Bitcoin and the Apotheosis of Gold Bugs
Bitcoin’s rally is all the news. It’s got the gold bugs all aTwitter as they watch their preferred safe haven asset of choice get upstaged again and again by the upstart, Bitcoin.
Every day it seems like another establishment media organization goes out of its way to give Bitcoin haters like one-note Peter Schiff an audience. The latest is Fox Business.
I can’t tell anymore if they’re doing this to discredit Bitcoin, gold, Schiff or all three consecutively and concurrently….
… and from a great height (apologies to Tom Stoppard).
Here’s your latest howler from Schiff courtesy of a tweet from the irrepressible James Woods obviously looking for a good conversation:
What’s funny about that statement is that it can be applied to gold just as easily as it can be for bitcoin. Let’s try it and see what happens.
“There’s no real use for gold,” Schiff would never say. “All you can do with gold once you buy it is sell it, but you need somebody else to buy it from you. It’s a massive pump-and-dump.”
— Said nobody credible…. ever.
The Golden Rule of Gresham’s Law
Today no one settles anything of note in gold. The places that allowed it recently, like Vietnam, demonetized gold and drove it underground by the State Bank of Vietnam in 2012.
When’s the last time Peter or anyone else did anything with gold other than exchange it for dollars?
The answer is never.
And don’t talk to me about any VISA debit card scheme he may have for his clients. Any gold payment system like that has a dollar-translation layer.
There’s no one on the other side of even that trade accepting digital grams of gold. It’s all nonsense in an economy like today’s. Sure there are a few systems like e-gold and the like out there with people doing their best John Galt impression, but talk to me about liquidity.
It’s lower than it is on a lot of these sketchy crypto-exchanges out there.
Moreover, anyone trading gold for dollars to buy candy bars or shoes with a VISA card is a patent moron. Because you then create a taxable event to have the privilege of paying capital gains tax on that transaction.
I guess it’s a good idea if you buy high and sell low.. you get a discount on your sugar high. Talk about a metaphor for the modern age.
Why would you do that when gold is supposed to be the ultimate store of value? Wouldn’t you buy that same candy bar with dollars and not incur the tax and the hassle? Pride?
That is what has driven gold underground, that and it’s lack of fungibility.
If you dig deep enough this is why the gold standard eventually failed. Lacked of divisibility is a real issue in an ever-expanding division of labor which the gold standard of the 19th and 20th centuries help develop.
It’s ironic but true. Gold created the conditions for its obsolescence as a medium of exchange.
Coupled with central bank malfeasance this is just good ol’ Gresham’s Law. Over-valued currency circulates (dollars) and under-valued currency is hoarded (gold). Nothing new, just the Law of Diminishing Marginal Utility getting a workout in real time by mostly rational actors in a somewhat free market economy.
And that same dynamic is in place with Bitcoin. It’s taxed in such a way that it precludes you doing anything with it because of the danger it actually represents to the ‘real economy’ backed by digital fiat debt-based dollars.
“What do you want?” – Information.
I honestly don’t know what’s up with people like Schiff and his disciples at this point. We all accept the fact that dollars today are 95% digital. We may not like it but we have to accept it, especially if you accept the very real argument about liquidity and fungibility.
They are just ledger entries in encrypted databases around the world.
The main difference between them and Bitcoin is that an algorithm decides how many are produced over a certain period of time (6.25BTC every ~10 minutes) versus dollars which, Peter rightly points out, is the plaything of the Federal Reserve, the U.S. Treasury Dept. and the offshore Eurodollar markets.
But digital money is here to stay. In fact, digital money is the future. The only question is whether you want a digital currency that you know the supply of which allows for the rational calculation of demand or one that can be counterfeited at a moment’s notice by some guy with his hand in the cookie jar?
But let’s dig deeper into this utterly facile and febrile statement of Schiff’s. Let’s go one step further. In fact we can adapt his statement to the dollar itself.
“There’s no real use for the dollar,” Schiff also never said, though he should have. “All you can do with the dollar once you buy it is sell it, but you need somebody else to buy it from you. It’s a massive pump-and-dump.”
Because when you use dollars you sell them to acquire the things you need. You exchange one thing for another. In this case goods.
All Peter did with his dumb quote is validate the very thing that he decries about Bitcoin, that it is, in fact a potential store of value and medium of exchange because you can, in fact, get things you need with it. That you have to get dollars before you get the things you want is immaterial.
In fact, is holding Bitcoin any different than buying a stock or a bond? A stock or corporate bond is a claim against the tangible assets and future revenue stream of a particular company, but is it a ‘pump and dump’ simply because in order to realize that value you first have to exchange it for dollars?
No, of course not. Well, except for Tesla, but that’s a different rant.
The reality is that bitcoin, just like a stock, a bond or gold is a store of value because it represents the past work of the people who validated the information encoded on the block chain.
And with every block so encoded value accretes to the block chain and the ‘coins’ by which it is represented. That traditional valuation models have no way to directly measure that value is irrelevant.
To deny that Bitcoin has any value is to deny the fact that information is a commodity. And that’s truly facile when, at its essence, that’s all an economy actually is, information. The goods that move can only do so efficiently with good information about their production and distribution.
Price is the value of the information being transacted.
Peter Schiff makes his living getting paid to dispense opinions on markets. His entire life is built on the idea that information concentrated in one man’s mind is worth something to someone else who is ignorant of that information.
That people like Peter Schiff deny this simple process by which something acquires and builds commodity value through time is also irrelevant.
It means that while Peter studied Austrian economics he just didn’t understand it.
And so did every other gold bug who continues to stack to the exclusion of HODLing.
The Critical Shift
It’s no secret that I’m a fan of Bitcoin. It’s also no secret that I’m a fan of gold. I love gold. I own it and advocate for it. I even advocate for it to have a place in any theoretical private cryptocurrency based monetary system.
But what I won’t do is short change the value of one of them at the expense of the other simply because my ego is too fragile to handle the idea that I may have been wrong.
Honestly, the biggest regret of my life (other than not having more children) is not seeing Bitcoin’s strategic value earlier or I would have so many of them I wouldn’t have to spend my days writing articles defending it from punters like Schiff who are just bitter because they’ve been wrong.
That said, the current rally is based on a fundamental shift in preference for those who rightly are scared of what a Harris administration will do to the dollar post-Great Reset.
In a nakedly tyrannical world like we live in today where states clamp down on the free flow of capital outside of its control, Bitcoin is simply better technology than gold is today.
And this is not to say there aren’t any good arguments against Bitcoin. There are, but Peter Schiff and the gold bugs never make them. I wish they would. It would actually make writing articles like this almost a challenge.
The current rally in bitcoin is telling us clearly that there is a new premier store of value asset because of the current state of the world. Maybe that’s really what Schiff is decrying, a world that has passed him by.
What’s becoming clear even to me is that gold will only be valued in relation to bitcoin going forward, not the other way around.
It’s sad but true. In my heart of hearts I wish it were different and not because of the structure of my portfolio or the name of my business.
It’s sad because it proves that we are moving into a different age where technology is depreciating the value of an asset which materially improved the lives of billions for millennia towards its commodity extraction limit.
And many gold advocates don’t want to admit that they have stood by while the fortune of two lifetimes has passed them by. That’s the bad news.
The good news is, given the chaos around the corner, there’s still plenty of upside left. Except for Peter Schiff, he’ll die on this hill unfortunately, just like his dad died in jail over denying the validity of the income tax.
At least his dad’s was a noble goal.
Denial is the surest path to getting your ass kicked by reality.