Gold is instantly and optically recognizable as money. You don’t have
to explain it. Bitcoin and Special Drawing Rights (SDR), like a bad
joke, have to be explained. Many “cryptologists” from the start gave up
trying to explain Bitcoin and just sell it as virtual gold, which is de
facto fake gold. – Dan Popescu, investment consultant
Numerous inconvenient truths are conveniently ignored by
Bitcoin/cryptocurrency promoters. Not the least of which is that the
fact that the original concept for cryptographic currency was
envisioned by the NSA.
I guess it’s convenient to assume the NSA developed this concept and
then put it out there for the private sector to develop. Sure, that
makes sense.
A rapid rise in price does not validate an investment
concept. Dozens of dot.com stocks went from simple websites to
multi-billion dollar market caps and back to zero in the late 1990’s.
Until proven otherwise by the long test of time, Bitcoin could be
another product of a fiat money printing bubble that is 100x the size of
the money bubble that fueled the dot.com bubble. Gold and silver have
withstood the test of 5,000 years. Bitcoin has less than 3,000 days of
time-testing.
Be leery of the serial promoters who have dropped their previous advocacy of gold and silver
like a hot potato to become religiously zealous salesmen of Bitcoin.
These were often among the most raucously vocal in their protest of the
use of Comex gold and silver futures to manipulate the market price.
Yet, their silence on the introduction of Bitcoin futures hurts my ears.
The bulwark promotion of Bitcoin is that it is a de-centralized form
of money that exists outside of Government control. But is it really? I
dare say the roll-out of CME Bitcoin futures, as “regulated” by the
CFTC, certainly smells like the implementation of official
intervention. Those who previously protested gold/silver futures must
not deny this fact. Perhaps more troublesome is the embedded forms of
counter-party risk endemic to the system which creates Bitcoin.
Anything that exists in cyberspace is vulnerable to hacking. This is
a fact that has yet to be invalidated. Circling back to the NSA white
paper referenced above, can anyone out there truly claim the expertise
required to deny that the NSA, or any other major sovereign intelligence
agency, does not have the ability to corrupt the block-chain? To be
sure, cryptocurrencies are subject to network or infrastructure risk
during a crisis. Unequivocally, crypos are subject to government
regulation.
Speaking of which, if I were a Bitcoin advocate, it would bother me
that western governments go out of their way to hide their interest in
gold as a monetary asset, yet they openly embrace cryptocurrencies.
Perhaps when the BIS declares Bitcoin or Ethereum to be a Basel 3 Tier 1
Central Bank asset like gold, I’ll have a change of heart.
The price of Bitcoin has experienced a remarkable run in price this
year. Of course, the same could have been said for Dutch tulip bulbs
from late 1636 to late 1637. Most of the traders are chasing the price
higher, with little to no understanding of the object they are chasing
with their money, in hopes that someone at a later point in time will
come along and pay a higher price to them. Even worse, these
price-chasers have placed undying faith in the analysis of Bitcoin
coming from the same con artists with whom they placed religious faith
in the analysis of precious metals.
Also, up to this point there’s been an absence of two-way price
discovery for Bitcoin. Once the CME futures are rolled out, it will
introduce – albeit in an unwelcome format – a provocative method to sell
Bitcoin on margin. The use of margin is the hallmark of a fiat
currency-based fractional banking system – the very nature of which
Bitcoin supposedly repudiates. The Bitcoin longs will face the same
unlimited supply potential of paper Bitcoin that precious metals
investors have endured for decades.
Make no mistake, I’m not trying to derail anyone’s interest in
Bitcoin or cryptocurrencies. And I’ll be the first to admit that it’s
likely the price will go a lot higher from here. But if the issues I
raise here are indeed legitimate, how do you know when it will be the
right time to sell? That is to say, while the parabolic rise in Bitcoin
has been largely continuous, any number of events could occur that
would force the price re-discovery to be a step-function. It’s all wine
and roses on the way up, but at what price will there be a bid for you
relieve yourself of your position?
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Dave Kranzler spent many years working in various Wall Street jobs. After business school, he traded junk bonds for a large bank. He has an MBA from the University of Chicago, with a concentration in accounting and finance, and graduated Oberlin College with majors in Economics and English. Dave has nearly thirty years of experience in studying, researching, analyzing and investing in the financial markets. Currently he co-manages a precious metals and mining stock investment fund in Denver and publishes the Mining Stock and Short Seller Journals. Contact Dave at dkranzler62@gmail.com.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
