QUESTION: I had a discussion with a former goldbug who is now a crypto-bug. He can’t see that governments will not stand idle waiting to be simply put out of business with cryptocurrencies. No matter what you say, I think it has become a religion. There is not one major company who has adopted blockchain currency. No matter what you say, you are just not with it. They resort to name calling which is the typical sign that you are dealing with a religious fanatic. They really think that they can end the creation of money by ending bank lending. When I said do you realize the entire world would collapse, he responded that you can lend Bitcoin. Am I really missing something here? If you replaced all money with Bitcoin and banks started lending that, what is the difference?
LE
ANSWER: They seem to be mixing apples and oranges. The economy in prisons is a fascinating example. Money is outlawed so what first emerged as “money” in prisons was cigarettes. It did not matter if you smoked or not. The prison economy used cigarettes as money. There were people he knew how to be a tailor. They would fix people’s clothes and you paid in cigarettes. Cigarettes were acceptable BECAUSE he knew he could use them to get something he wanted even if he did not smoke. There were people who were artists and they would make hand-crafted cards for any occasion. There were people who did legal work. Others could repair radios. A whole economic society exists behind bars demonstrating Adam Smith’s Invisible Hand. Money is an agreed-upon unit of account/medium of exchange that everyone accepts even if you had no personal; desire to use it.
Then prisons banned cigarettes and the replacement money became a fish – packets of mackerel in federal prison or Ramen Noodles in others. In fact, Charlie Shrem spent time in Federal Prison and he saw how the mackerel economy functioned in the place of money. He became one of the early developers of Bitcoin exchanges based upon his prison experience.
If we are talking about simple Bitcoin as a trading vehicle, then fine. We added it to the Global Market Watch and Socrates because it is a tradable asset. It is really just like everything else that trades. Socrates called the high in BitCoin simply because it complied with the trading patterns like everything else that is really not the asset, but how humans interact with that asset (Behavioural Economics). Its value is based upon ANTICIPATION and that need not be real, possible, and it may be outright impossible. If you believe in something you react according to your beliefs even if it is completely irrational.
In trading, we have always said: “Buy the rumor, but sell the news.” There are countless examples from history that demonstrate that a rumor of a president died of a heart attack or something moves a market only to find out it was false or he survived.
On Saturday afternoon on September 24th, 1955, on the eighth hole of the Cherry Hills Country Club golf course, just outside Denver, President Dwight D. Eisenhower, 64, started complaining of indigestion, which he attributed to the hamburger with Bermuda onions he had eaten quickly between his morning and afternoon games. Then within 24 hours, the American people were informed that the president was in an oxygen tent at Fitzsimons Army Hospital being treated by one of the best cardiologists in the country. The ANTICIPATION hit – would he live or die? When the markets opened on Monday, September 26th, Wall Street crashed with the Dow Jones plummeting over 6% losing a stunning $14 billion in value on that day. The economy was going great. There was nothing to be concerned about on that level. Eisenhower’s heart attack, however, caused a major financial scare all based upon ANTICIPATION of what exactly is difficult to ascertain. If he died, would that really have changed the economy? Of course not. Rational thinking does not amount to much when faced with the unknown.
The fax machine was invented when the telegraph came in during the mid-19th century. It took 100 years before it was actually a viable product in the economy. Cryptocurrencies are trading vehicles. Those who pound their chests and call people names who disagree with them are indeed revealing it is a religion to them. Another maxim among traders: “Never marry the trade!” Cryptocurrencies will NEVER replace the dollar or world currencies. Do you really think governments will simply allow such a venture to take all their power away without a fight? Cryptocurrencies are worthless without a power grid. That is a disadvantage even to mackerel. That said, it does not stop BitCoin from being a trading asset, but it is not money. It trades on a belief system of some that are completely irrational of which you will NEVER convince the majority to agree with them any more than they could with gold. They judge the entire world based solely on what they believe and declare the rest of the world is wrong and only they are correct.
My father taught me a valuable lesson. It does not matter what you believe – it only matters what your opponent believes. He fought in World War II with General Patton in North Africa all the way to Berlin. Field Marshall Erwin Rommel (1891 – 1944) was a German general and military theorist. He wrote a book, Infantry Attacks, which was a strategic military theory. General Patten read Rommel’s book and defeated him in North Africa. My father told me that when Patton won, he yelled: “Rommel I read your book!” You must always understand your opponent. If you proclaim that you are right and everyone else is wrong, that is a sign of self-delusion inherent in being a fanatic. Understanding governments as I do, the opponent will not slither away and hide like a snake. It will attack with its fangs exposed.
The monetary system will come to an end as we know it today. It will be replaced with an electronic reserve currency among nations. That will NOT be something that you use to go shopping with. I do not care what you call money. It is nothing more than a unit of account and a medium of exchange. It historically sits on the opposite side of assets. BitCoin is still an asset – it is NOT money. If BitCoin were money, then it would decline in purchasing power when assets rise. Even the big tech companies Google, Apple, Amazon, and Facebook, have all pretty much not been impressed with Blockchain. Bloomberg News has also reported that not a single big IT player is interested in Blockchain and that includes Alphabet Inc., Apple Inc., Amazon.com Inc., Facebook Inc. and Netflix Inc.
If you can’t inspire the big boys who fund the cutting edge in IT, you are not likely to fulfill the dreams of the new Crypto-Religion. In discussions, I have had at high-level corporates and at central banks, the feedback is rather interesting. The corporates see this as a losing game and respect that they would be persona-non-grata if they dared to try to overthrow the government’s monetary system. It certainly is not to their advantage. A number of central banks I have been in meetings which have expressed interest in creating their own cryptocurrency only to control the money even more.
The likelihood of any cryptocurrency replacing the world monetary system causing governments to collapse is ZERO for decades to come. He who has the guns, tanks, and soon robot soldiers who will shoot to kill without hesitation, rules the monetary system – PERIOD!
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