Bitcoin, Gold, Fiat & FedCoin: What it all means for your family.
If you read us regularly, you know that humankind is facing a major turning point, the precipice of a significant restructuring of the global money system.
These are once-in-a-lifetime opportunities that can also bring crisis. If you’re lucky enough to be in your prime – confident, capitalized, and an independent thinker – pay attention.
You won’t get another chance.
In just our 2nd column (2017), we said return to a gold standard is inevitable. This is not because governments prefer it, but won’t have a choice after destroying the dollar by creating too many. In 2020, our thesis turned up like a hockey stick where it continues, throttling for the moon today.
What else can you say, when a $3 trillion spending bill comes on the heals of $1.9 trillion in stimulus, and it’s not even April?
If (when?) prices for food, commodities, and manufactured goods begin rising ~10% per year, a loss of confidence in the dollar will develop, probably by foreign holders first.
Like damn fools pitching tents along the receding tide, politicians will be dumbfounded, overwhelmed by a flood of $5+ trillion rushing home from overseas to buy up everything that isn’t tied down.
No choice but to join the mob, Americans will begin dumping dollars for what remains on shelves: booze, ammunition, metals, tools, and canned goods, if they’re lucky (i.e. early).
The only way for the US Government to stem that crisis is to add gold-backing to the currency. In 2017, our prediction was $5,000 – $10,000 per ounce. Today, I’d say $10,000+.
Bitcoin and Cryptocurrency
Bitcoin is ‘the new gold’, they say. Can’t you tell? Look at the shiny depiction of a gold coin with a B and a dollar sign through it. It’s obviously digital gold 😉
Bitcoin does share some of gold’s great qualities: scarcity, utility, and no counterparty risk. It’s even better than gold at portability and divisibility. Might it then be better than gold to serve as money?
Well, let’s give credit where due. Bitcoin is a fantastic innovation, born into existence for the same reasons as this community: The fiat, debt-based money system is a giant fraud, the root of nearly all the world’s biggest problems, and an ever-thrusting, stiff baton in the backend of the 99%.
In theory, Bitcoin is a libertarian, utopian, free-market-money dream. A digital, decentralized, borderless, non-government token with a limited supply to serve as medium of exchange and store of value? It seems so obvious now… Like, duh, we should definitely have that!
The risks, though, are significant.
We bucket them as (a) regulatory, and (b) market-driven:
(a) Government’s hate competition. The more Bitcoin serves as a substitute for (and escape hatch from) the US Dollar, the more they may consider making it illegal.
The counters – why the government won’t crush Bitcoin – are that (i) making cryptocurrency illegal will chase innovation in decentralized finance and technology out of the USA into places like China.
Innovations in ‘DeFi’ and ‘FinTech’ are creating massive opportunity and bringing huge inflows of capital to the shores of those countries that embrace them.
Second, (ii) Bitcoin may be “TBTF” (too big to fail). At $1 trillion in market cap ($1.8 trillion across cryptocurrencies), Bitcoin has become ‘systemically’ important, rivaling the subprime mortgage market in 2007 (~$1.3 trillion). You know… that subprime market, the one that almost blew up the world.
If they crush Bitcoin, it could topple the whole house of cards. Don’t sneeze, regulators!
Despite strong arguments against it, the powers-that-be seem to be toying with the idea of outlawing Bitcoin, and India (the patsy, trial balloon of the West?) is proposing just that-
If Bitcoin gets outlawed (or an 80% excess profits tax is levied), look out below. You won’t lose 100% of your money, but it’ll be close. That’s your worst-case scenario.
(b) The market risks relate mostly to better mousetraps. There are (and will be) more cryptos. Might others better serve the market?
The counter here is that as first-mover, Bitcoin has a huge, built-in advantage from the network effect.
While there are others, Bitcoin is the gateway to them all, the global reserve currency of cryptos. There won’t be just one winner, but the beautiful, equitable, enduring design of Bitcoin is likely to keep it around in this role for as long as cryptos are a ‘thing’ (so, at least until WWIII is settled, and wipes out the Internet…).
(As was attributed to Albert Einstein, “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones”).
The elephant in the room, toying with $60,000, is BTC in a B-U-B-B-L-E?
Before we explore that, remember that nearly all financial assets – stocks, bonds, real estate – are in bubble territory today, but that doesn’t necessarily mean they’re coming down in nominal terms.
This may be the crack-up boom, that comes at the expense of the currency.
The other side of every chart, the measuring stick, is the dollar, inflating at a rate never before seen, a marriage between Central Bank and government gone completely mad. There will be deflationary waves, but if they break the currency, nothing – especially not Bitcoin – will fall for very long.
Bitcoin’s run may be the canary in the coalmine, the perfect escape hatch for wealth… easy to get into, easy to move across borders, and easy to get out of.
But that takes us back to point (a). How could they not kill it?
Before we talk ourselves in circles (a perk of living in the fake-money era, like riding the merry-go-round at Disneyland, where nothing is real and everything costs a fortune), here’s the chart-
Yup, that’s one crazy chart.
If you zoom in, it’s looked like a bubble before, and those little speedbumps just seem quaint in retrospect. That it came back from the 2018 crash says it’s probably got more fuel in the tank.
Here’s the Log version, which doesn’t look as bad-
Is Bitcoin so new, so under-owned, so perfectly timed (a perfect solution arriving just as the problem it solves is erupting on a grand scale), and so volatile, that we should be using a log chart?
If this four-year cycle beginning in December 2017 plays out like the last, from the peak of $1,000 in December 2013 to $20,000 in 2017, that might look like this over the next 16 months-
That’s the best-case scenario in the near term.
That future (of many possible futures, including the one where it gets outlawed and falls 98%) puts in a top of $380,000 by Christmas, falling to $125,000 next year (still a double from today).
And here’s how that looks on a log chart-
That’s pretty ho-hum, normal behavior for Bitcoin.
Am I saying ‘buy Bitcoin’? No; only one person gets to make those decisions for you, and that’s you. Build your intestinal fortitude and do your own research.
What I am saying is that Bitcoin is the ultimate binary asset. It either goes to the moon, or drops 98%. It could still do both. Some would say it’s already been to the moon and back, and now it’s headed for Mars.
Trade accordingly (i.e. small position size), and have a plan for either scenario, the best- and worst-case.
So, gold or Bitcoin, Bitcoin or gold? Well, that’s not a question anyone need’s to ask. The world is a better place with both of them in it.
It’s not gold or Bitcoin, it’s gold and Bitcoin.
FedCoin
Whether or not they outlaw Bitcoin, digital currency is here to stay.
The Fed and Uncle Sam will launch some version of ‘FedCoin’ or ‘FedWallet’, issuing your family digital US Dollars (digi-dollars) in future rounds of stimulus or Universal Basic Income (UBI).
But only if you’re good (libertarians and homeschoolers, be warned).
Once they rollout digi-dollars, they’ll eliminate cash altogether.
This will allow (a) visibility into how much you spend/save, and where you spend, and (b) control, issuing digi-dollars that can be spent only in ways they want, directing money to handpicked patrons of the economy, inflating away debts selectively, and stimulating growth where and how they want.
We’ll be like their little marionettes, dancing to the tune of the Federal Reserve’s merry band of cronies-
Eventually, you’ll own nothing, and like it, but first they’ll fit your endpoints with strings and wiring, oil up your joints, inject you with messenger RNA, and run experiments on all the little puppets.
Most Americans will unknowingly welcome their own demise, riding the dole and cheering for more, but FedCoin will also spur more of us into alternative forms of savings like gold, silver and Bitcoin.
Digi-dollar-injections are the Fed’s last hope, a mad dash to stay ahead of the debt-deflation that keeps trying to ripple through the system, correcting decades of malinvestment.
They can’t – we can’t – stomach a collapse, our castles made only of sand. But the boom brought about by credit expansion can be resolved in only one other way: a complete and total destruction of the currency.
That, my friends, is what we’ll get.
Full circle
Blockchain, cryptocurrency, and Bitcoin are here to stay, and along with precious metals and real estate, make up the primary escape hatches for when faith in dollars is lost.
When confidence goes, only one thing can bring it back: Gold-backing.
We just hope that Fort Knox isn’t empty, the gold rehypothecated ten times over, melted down and shipped for Tianjin to meet Xi Jinping in Beijing.
If it is empty, at least we got boatloads of plastic s—, two housing bubbles, McMansions covered in pink lawn flamingos, overflowing with worthless junk from Walmart and Party City, enough cocktail umbrellas to fill the Grand Canyon. Now sell off the National Parks and bring me another Volcano!
Tragic, if it were not so comical.
But it is comical, on a grand scale, to watch as they hoot and cackle, printing money by the trillion, passing arbitrary laws written by lobbyists, patting backs over shrimp cocktail as the Dow hits new highs and the oceans are emptied, blind to history, drunk on hubris, while the President stumbles around in a daze.
But unless you think these buffoons are out of gold (and won’t take yours), or that the government will get out of the business of issuing money, gold-backing is their only hope when the system breaks.
Thus, as we concluded in 2017, gold, the barbarous relic, will rise again. In the future of money, Bitcoin will not replace it, nor does it need to.
Gold and Bitcoin will run side-by-side, the analogue and the digital, both free, unfettered, and fair, and both offering a better future (alone or together) than the fumbling, fabulous folly of fiat.
You just might want to get your hands on some while you still can.
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