughts and prayers go out to all affected. Once again, we are reminded of Robert Kennedy’s speech on the menace of violence. For those who have never heard it, it is well worth a listen.
Source IMF via the MoneyGame
Well before the twin blasts interrupted a peaceful Boston afternoon, two of our key indicators and our investment of choice here at The Mint, silver, took an unprecedented bath.
No, the data below on both the Bitcoin and Gold price are not typos. As a Goldman Report put it: “There are weeks when decades happen” or something to that effect, with regards to the action in the gold markets.
Essentially, 500 tonnes of gold were sold in the most recent selloff. Where it will come from or whether or not it will actually be delivered, nobody knows. It is certainly fodder for those who claim these markets are manipulated. Even so, there is no divine law as to what the price of things in US dollars should be. As such, those involved in the trade must accept their random fate, no matter how unjust it feels.
The Bitcoin somehow found its footing around $65 USD after crashing down to the canvas from $260.
However, the amazing, or perhaps not so amazing, if you have read our most recent eBook, part of the story is that it is still trading around $65 USD. This is an amazing commentary on the state of national currencies. How long can the central bank issued national currencies compete when a lifeless logarithm is doing their job better than they ever could?
Bitcoins: What they are and how to use them
We, along with the rest of the Bitcoin community, have been developing some innovative ideas about how to make Bitcoins more accessible to the general public. If you have $150,000 and care to help us launch the initiative more quickly (as an investor, naturally, this is not a charitable endeavor, at least, that is not the intention!) please email us for more information. You could significantly reduce our launch time in what will soon be a highly lucrative and competitive market: Building the Bitcoin infrastructure.
Perhaps our seed capital will come from none other than Zimbabwe. Those who have followed currency matters will recall that just five years ago Zimbabwe gave the world a rare glimpse of hyperinflation and one trillion dollar bill. In the now infamous words of Gideon Gono, Governor of the Reserve Bank of Zimbabwe:
“I’ve been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren’t in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.”
In a page that has since been removed from CNN’s ireport {SEE UPDATE BELOW}, we saw a rumor that Zimbabwe was poised to adopt the Bitcoin as its official currency. Perhaps Mr. Gono got a hold of our book?
{UPDATE 4/17/2013: The page has been updated and can be seen here. It now appears that Zimbabwe rumor is now official, though unverified by CNN.}
Meanwhile, as Bitcoin, Gold, Silver, and Oil crash, the monetary measures continue to spiral out of control. There are some big naked shorts out there, and Mr. Bernanke may, for a finale as Fed Chairman, borrow a page from Mr. Gono’s playbook circa 2009 in an attempt to cover them. Given the IMF’s global growth forecast, we deem it a virtual certainty.
Today’s BLS jobs report was seen as an unmitigated disaster. This should give the Federal Reserve the cover they need to turn Japanese with regards to their QE program (the BOJ came out with a QE program that is roughly 30%! of GDP over a year, by way of comparison, the FED has pumped out 15% of GDP in 5 years).
Bitcoins, gold, and silver jumped. The management of what the world calls currencies is heading for the exits, and from the looks of things, so are many Dollar, Yen, and Euro holders.
Don’t bother to turn off the light or lock the doors, just get the heck out. A four alarm fire coupled with an earthquake is on the verge of breaking out in the currency markets. The monetary premium is looking for something to affix itself to, and it will trample many an asset class in search of it.
In the Bitcoin/USD market, the world is getting a rare glimpse of the power of the monetary premium. Today those who watched witnessed the Bitcoin briefly race up to $147 USD before retreating to around $115, where it stood yesterday.
Over the past few days, we have been participating in a discussion of the merits of the Bitcoin over on Google+ with the Austrian Economics group. It has been interesting to see how we wrestle with the concept of what is money. Trying to pin it down to one thing in the physical world. For if money were just one thing and one thing only, one of the world’s great mysteries would be put to rest, and the rest of the mysteries may even become less mysterious.
However, the concept of money remains elusive. It will remain elusive, and it is good. Here is why.
For the many things that it purports to be, the Bitcoin may be best described as a decentralized digital currency. As such, the only value that can rationally be attributed to it consists entirely of what we call a monetary premium. In our worldview, money is a concept. As such, there is no physical thing or concept that can claim a divine right to being money. Not gold, silver, nor national currencies.
What fools man into clinging to these things and insisting on calling them money is the notion of a monetary premium, which we define as a set of characteristics when make something a chosen store of wealth, medium of trade, and unit of account. For more on this, please read our eBook “What is Money? A quest to answer the question of the ages.”
We return from this shameless plug to the Bitcoin. The Bitcoin is not a physical good. If anything, it boils down to an arbitrary string of the zeros and ones that form the basis of all computing. However, this non-thing is beginning to absorb a portion of the monetary premium.
This partial absorption of the monetary premium by a string of digital numbers serves a proof that money is a construct of man, and for all of man’s efforts to capture it, measure it, and make it his, the concept of money, or what is better understood as the monetary premium, is a fickle and fleeting thing.
For this reason, Jesus warned us,
“No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other. You can’t serve both God and Mammon”
Neither YHWH or the monetary premium can be seen, but man must choose to serve one or the other. One is fickle and fleeting, the other faithful and constant. One’s answer as to which is which will reveal whom they serve.
Choose wisely.
Yet the Bitcoin and the fickle and fleeting monetary premium that it is interacting with gives those of us who are paying attention a chance to examine our character. For our reaction to the fluctuations in the Bitcoin / USD ratio may help to reveal hat kind of man or woman we are.
Whether one finds themselves serving the monetary premium or YHWH, they are likely to find themselves identifying with one of three basic examples of behavior and motivations.
These examples were first presented to us in the summer of 2004 at a Kings Kids European summit in Tarragona. Far from the lush EU summits which are the hallmark of today’s famous Troika mismanagement, the Kings Kids operate on a wing and, most literally, a prayer.
With our Castilian Spanish skills still lacking, we spent a mid summer’s week in tents on a high school campus (naturally, school was out) with minimal bath and shower facilities with hundreds of adolescents, young adults, and not so young adults from across Europe and the UK (indeed, we were acquainted with a long lost cousin from Wales at the event). It is in these settings where YHWH moves and provides his most profound lessons and training.
It was in this setting, then, that the examples were presented by our Pastor Curtis Clewett of La Iglesia El Lokal in Barcelona. Each time we recount the impact of this teaching to him, he recalls it as something that he threw together at the last minute.
So it was, on a warm summers eve on the Mediterranean coast in a place which more or less resembled a gypsy camp, we gathered to hear el Reverendo impart the three examples of what we will call spiritual maturity. Read them carefully and please, take no offense at the blanket statements that the descriptions imply. We understand there are many shades of the following professions, and it will quickly become clear that it is the description that matters more than the professional title:
The Soldier: The soldier is in training. He is fit, well equipped, and he is at the ready. However, the soldier does not represent the ultimate in spiritual maturity, for he is lacking two things: Initiative and autonomy.
The soldier is trained to take orders. He does not dare act on his own for fear of retribution or failure. He is limited by not only the rules and regulations of his trade, but also in his physical movements and the ability to act independently of the orders given by his commanders. As such, he cannot act on his own initiative and, if he does, it is in a very small sphere of operations which is dependent upon others following similar orders.
Being a soldier is not a bad thing, indeed, it is admirable, but the path to spiritual maturity demands that he move past this necessary first jaunt down the neverending path towards spiritual maturity.
The Athlete: Unlike the soldier, the athlete is, by definition, acting on his or her own initiative. They may depend upon a coach for guidance and encouragement, but their motivation to obey the coach comes from a desire to improve, not fear, as was the case from time to time with the soldier.
The athlete desires to excel at a certain sport or event, and relies on set intervals of competitions or time trials by which to receive feedback and praise for his or her efforts.
Again, being an athlete is not a bad thing, and the emergence of personal initiative and the desire to train, as well as an increased degree of autonomy represent a further journey down the path to spiritual maturity, however, even if the athlete reach the pinnacle of their chosen field, they are still lacking in one very important aspect, an aspect that is fully embraced by the farmer.
The Farmer: The farmer does not have a drill sergeant yelling at him in the morning, nor is he told what to do and when to do it. The farmer is not restricted in his movements or daily activities.
The farmer does not train on a daily basis and is not accountable to a coach. Indeed, the farmer takes on responsibility not only for his own training regimen, but for understanding when and where to compete.
The farmer knows exactly what to do and waits for signals from his natural surroundings to tell him when to do it. He constantly looks after his surroundings and understands that both the land and the animals within his care have been entrusted to him. Indeed, so have his family and his neighbors. Even those whom he will never meet indirectly may rely upon the success of his efforts to be able to put food on their table.
The farmer’s efforts may appear volatile, oscillating between sloth and frenzies of chaotic activity. When there is nothing to be done, the farmer drives to the café to drink coffee and play cards all day. When there is work to be done, he awakens early and does not rest until his equipment or the lack of daylight put an end to the day’s efforts.
The farmer not only understands what needs to be done, he understands that all efforts, to be effective, must be put forth in their season. He can prepare, and often does, but he understands that the time to exert himself will become known in its due time, but it will not happen on a schedule which he can set.
Still, he accepts the responsibility of his post, both the long days and the stinging boredom, with joy, knowing that ultimately he is doing the work of a master, and is providing for many who live well beyond the county line who he may never personally meet. He may never be thanked by them, or recognized formally for his work, yet in the work itself, he finds life’s greatest contentment.
As you can see from the above examples, to understand one’s own character, it is as important to understand who we are serving as it is to understand how we are serving, for the key to contentment lies in choosing well on both accounts.
The monetary premium currently attributed to the Bitcoin will take wings. If one is a soldier or an athlete, they are likely to get burned by the sudden movements. However, the farmer, in a sloth like manner, will pick his spot and wait patiently for an opportunity to present itself.
Then, in a sudden, measured frenzy, he will then labor day and night until the work is finished.
Pastor Clewett is still in Barcelona. In the true spirit of the farmer, he continues to pastor in addition to his duties at Planting Together, where he is on the Executive team. Planting Together is an organization which organizes tree planting and pruning excursions, where they partner with the government of Senegal and many others to help build up the Great Green Wall, a wall of trees and foliage which is successfully fighting back the encroachment of the Sahara in northwestern Africa.
Thank you, Curtis! Many blessings on your head. May we all learn to sow and reap as you have.
If you haven’t paid attention, there is nothing short of a seismic event occurring in the world’s monetary base. It started with the threat of government confiscation of savings accounts in Cyprus and is transmitting itself not through the ordinary channels of the financial and commodity markets, but into what is one of the least recognized developing markets on the globe:
Decentralized digital currency.
Welcome to digital money’s wild ride
For those in Cyprus with an internet connection and a reasonable amount of technical savvy, the Bitcoin represents an escape hatch from the government’s currency grab.
Again, while we personally have reservations about keeping too many eggs in any form of digital currency, be it bank accounts, fiat currency, or Bitcoins, the utility of Bitcoins as a temporary store of value cannot be overlooked.
While we do not classify anything as money, rather, we recognize various things or concepts tend to carry a monetary premium, it is quickly becoming clear that Bitcoins and similar digital currencies which will no doubt emerge must be considered by any serious monetary theorist, amongst which we count ourselves and few others.
As such, the price of Bitcoins as it appears on Mt. Gox, the most established exchange of the digital medium, will be listed amongst our Key Indicators.
It will be quite a ride, for we suspect many senators and those in government whom the public suppose are caring for monetary matters are just now getting briefed on what it is, and why it threatens their hammer lock on the money supply.
At some point, the Central Banks of the world will intervene in the market the way they do with the rest of the markets in our Key Indicators, either directly or indirectly.
Until then, it will be quite a ride, and mostly upward sloping, as the two elements of the Bitcoin/USD ratio are on nearly opposite trajectories. Should confidence in the Bitcoin go mainstream, the action could get downright silly. Not just in the Bitcoin price, but on main street, where banking as we know it will be publicly executed by a lifeless logarithm.
It is a form of poetic justice that Mark Twain would have loved. We invite you to join us in enjoying it for him.
At long last, the much anticipated fifth volume in our “Why what we use as Money Matters” series is available in on Amazon’s Kindle and over at Smash words.com for your immediate reading pleasure.
Pacioli’s Gift or Bernanke’s Curse?
The volume has a hero, Luca Pacioli, the Franciscan Monk who not only taught mathematics to Leonardo Da Vinci but dissimenated to Western Civilization nothing short of an economic super power.
It also has a villian, Central Banking, born of the super powers of dual-entry accounting, it uses this super power against humanity and has become dual-entry accounting’s arch nemesis.
How will it end? At this point, you’ll have to shell out $0.99 and a couple hours of your time to find out. However, by doing so, you may end up changing the world for the better. Not a bad return on investment!
We pray you will enjoy it.
Today, Bitcoins traded near $100 USD, silver and gold continued to mysteriously get crushed, and US stocks, perhaps more mysteriously, continued to defy gravity. What does it mean?
The events in Cyprus have once again caused a sort of flight to safety. Unfotunately, the flight to safety is a very crowded trade, and is causing the US Dollar to suffer from an unwelcome bout of strength, or potential deflation.
Bernanke and the Fed will never stand for it. US Dollar strength cannot be tolerated, and will be swiftly dealth with. As it is dealt with in the coming weeks, Bitcoins, gold, and silver will seem like a steal at today’s prices.
Then there is the matter of the brewing war in Persia, but speculation on that scenario must wait, for the Passover is at hand.
On Monday, we shared with you our friend Tom’s first hand experience and general impressions with the Spain’s currency conversion from pesetas to the Euro.
The conversion to the Euro, for most practical purposes was a long, drawn out process which took two years to implement, starting with the final exchange rate peg to the Euro and culminating with the coin and bill conversion which Tom so eloquently described.
Adios Euros!
Today, thanks to the prospect of forced bail ins, the term for a levy or tax (depending upon your preferred term for asset confiscation) such as the one proposed in Cyprus which would bail out the government and/or banks, there is a run on banks throughout Iberia.
The reason is that the preference for the bail in solutions are now popping out of central banker’s mouths like pop corn. Even Ben Bernanke, slave master of the US currency, has uttered that it would be a possibility.
However, this is the twenty-first century, and bank runs aren’t what they used to be. For one thing, banks now have instant access to all of the digital currency they could possibly want. It is a simple ledger entry for the bank to replace the customer’s deposit with a Central Bank liability.
However, there is still the matter of cold, hard currency. As the Spaniards begin to withdraw currency en masse, the bank branches are bound to run out of Euros. Thanks to technology, holding Euros, either in physical or digital form, is no longer an absolute necessity and, at this point, it is extremely undesirable.
According to a report at Zerohedge.com, Spaniards are getting a crash course on Bitcoin adoption: Spain Bitcoin run has started
As the monetary authorities are just now beginning to understand the practical implications o
Bienvenido real money!
f forced bail ins, the peoples of the world are not content to stand pat while their leaders sqauble over how much to confiscate from whom. Thanks to digital solutions like the Bitcoin, Spaniards and people the world over are making a run on banks from the comfort of their own homes on their smart phones. The Euro, which took two years to implement, may be largely replaced in commerce in a matter of weeks.
Even so, the Bitcoin has its limits, as wealth held digitally has a flight risk of its own. Silver and other hard currencies do not have this problem, and the first stages of the next leg up in Silver and Gold is commencing in lockstep with the Bitcoin app downloads in Iberia. Either way, it is a unanimous democratic process whose end result will be the Euro being voted off the continent.
While the monetary authorities prepare their familiar mantra, “Keep Calm and Carry on,” the response in Iberia is ringing back “I’m Latin, I can’t Keep Calm!”
Neither should you. Here at The Mint, we have taken the step of accepting Bitcoins in exchange for silver coins to deal with this contingency. We ship worldwide and guarantee your satisfaction. If you are interested, please email us at the address below for a quote as we have yet to fully automate this process.
Of Money and Metals: The Operation of a Free Money Supply Explained is Volume II in the “Why what we use as Money Matters” series. Of Money and Metals presents the fallacies of the current day practice of circulating debt in the place of money and explains the urgent need for and the operation of a free money supply. This volume also explores the phenomenon of Bitcoins and digital currencies.
It is available to our dear readers for free until January 31, 2013 at smashwords.com, just enter coupon code: MA65L
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2/21/2015 Portland, Oregon – Pop in your mints…
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