Gold vs Bitcoin: (Hint: One’s a Fraud)

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Midas Letter

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

The prevalence of disinformation in our Google-controlled public discourse would make even George Orwell blush. Nothing is ineligible for dispute, and “data” upon which arguments are based is derived from blog posts deemed authoritative if shared more than a few times.

The result is a population susceptible to every manner of fraud, even by those who should theoretically know better, as was amply demonstrated by Bernie Madoff.<

But the biggest fraud of the century, aside from the US dollar, is Bitcoin and Cryptocurrencies generally.

This position is not popular with the young programming set whose entire net worth has been derived from this novel convergence of programming and electricity.

That there is no tangible result should be all the evidence any rational, history-steeped observer should require to reach this conclusion.

But thanks to this modern era of double-speak, truth is subjugated to opportunity for financial gain.

And so, Bitcoin, and its (so far) 4 inflationary “forks”, and the thousands of other crypto “currencies” that appear and evaporate with the lifespan of birdsong, are now “a thing”.

Hard Fork Blockchain
Image by Julie Bang © Investopedia 2019

And as the thing for what we shall politely refer to as “digital monetarists”, the bandwagon it has formed is reminiscent of a snowball rolling down a slope: it gets bigger with momentum.

For most Adderall-addled, gnat-like attention span millennials; this is all the proof required to certify Bitcoin’s legitimacy.

But with the United States, the International Monetary Fund, the World Bank, and the European Central Bank all poised to issue and/or certify various flavours of digitized sovereign currency, the inflationary explosion of digitized currencies to represent all the value in the world is set to increase exponentially.

And through this process, the nominal value of the single most trusted tangible monetary unit in the history of humanity is being devalued.

Think about this for a second. According to a quick Google search, the world’s total gold value equates to $7.5 trillion. Now, if all the gold in the world was to be valued in ten units of a currency whose total number issued and outstanding was ten, then you would have to divide that $7.5 trillion by ten to get a gold-equivalent value measured in that currency.

That calculation implies a value of 750 billion. Theoretically, the purchasing power of each unit would be equivalent to $750 billion US dollars.

But if I take all the gold in the world and measure it according to a digital monetary unit of which there were 7.5 centillion, which is equivalent to 1 x 10 to the power of 303 (10^303), then the purchasing power would be equivalent to a microscopic fraction of that buying power in USD.

This is assuming that the available information from which to assess value was freely available, and the rules governing its relative value and status as legal tender were agreed upon by all nations.

But if the value of such a debased monetary unit were to be determined by some arbitrary process – for example, what we now call the “free market”, where value is ascribed according to what any other party is willing to pay, then for all intents and purposes, the purchasing power of each of these units might still be $750 billion USD.

This is the fraud the US dollar is predicated on. If sophisticated investors are willing to pay a certain price for a thing, then that thing must be worth what they pay.

If 10 sovereign investors decided that .14% is a reasonable rate of interest to lend money to the United States (low-interest rates being ostensibly commensurate with the risk of ability to repay), then we are expected to accept that this is a reasonable cost of a dollar.

Thus, the conclusion is that $133 trillion in US sovereign debt is a viable and totally reasonable debt load, and the United States as a borrower is sound and trustworthy.

Never mind that all living generations would not be able to pay down even the interest on this debt through a lifetime of salaried employment.

U.S. Total Public Debt vs GDP
Image by Marcus Lu & Joyce Ma © 2020 Visual Capitalist

Nevermind that if you divided up all of the US dollar-denominated REAL assets (we’re not talking fiat currency, or securitized debt, or collateralized loan obligations, or futures, or options, or any other non-tangible form of value), the total value wouldn’t amount to 10% of that, arguably.

Now think of Bitcoin as a sovereign digital currency with no basis in any value – real or fiat. There is no nation to guarantee its value, and its nominal issue is determined strictly by the whims of a community of programmers.

If you willingly accept payment for something that you sell in a form that is not legal tender, you are not the victim of fraud if the unit of value you have accepted payment is properly described as what it actually is.

BUT…if somebody pays you in something that claims is legal tender, where it is not, then you have been legally defrauded.

And this is where the only question remains as to Bitcoin’s status as a fraudulent monetary unit. So far as is publicly known, nobody has claimed that Bitcoin, or any of its derivatives, is legal tender.

Because it lies only within the purview of the law to determine what “legal” tender is, and only governments have that power.

This is why gold’s status as legal tender has been terminated by the agreement of the prevailing developed world’s governments. 

Gold-vs-Cryptocurrencies
Image by J. Rotbart & Co.

With the finite amount of gold available for use as a monetary basis, the hyperinflation of currencies would not be marketable since the gold price would act as a modulator as a competing monetary asset class.

This is also why Bitcoin is being allowed to proliferate without a recognized status as legal tender. Under the cover of non-sovereign hyperinflation of digital currencies, government-backed digitized currencies are more easily sold as legitimate to the governed population.

The available volume of gold on the planet cannot be increased by a snippet of code or an act of congress. 

Its debasement is not possible, physically or theoretically.

As a democratic standard of value to measure anything else that would propose to be a legal tender, it is without peer.

Each ounce is produced only through great effort and long timelines, and thus is it is a metal rightfully defined as precious.

Long after Bitcoin is a historical footnote, and the United States ceases to exist, and even humanity perishes on the infinite timeline of existence, all the gold in the world will still be here, in one form or another.

And that, in a civilization informed by real, disinterested information, is all that should matter.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.