Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17
Q4 Pivot View for Stocks and Gold - 14th Oct 17
Gold Mining Stocks Q3’17 Preview - 14th Oct 17
U.S. Mint Gold Coin Sales and VIX Point To Increased Market Volatility and Higher Gold - 14th Oct 17
Yuan and Gold - 14th Oct 17
Tips for Avoiding a Debt Meltdown - 14th Oct 17
Bitcoin Hits New All-Time High Above $5,000 As Lagarde Concedes Defeat and Jamie Demon Shuts Up - 13th Oct 17
Golden Age for GOLD, Dark Age for the Stock Market - 13th Oct 17
The Struggle for Bolivia Is About to Begin - 13th Oct 17
3 Reasons to Take Your Invoicing Process Mobile - 13th Oct 17
What Happens When Amey Fells All of a Streets Trees (Sheffield Tree Fellings) - Video - 13th Oct 17
Stock Market Charts Show Smart Money And Dumb Money Are Moving In Opposite Directions—Here’s Why - 12th Oct 17
Your Pension Is a Lie: There’s $210 Trillion of Liabilities Our Government Can’t Fulfill - 12th Oct 17
Two Highly Recommended Books from Bob Prechter - 12th Oct 17
Turning Point Nations On The Stage - 11th Oct 17
The Profoundly Personal Impact Of The National Debt On Our Retirements - 11th Oct 17
Gold and Silver Report – Several Interesting Charts - 10th Oct 17
London House Prices Are Falling – Time to Buckle Up - 10th Oct 17
The S&P Is A Bloated Corpse - 10th Oct 17
Are Gold and the US Dollar Rallying Together? - 10th Oct 17
Is Silver Turning? - 9th Oct 17
Bitcoin Needs Electricity, Gold CONDUCTS Electricity - 9th Oct 17
S&P 500 At Record High But Will Stocks Continue Even Higher? - 9th Oct 17
Gold and Silver on Major Buy Signal, The Cycle is Up - 9th Oct 17
How To Fight Corruption in the Philippines - 9th Oct 17
Stock Market Bulls Still in Charge - 9th Oct 17
DiEM25: Europe Without Nations or Religion - 9th Oct 17
Gold Price Readying to Rally - 8th Oct 17
Gold Price in Q3 2017 - 8th Oct 17
PassMark Bench Mark of OVERCLOCKERS UK Custom Built Gaming PC (5) - 8th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Is Bitcoin For Real or Fool’s Gold?

Currencies / Bitcoin Sep 29, 2017 - 06:09 PM GMT

By: Rodney_Johnson

Currencies How many currencies do you carry in your wallet?

OK, I’m showing my age. I actually have a wallet. And I carry it. Mostly.

Inside, you’ll find a couple of credit cards, an odd receipt or two, and greenbacks. I live in the U.S., so I use dollars.

But I also carry my smartphone, and I use Apple Pay wherever possible. I’m not geeking out, I just try to rack up points on my cashback credit card, and tapping my smartphone is a lot easier than dragging out my credit card and dealing with finicky swipe readers.


I don’t carry euros or pounds, except for when I travel to countries where those are the main currencies. But for the past five or six years I could’ve carried bitcoin, a cryptocurrency, and actually used it to buy stuff.

There have been, and still are, other digital and alternative currencies besides bitcoin, but it seems to be the most prevalent of the bunch. Still, I don’t have any of it. I don’t see the point.

In its current form, the currency becomes the asset, and that can’t last.

When bitcoin came out during the financial crisis, most everyone I know hated the government. We hated officials because they didn’t regulate the fraudulent bankers before the meltdown occurred, and because they used our tax dollars to bail the criminals out of their financial mess.

The final insult was that none of them went to jail, and we were stuck with extraordinarily low interest rates for a decade to ensure that the banks would survive. (Now I’m getting mad all over again. Better get back to bitcoin.)

The cryptocurrency offered an attractive alternative. Use a digital currency controlled and issued by no one that allowed anyone on the planet to examine all exchanges, eliminating fraud.

In addition, the currency would be available anywhere a consumer could connect to the internet, as well as on physical memory devices if desired.

And only a set number of the units would be produced… ever. No more games with monetary policy. No more bad banking decisions. Just simple, straightforward currency.

It sounds so good! And it is, but some of its main features turn out to be unfixable bugs. The limited supply and fluctuating price kill the deal.

Because there are so few bitcoin available – and anticipated, with a cap of 21 million units to be issued – the mere fact that more people use the currency makes it less affordable.

The more we buy it, the higher the price. Arguably the value of goods and services remain stable, so this means current holders of bitcoin experience a gain in purchasing power. This motivates people to simply hold the currency, not use it as was intended.

Beyond simply units of exchange, currencies are supposed to function as storehouses of value. That means they remain stable when compared to a basket of goods over time, understanding that individual goods, like oil and wheat, can fluctuate dramatically based on factors such as weather and geopolitics.

If the currency itself becomes the asset, consumers will simply hoard the currency. If they don’t use it for transactions, that limits our investment in other, more productive areas.

Today, people are more interested in holding bitcoin for appreciation than using it to replace their home currency.

If there were any way to assure that bitcoin would continue its upward trajectory, everyone would be a bitcoin investor, not a bitcoin user.

But, as we do this, we’re robbing the traditional economy of investment, no longer buying bonds that support cities, or stocks that drive the private sector, or even holding funds in bank accounts that will serve as the basis for a loan for the next borrower.

And there’s the flip side.

As we free ourselves of dollars – or yen, euro, or whatever – those currencies will diminish in value, cutting into the purchasing power of everyone left holding the relics, and also eating away at the value of earned income (assuming it’s still paid in national currency).

Suddenly the world becomes separated into the digital haves and the digital have-nots.

This game continues until people like me have bought all they want… and then something really bad happens. Without continued demand, the price drops.

Suddenly this currency-turned-asset becomes a liability.

And, suddenly, we have a big “What if?” scenario on our hands, the type that my colleague Lance plans to talk about next week. (Click here to put his special presentation on your calendar.)

By then, I, along with everyone else, must decide whether to hold or sell. Many people will sell, causing a panic stampede out of the cryptocurrency, killing its value as an asset.

Then what would it be? A great idea of how to manage a currency that no one will touch because they can’t afford the volatility.

The problem with currency is that unless it grows in conjunction with an economy, it becomes a force for either inflation or deflation.

If we print a lot of it like, say, most central banks on the planet, we create inflation. Everyone understands that today. But if we don’t print enough, money becomes more dear, driving down prices, and money becomes the asset.

This can be just as devastating as inflation… just ask anyone who lived through the Great Depression.

The ideas behind bitcoin are laudable, but it’s not the answer to our currency woes.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2017 Rodney Johnson - 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.

Rodney Johnson Archive

© 2005-2017 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

Catching a Falling Financial Knife