Alasdair Macleod – Global Fiat Currencies Will Burn While Gold & Silver Skyrocket

When fiat currencies fail, Bitcoin and gold are superb hedges.  Denominated in dollars, both alternative currencies will perform well.  But what happens when fiat collapses all the way to zero?  What will the price of Bitcoin be, if it no longer will be priced in dollars?

Eventually, Bitcoin will be priced in gold.  Because of its deflationary cap of 21 million, Bitcoin would probably still rise relative to gold, but with far less volatility.

https://kingworldnews.com/alasdair-macleod-global-fiat-currencies-will-burn-while-gold-silver-skyrocket/

It’s Not Really About Bitcoin Price Surging, It’s Fiat Currencies In Free Fall

https://cointelegraph.com/news/its-not-really-about-bitcoin-price-surging-its-fiat-currencies-in-free-fall

Panic Out Of Fiat Currencies Accelerating Around The World

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/8/18_Panic_Out_Of_Fiat_Currencies_Accelerating_Around_The_World.html

Bitcoin: Is it a Legitimate Currency?

I've known about Bitcoin for a couple years, and in hindsight, I should have acted on it and bought a few.  The recent price surge early in 2013 from a few dollars to its peak to $260, and subsequent crash to its current level of $100 is prima facie evidence that Bitcoin is a legitimate currency, traded in a market exchange.

In previous eras, items as diverse as seashells and tally sticks (animal bones and wood) have been used as currencies, as well as gold and silver for the past 6000 years.  It is well established that during World War II, cigarettes and whiskey bottles were used as currencies.  Enterprising soldiers in Iraq and Afghanistan knew the value of cigarettes amongst the troops.  Cigarettes have been currencies in prison systems for decades.  Where cigarettes are banned in prisons, postage stamps have been the currency of choice.  Certificates and paper currencies have enjoyed monopolies by government decree, but they've certainly had competitors along the way, including black market exchanges.

One Bitcoin aficionado reminded me that toilet paper was a valuable asset during the Serbian-Croatian war.  So to suggest that Bitcoin is not a legitimate currency is naive and wrong-headed, mainly because it has already been in use for three years running, but also because many other seemingly odd items have been used throughout monetary history.

Hard assets bugs may cringe at the thought of Bitcoin as a currency competitor to global paper currencies, but they also miss the point that Bitcoin is supplementary to precious metals, even if it is not a direct competitor to gold and silver as currencies.  Whether it has also contributed to the recent plunge in gold and silver prices is debatable, but its standing as a legitimate alternative currency isn't.

From that perspective, Bitcoin is a DIRECT competitor to gold and silver--at least in this nascent stage of its existence.  Before gold bugs throw tomatoes, I emphasize this observation realizing that gold and silver have NO competition as sustainable and durable MONEY in the long run.  The existential debate of money vs. fiat currency is of wider scope, and can be searched throughout other blog entries.

When currencies collapse, the issuing empire collapses.  That is not debatable, as history shows a 100% correlation for those inevitable outcomes.

My Bitcoin enthusiasm was fueled by my attendance at informal Bitcoin meetups in San Francisco and Sunnyvale since 2012.  What raised my antenna was the presence of representatives from Paypal and VISA at one of the meetups last spring.  That's when I knew these multi-billion dollar financial behemoths had an eye to the future, a world of minuscule transaction costs competing against the industry-standard 3% spread.

In the mean time, gold and silver prices remain undervalued, because there are competing, fiat currencies which the masses still have confidence in, despite their pervasive and persistent devaluations.  Holders of said currencies will eventually discover the ravages of a currency collapse in a "When Money Dies" scenario <click here>.

Trust is being slowly eroded in those fiat currencies, and while some currency dissidents will naturally migrate to gold and silver, a growing minority are choosing Bitcoin and other virtual currencies out of necessity (they have low savings) or by choice (they typically are also anarcho capitalists).  Anarcho capitalists are technologically savvy, libertarians, and prefer the pseudo-anonymity of virtual currencies.  They respect the sovereignty of the individual in a non-aggressive fashion.

The outcome of Bitcoin appears binary:  Bitcoin and other virtual currencies will become wildly successful, as they gain traction and become more mainstream.  Or they will collapse, due to a variety of variables, including security breaches and predatory cannibalism.  I'm betting on the former, as virtual currencies are competitive and cooperative simultaneously.  For instance, Ripple may be a competing currency, but it also legitimizes the virtual currency infrastructure--a validation of Bitcoin.  Dilution and unfettered proliferation are the major concerns there, but the growth of participants will outstrip the growth of currency units.

One pro-Bitcoin talking point superimposes its current adoption trajectory to the early stages of the internet, when a dial-up connection was the only choice.  Another anecdotal observation is Bitcoin infrastructure courses are now offered at Stanford University, the world's preeminent educational institution for technology entrepreneurship.  Google Ventures and Andreesen Horowitz invested in the aforementioned OpenCoin's Ripple.  Peter Thiel led a round of financing for TransferWise.  The list of venture capitalists funding virtual currency ventures is a Who's Who of silicon valley tech titans.

Bitcoin's decentralized infrastructure doesn't immunize it from government shutdown, but it at least provides some protection.  Similarly, the demise of Napster did not precede the end of file-sharing.  To the contrary, it ushered in the subsequent proliferation of BitTorrent, due to its decentralization.  Both have peer-to-peer protocols which provide collateral "forking" should some branches get shut down or become polluted.

With Prism NSA surveillance exposed, there is no doubt that Bitcoin's pseudo-anonymity is being monitored by the government.  The Department of Homeland Security seized Mt. Gox’s Dwolla account.  Mt. Gox users can no longer use the popular Dwolla as a funding option.  A drug dealer was recently raided by law enforcement via the Silk Road marketplace.  The benevolence of the Bitcoin community assisted in bringing justice to dirty money, instead of sheltering the perps.  Integrity and peer pressure enhance the Bitcoin marketplace.

The biggest concern for the viability of Bitcoin is the preservation of Bitcoin's cryptography, the protection of a Bitcoin user's wallet.  A black hat intruding the security of cryptographic constructions would crash Bitcoin with lethal force, inflicting more damage than any government agency could.  Having said that, its 256-bit encryption is virtually impossible to crack.  Again, the operative word is "virtually".  The one constant is the security arms race will continue to escalate exponentially.  Having said that, the computing power needed to hack Bitcoin's encryption is mind-boggling in today's world.

But then again, this tech icon made this prediction:

"No one will need more than 637 kb of memory for a personal computer—640K ought to be enough for anybody," Bill Gates, Microsoft, 1981.

Bitcoin coders are some of the sharpest in the world, and will do everything in their power to protect the sanctity of its encryption.  The element of trust needs to be in place, much like trust is inherent in fiat currencies.  Hopefully, that trust isn't violated with Bitcoin, as it has with our financial overlords via currency debasement and re-hypothecated theft.  And that Bitcoin advocates aren't re-introduced to the phrase "counterparty risk."

To this gold bug, I do not dismiss Bitcoin's role in competitive currencies.  But long-term, Exter's pyramid <click here> still rings true on gold's store-of-value function.  Precious metals will remain the fundamental foundation of sound money.

Will that prevent Bitcoin--or other virtual currencies, from gaining acceptance?  Absolutely not.  It's legitimate.  It's growing in stature and influence.  It's backed by some of the brightest coders and forward-thinking corporations.  It's decentralized.  It's global--beyond national borders.  It usurps government oppression.  It's fungible.  It's adaptable. It's community-based.  It carries low transaction fees.  And the 21 million unit cap preserves scarcity.  That's enough incentive to buy a few--just in case.

Perhaps libertarian gold bug Ron Paul summed it up best in this interview:

http://www.zerohedge.com/news/2013-04-23/ron-paul-bitcoin-if-i-cant-put-it-my-pocket-i-have-reservations

"To tell you the truth, it's little bit too complicated. If I can't put it in my pocket, I have some reservations about that. But it has been designed in the free market. If it is a means of exchange, it would not ever be illegal. You shouldn't regulate it in the free market, but I do not think it fits the definition of money, which has been around for 6000 years.

People want to see something they can know what it is, they can define it, touch it and put in their pocket. If you do not have a computer and someone running the computer and calculations, you don't have it. I am not a big supporter of that, but I am not opposed to it. I admit, I do not fully understand what is going on with it."

Visualizing The Collapse Of Fiat Currencies

http://www.zerohedge.com/news/2013-05-07/visualizing-collapse-fiat-currencies

Race to Debase - 2012 - Fiat Currencies vs Gold & Silver

http://goldsilver.com/article/race-to-debase-2012-fiat-currencies-vs-gold-and-silver/

Race to Debase – 2000 - 2012 Q3 – Fiat Currencies vs Gold & Silver

http://goldsilver.com/article/race-to-debase-2000-2012-q3-fiat-currencies-vs-gold-and-silver-%284%29/

Race To Debase - 2012 Q3 - Fiat Currencies vs Gold & Silver

http://goldsilver.com/article/race-to-debase-2012-q3-fiat-currencies-vs-gold-and-silver/

Confidence in Fiat Currencies is Beginning to Collapse

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/6/20_Turk_-_Confidence_in_Fiat_Currencies_is_Beginning_to_Collapse.html

Richard Russell: Rising gold signals death of USDollar

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/10/4_Richard_Russell_-_Rising_Gold_Signals_Death_Knoll_For_US_Dollar.html

In 1971 (Vietnam and deficits) when foreign nations (particularly France), demanded that the US settle its deficits with gold (as specified in the Bretton Woods Agreements), Richard Nixon and staff were worried about our disappearing gold reserves. Their answer to settling our debts in gold was a resounding and historic "no." In doing so, they shut the gold window. Thus, the time-honored link between the US dollar and gold was broken. The US would no longer give up its gold to settle its international debts. At that point, the US and the world went completely off the gold standard. The US dollar would then be the world's reserve currency.

Without the discipline of gold, the Bretton Woods agreement fell apart, and central banks were free to create fiat currency out of "thin air," as much of it as they wanted. The ignorant public accepted the intrinsically-worthless fiat money. "Now we're all Keynesians, " said a shaken Nixon.

The phony prosperity since 1971 was built on a Fed-created fantasy currency. Fantasies can only last so long -- until they meet head on with the brick wall of reality.

Thus, I believe that the very fundamentals of this bear market will be an epic clash between a world built on fiat money and a return to the reality of intrinsic wealth.

This bear market will be about the collapse of fiat money. In all history, no fiat currency has ever survived. The fundamental of this bear market will be about the collapse of the world's fiat currency and all the fake prosperity that has been created through fiat currency. In other words, cold reality will prevail. The people of the world will, at last, realize that money by fiat is not reality, it's fantasy money and a dream created by man.

In essence, what we're seeing now is a battle to the death between intrinsic money (gold) and the fiat paper created by the world's central banks.

The magnificent slow motion collapse of the fiat system which you are now witnessing will consume some individuals around you who are not prepared. This time it is global, and when the dust settles you must own real money - gold.

Greece downgraded

Greek equities and bonds tanked as their government debt was downgraded by credit ratings agencies, as fears of a default were raised. I predicted that after Iceland's economy collapsed, other countries would follow suit. Other countries at risk of default include Dubai, Ireland, Latvia, Hungary, Argentina, Venezuela, Lithuania, Ukraine, Japan, Spain, Italy, the UK, and believe it or not, the US, as all these countries are technically insolvent, burdened with too much debt. The cascading dominoes have only begun to fall...

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6755179/Greece-put-on-standby-for-debt-downgrade.html

The USDollar will eventually share the same fate as the Drachma, as do all fiat currencies.