A subscriber has some thoughts and questions about bitcoin and Libra
Since the big up and down of bitcoin a year or two ago, where my 21 YO neighbor was telling me how I need to get in on this, I only saw it as the biggest Ponzi scheme ever and the prototype for the mark of the beast. Not that I have any financial expertise – I’m not suggesting bitcoin can’t be profitable for some but, I also can’t help wonder why the anti-fiat money people don’t ask the simple question. Who is willing to take lots of “worthless” dollars and give in return this electronic hocus pocus? I mean we are not talking about gold bricks, rare classic cars, art, property or whatever. It’s pixilated characters on a screen?
Having this idea in my head along with your analysis about the gov’t buying assets [actually, private central banks], I wasn’t sure exactly how to phrase my search. The correlation [of cryptos rising], while gov’t debt is on the rise may suggest that those who are giving up the dollars are in fact funding the gov’t debt. You mentioned this about the Libra and I just transposed it to bitcoin to help my search and found this article –
Is bitcoin essentially a financial instrument created by the bankers to get more money to buy debt? Unlike the Libra that is being set up as the new currency with backing from the same players that run our current system.
These are all actually very reasonable questions. Let’s address them.
As for bitcoin being a ponzi scheme, I would disagree in that an asset’s value is based on what people believe it to be. Thus, if investors believe bitcoin to be worth $10,000 or $100,000, and the supply and demand equation support those levels, then that’s what btc is worth.
Beware of the shill articles
Income-generating assets like stocks and sports teams move higher as sovereign debt levels rise and interest rates fall. I will not make that same claim about assets like gold and bitcoin, which is short-term at best.
The average NBA team is worth $1.9 billion, up 13% over last year and three times the level of five years ago. The New York Knicks lead the way, worth $4 billion by Forbes’ count, up 11% from a year ago. (And owner James Dolan says he’s been offered even more: a cool $5 billion.) The club is tied with the New York Yankees as the second-most-valuable U.S. sports franchises after the Dallas Cowboys, which is worth $5 billion.
NBA Team Values 2019: Knicks On Top At $4 Billion – Forbes, Feb. 6th
First, let me discuss the typical shill articles that populate the crypto and gold spheres. Let’s look at the one this subscriber sent.
This is the typical flimsy research that asset shills put together. Bitcoin will rise and fall on its own merits, so if the amount of negative-yielding debt levels fall from here, don’t make the mistake and assume btc will also decline. I bet that if the amount of sub-zero debt drops, this writer will talk up btc, because he will argue that with rising yields, economic collapse is just around the corner and btc will be the asset of choice.
You see the circular logic. This is the same type of shilling that takes place in the gold bug community. It is all designed to promote an agenda, and it starts with you accepting the logic and buying the product.
All other things being equal, when interest rates fall, the prices of income-generating assets rise. This is especially true of assets that are priced off the yield curve. But it can also hold water with other types of assets like gold, silver, and bitcoin, which do not generate income. However, it has been my experience that this relationship with non-income generating ones is often far than perfect. We have seen instances where gold has risen in a rising rate regime (late 1970’s, mid-2000’s) and falling while rates dropped (early-mid 2010’s). The same can be said about bitcoin (rising during the latest Fed tightening and rising in this dovish cycle), so I will never assume that there is a relationship between interest rates, debt levels, and bitcoin. It is a simple, short-term one at best.
Is bitcoin just another way to help support sovereign debt generation?
I marvel at the amount of generated vitriol directed at Facebook with its proposed Libra. I find it amazing that many of the crypto shills have sided with Facebook’s blockchain creation. If the authorities embraced Facebook’s Libra with open arms, the crypto shills would have raised hell. But the manufactured opposition has provided Facebook with an unexpected partner; the blockchain enthusiasts that support all things blockchain.
I do find the timing of bitcoin’s creation quite interesting. We now have a new asset sector that is worth hundreds of billions; all auspiciously timed to coincide with the explosive rise in sovereign debt generation. All assets help to sustain the current system, so the more in total value we have available, the more debt that the world can absorb. The young folk, who have been shut out of home ownership and the sharp rise in stock values now have an asset they can call their own. Good for them. The elites are happy and so are the crypto bulls.
My only concerns with bitcoin as a currency rests in its decentralized nature. There is no debt backing it and it is too volatile to ever be a currency. If bitcoin became the global currency, the economy would collapse, because mathematically, there is not enough available and its price volatility would render business contracts too risky to undertake if priced in bitcoin.
A stable coin is needed and it seems to me that Facebook has delivered the Libra, which addresses all of bitcoins shortcomings (as a transaction currency), while working with the existing global hierarchy. It will be backed by debt and the amount of Libra will rise over time. As a globalized stable asset, I can imagine contracts of all sorts eventually being negotiated with Libra.
I marvel at the amount of generated vitriol directed at Facebook with its proposed Libra. I find it amazing that many of the crypto shills have sided with Facebook and its blockchain creation. If the authorities embraced Facebook’s Libra with open arms, the crypto shills would have raised hell. But the manufactured opposition has provided Facebook with an unexpected partner; the blockchain enthusiasts that support all things blockchain.
I can’t help but think how this dialectic process was probably planned a long time ago.