It was quite a week in money. Gold popped above $1430. The spectacular pump and dump of Bitcoin on Wednesday was something to behold.
No sooner had I published a post about it then the market seized up while I was taking my normal Wednesday evening sabbatical from the grind of politics and markets.
Coinbase went down. The price plummeted 25% and my blood pressure didn’t even move. I’ve been a gold and crypto guy so long ‘heart-stopping’ volatility is for other people.
That said, Bitcoin’s volatility is real and that’s because it is an asset in the process of becoming fully capitalized. It’s an asset that goes through the most extreme emotional roller coasters because it is also trading in immature and unregulated markets.
That volatility is used by some in the hard money/Austrian economics community to argue against Bitcoin and/or cryptocurrencies as potential money. But that is simply specious argumentation.
Sounding Off on Bitcoin
Bitcoin has all the attributes of a sound money like gold — scarce, hard to produce, property right is guaranteed, immune to counterfeiting — with the exception of it having its transaction history kept digitally.
Gold has no transaction history like Bitcoin. In fact, in that respect, blockchain-based digital assets have a clear history of title transfer. My only regret with Bitcoin is that Satoshi Nakamoto didn’t publish the white paper before Murray Rothbard died.
Because Rothbard would have loved Bitcoin. He would have seen, as I did, nearly immediately, that Bitcoin, while radical, was the answer to the limitations of gold as a reserve asset while still having most all of gold’s advantages.
I wrote this back in June 2010 about these “digits” that are as “good as gold.”
So, yes, digits, which I said I believe to be the future of money, sadly. But, these are digits whose movements are verified by hundreds of incentivized auditors 24/7/365. Hell, the FED won’t submit to a one-time audit by those for whom they supposedly work! Yet we are loath to stop using their product.
I see Bitcoin as a metaphor for the Web itself. It is what happens when people of common tastes are able to find each other over vast distance to find their niche in the division of labor. Synthesizing cryptography, programming and monetary theory into a unique offering could not have happened without the Web; itself that which subverts attempts at control as a natural consequence of its own structure. Any success Bitcoin enjoys exists as a means to an end (improving how humans interact via mutual exchange), not the end itself (adoption in the marketplace).
When I wrote that final point I never thought in a million years Bitcoin would be as successful as it has been. It’s light-years ahead of what I thought it could become.
The Enthusiastic Skeptic
I was skeptical about it even though I dabbled in the community from the very beginning. Believe me, I wish I had the courage of my initial intuitions.
So even when it became successful and I’d lost my initial stash of them I was never bitter about Bitcoin. When gold peaked in 2011 and then crashed in 2014, crushing any hope of a return to bull status until, literally this week, I wasn’t envious of the Bitcoin millionaires running around.
I’m just glad I woke up from my skepticism to see that the world grew up while I was lost in the desert for a few years.
That said, I’d like to believe I had a small hand in helping early adoption of it by forward-thinking Austrian economists to put it through the rigors of Mises’ Regression Theorem, which, to me, came easily.
The best book on the subject I’ve read is Saifedean Ammous’ The Bitcoin Standardand for those who still don’t get it, I recommend it highly. And none of this is to take anything away from gold as an asset.
You do note the title above the by-line right?
But given the digital world we live in we have to admit to ourselves that digital money is the future, even if that digital money is a tokenized form of physical gold. An economy that is capable of coordinating the actions and desires of people all over the world demands a money that is settled at the speed of light.
I don’t think anyone is in doubt about this. The question is who should be in control of the settlement? The Fed? SWIFT? The banks? All of these people have a fiduciary interest in protecting their businesses. All of them are corrupt to the core because all of them have access to the money spigot.
Flowers for Bitcoin
The analysis that gold is a cure for this is the correct one. But as Lew Rockwell taught me while working with me on the above article about Bitcoin (he made me rewrite the ending before publishing it), there is no one solution to any societal problem.
The phrase he uses is “Let a thousand flowers bloom.” In other words, because you see a solution doesn’t mean it has to be the solution. The implications for that statement are profound, by the way. They cut to the core of what is wrong with our politics.
Twenty people running for the Democratic nomination and all of them raised their hands about supporting Medicaid for illegal aliens.
“Yes we are all individuals!” (Life of Brian)
It reminds us to remain humble while searching for answers. Because while we may not have a good answer to a problem that doesn’t mean one 1) doesn’t exist or 2) hasn’t been found by someone else.
In my enthusiasm the first draft of that article had Bitcoin cast as the solution to the problem of central banks. Lew slowed my roll, and rightly so.
Because today even in cryptocurrency circles there is real dissension as to which coin will rule them all or what the right blockchain should look like.
The best answer is, as always, let the market decide.
The fact that there are thousands of cryptocurrencies out there and no less than a dozen high-quality projects looking to improve on Bitcoin’s original alpha code that went viral is proof positive of Lew’s initial insight.
The Dismal Science
That’s why I am still so taken aback by good Austrian economists who simply don’t get it. From my blog at Money and Markets:
Even if you hate Bitcoin with a purple passion you can’t ignore the fact that hands down over the past few years it has been one of the best performing assets in the world. Peak to peak or trough to trough analysis has Bitcoin at a twenty-bagger.
In late 2012 Bitcoin hit a high of $1093. In January 2018 it hit a high of just over $20000 on some exchanges. According to Investing.com’s Bitcoin Index, the January 2015 low was $157.30 and the December 2018 low was $3177.00.
Gold, by contrast, went on a seven-fold run from 2001 to 2011.
Only the worst case of envy would have you still reflexively bearish on Bitcoin at this point especially as a hard-money advocate.
The idea that Bitcoin is just like gold is utter nonsense. Bitcoin is nothing like gold. It’s fool’s gold. There is not a single use case where Bitcoin can be used as a substitute for gold. Plus the gold price never falls by over 25% in less than 24 hours!— Peter Schiff (@PeterSchiff) June 27, 2019
But, then again, there’s no cure for being Peter Schiff.
And that’s sad to say because a decade ago Schiff was someone I looked up to. Now he’s just another Wall St. punter wedded to his single solution, gold.
And he’s not alone in the Austrian community.
When you’ve wedded yourself to a particular idea long enough,gold, it’s easy to misread the changes staring you in the face. Technology changes the definition of money all the time. It is a constant of history.
And the thing about the free market is that it doesn’t care about your opinions or ‘muh fealz.’ It just does its thing, responding to the needs of the people who make it up.
The Money Choice
Bitcoin is an asset that is in the throes of the market exploring the limits of its capitalization.
It started at near zero and is now firmly above $10000. Could it go higher? Absolutely. Is it stealing some of gold’s thunder as a safe-haven asset? Resoundingly, yes.
Is that stealing some of Peter Schiff’s business? Oh, you betcha.
And I suspect that’s the real reason he hates it the way he does. He can see the writing on the wall. Gold will do well in this next bull market, but Bitcoin has already surpassed it and has the potential to do much better, if Dr. Ammous’ arguments in his book about the ratio of money supply to inflation rate are correct.
Schiff, to me, looks like the guy who built the perfect buggy in a world of the Model T and a great example of what Lew Rockwell cautioned me about nearly a decade ago.
The lesson here is don’t be that guy. There is nothing I’ve learned more forcefully from the market than the futility of my own arrogance. It’s why I advocate holding cash, gold and a basket of cryptos.
And it’s why I refuse to take seriously anyone who tells me there is only one solution to a problem.
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