Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Adaptive Fibonacci Price Modeling System Suggests Stock Market Peak May Be Near - 15th Aug 20
With Gold Above $2,000, Bulls Triumph! What’s Next? - 15th Aug 20
Stock Market, Asset Price Crash Dead Ahead - 15th Aug 20
NASDAQ vs. DJIA: Does the Recent Divergence Matter? - 15th Aug 20
AMD Ryzen 4900x / 5900x and 4950x / 5950x Zen3 4th Gen IPC and Clock Speed and Core Specs - 14th Aug 20
Stock Market Gap Fills Suggests Market Momentum May Stall - 14th Aug 20
Silver May Be Overextended – But It’s STILL Cheap - 14th Aug 20
A Short Guide To Making Your First Stock Market Investment - 14th Aug 20
Is Tech Reality Affects our Dating Possibilities? - 14th Aug 20
Will You Make Money in the New Silver Bull Market ? - 13th Aug 20
Hyper-Deflation Capital Destruction And Gold & Silver - 13th Aug 20
Stock Market Correction Approaching - 13th Aug 20
Silver Took the Stairs to $21 in 2008, Took Escalator to $29 2010. Is Silver on Elevator to 120th floor today? - 13th Aug 20
President Trump Signs Additional COVID Relief – What To Expect from the Markets - 13th Aug 20
Has Gold's Upward Drive Come to an End? - 13th Aug 20
YouTuber Ads Revenue & How to Start a Career on YouTube - 13th Aug 20
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Cryptocurrencies: Modern Day Alchemy

Currencies / BlockChain Aug 21, 2017 - 04:39 PM GMT

By: Michael_Pento

Currencies

Cryptocurrencies make good currencies, but fail miserably when trying to achieve the status of money.
Cryptocurrencies are both created and held electronically inside a virtual wallet. These digital currencies use encryption techniques to regulate the generation of new units and to verify the transfer of funds. Cryptocurrencies operate independently of governments and are decentralized.


The most popular cryptocurrency now is Bitcoin. Bitcoin has risen in popularity because, unlike government-backed fiat currencies, it has a finite number of coins--21 million, 15.5 million of which are currently in circulation--and user transactions remain anonymous. Thus, the argument goes, it is superior to the fiat currency system and a viable replacement for precious metals because of the limited supply, anonymity, and independence of central bank authority.

Cryptocurrencies are driven by a technology called Blockchain that allows for the transfer of stocks, bonds, property rights and digital currencies; directly, in real time, and with lower fees, because there is no middleman. The Blockchain technology itself is revolutionary and will make transactions more trusted, transparent and immutable.

While the technology driving cryptocurrencies is very interesting, the “coins” themselves are not equivalent with the Blockchain technology. Cryptocurrencies are simply piggybacking on the blockchain as they masquerade as real money.

To explain, we must first consider what the properties of genuine money are. First and foremost, money is a store of wealth. For centuries PM’s have been the premiere storage of wealth – they have no challengers in this criterion. In order to be a store of wealth, money must have intrinsic value. In other words, there needs to be a significant cost involved in the production of new money: such as labor, equipment, and energy expended. It costs about $1,000 to extricate an ounce of gold from the ground. Gold simply cannot be produced by decree. {It is crucial to note that while additional Bitcoins must be mined with great expense, the creation of new cryptocurrencies is fairly easy to accomplish.}

Most importantly, money must also be virtually indestructible and extremely rare. Gold and platinum are extremely rare and do not corrode or oxidize. Essentially, they last forever.

However, unlike PM’s, fiat cryptocurrencies lose their utility during a simple power failure or whenever the internet goes down. People who put their faith in cryptocurrencies have to ask themselves how confident they are that there will never be a victim of an Electromagnetic Pulse bomb or a nuclear war that disables all forms of electronic communication. Try bartering for a can of beans with a fried PC.

A more likely scenario is that governments or hackers shut down Bitcoin exchanges. In fact, back in 2014, there was the infamous Mt. Gox hack, in which over 800,000 coins were stolen and almost caused the end of Bitcoin. The owners of cryptocurrencies must hope that governments never shut down the exchanges or websites that enable these electronic transactions. Governments can try to ban gold ownership, but that must be done on a door-to-door basis and is extremely difficult to accomplish. But to place confidence in cryptocurrencies is to put faith that governments cannot control the internet.

Gold and platinum are very rare within the earth’s crust, and the mine supply of these elements increase marginally each year. And the number of elements that are rare and indestructible are known, fixed and miniscule. If scientists routinely discovered new elements by the hundreds that are virtually indestructible and extremely rare, the value of all existing PM’s would become greatly diluted. That dynamic is exactly what is happening with cryptocurrencies.

Both cryptocurrencies and fiat paper money share this same inherent flaw: their supply is theoretically unlimited and can be increased by fiat. Even with this, the money supply of U.S. dollars, as represented by M2, has been increasing at a rate of about 5% per annum. However, there are currently now over 1,000 digital currencies in existence, up from just a small handful in 2009, and that number is growing by the day.

These currencies are mostly homogeneous and therefore tend to act like a single commodity. Of course, there are some small differences. Ethereum, the second most popular cryptocurrency, offers self-executing agreements coded into the blockchain itself. But the core of the technology—decentralized digital money—is the same throughout the cryptocurrency world. Therefore, a more advanced currency with greater speed and capabilities would greatly reduce the value of all other inferior digital “money”; just as each new digital currency created greatly reduces the value of those already in existence.

The advocates of Bitcoin believe they have the upper hand to gold because it is limited to 21 million units. But what the holders of Bitcoins don’t yet understand is that even though this one cryptocurrency is limited in supply, the universe of commodity-like cryptocurrencies is unlimited.

Because cryptocurrencies are driven by quickly changing technology, you have no idea when your cryptocurrency will become obsolete. Therefore, you can go to sleep believing your wealth is stored in the equivalent of an iPhone and wake up realizing your life savings is parked in an eight-track cassette.

Cryptocurrencies are an inferior form of money to PM’s. After all, one has to question the durability and soundness of owning electrons inside a digital wallet.  It is also a currency that has attracted a number of terrorists, black mailers, and child pornographers--giving governments a great motivation to regulate it. 

Precious Metals, such as gold and platinum, are the most perfect form of money known to humans. This has been proven correct for thousands of years. Indeed, history clearly proves that all currencies backed by nothing eventual display that very same valuation--nothing. However well intentioned, in the end, the creators of cryptocurrencies are really just modern day alchemists; and what they ended creating is nothing more than fool’s gold.

Michael Pento produces the weekly podcast “The Mid-week Reality Check”, is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance www.earthoflight.caLicenses. Michael Pento graduated from Rowan University in 1991.
       

© 2017 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules