Bitcoin and ethereum. By now, at least one of these names
will be familiar to readers. These are “crypto-currencies”.
What is a crypto-currency? In general terms, a
crypto-currency is a digital currency where the value/exchange rate of that
currency is the product of a complex mathematical formula.
Proponents of these crypto-currencies are adamant that these
formulae are valid and therefore this ensures the integrity of these new
currencies. That point will be briefly addressed later in this article. For now
the focus will be not on what crypto-currencies are, but rather what they are
not.
This brings us to precious metals. One of the main reasons
for the invention of crypto-currencies is the realization (by smart people) of
the need to have a medium of exchange outside of our fraudulent, corrupted
monetary system.
The perversion of our once-legitimate monetary system has
been the topic of many
previous
commentaries
. However, perhaps no one has expressed that corruption more
succinctly than one of the principal architects of this fraud.
In the absence of the gold standard, there is no way to protect savings
from confiscation through inflation.
-
Alan Greenspan (
1966)
Even back in 1966, Greenspan spoke euphemistically. When
Greenspan used the phrase “confiscation through inflation”, what he really
meant was theft-by-money-printing.
A gold standard limits the creation of new currency (by
central banks) to what can be officially backed by existing gold reserves. The
infamous economic charlatan, John Maynard Keynes, referred to the gold standard
as “the Golden Handcuffs” largely for this reason.
Keynes despised those Handcuffs. What happens when the
Handcuffs are removed? There is no longer any limit on how much new currency
can be conjured into existence by corrupt central banks:
theft-by-money-printing. The concept is monstrously simple –
dilution.
What happens when a corporation prints up a significant
quantity of new shares? This dilutes the existing share structure and the value
of the shares falls. The drop in value of these shares represents the
“confiscation” of the wealth of existing shareholders: their shares are now
worth less.
To where did that wealth disappear? Who confiscated that
wealth? The recipients of the new shares.
The concept is identical with respect to our fraudulent
“fiat currency” monetary system. The central bank conjures new currency into
existence. The value of all existing currency declines. The central bank calls
this decline in wealth (i.e. theft of wealth) “inflation”, and the criminal
central bankers feign almost complete ignorance as to the source of this
“inflation” – for obvious reasons.
Who effectively
steals our wealth as the central banks create more of their funny-money? The
recipients of this new funny-money: the
Big Banks.
The more funny-money the central banks create, the faster the
Big Banks
steal all of the wealth of existing currency holders. It is
literally the world’s largest organized crime.
Why is a gold standard
different? A gold standard is an Honest Money system. As previously noted, the
fact that all currency must be backed by gold precludes the central banks from
engaging in their theft-by-money-printing crime of dilution.
Another way of describing the gold standard is to refer to
it as a
real money system. Having a
paper currency backed directly by gold is little different from simply using
gold coins as currency directly. And gold itself is real money.
This brings us to an elementary definition of which many
readers will not be familiar. What is
money?
While the expression of this definition varies slightly from source to source,
the elements of the definition of good money are consistent.
1)
It must be uniform
2)
It must be evenly divisible
3)
It must be rare or precious
4)
It must be a store of value
Good money must be uniform: each unit of currency must be
identical to all other units. It must be evenly divisible. We must be able to
create various denominations.
It must be rare or precious. If money literally grew on
trees (like our paper fiat currencies), then it would have no value – like our
fiat currencies. This is why every fiat currency ever created has gone to zero,
or been removed from circulation before this could occur.
This brings us to the last and most important quality of
real money: it must be
a
store of value
(over time). This is what separates money from mere
currency.
Real money has intrinsic value.
Such money is a “store of value” because the intrinsic value
of the money itself preserves and protects the wealth of the money-holder.
Gold has intrinsic value. It has
numerous, potent metallurgical properties for industrial use.
However, gold is rarely used industrially because it is
valued even more greatly due to its aesthetic appeal. It is this universal
aesthetic appeal which has led to the widespread use of gold as jewelry, in the
fabrication of our most-treasured religious artifacts, and (of course) as
money.
“Good as gold.” That three-word cliché speaks volumes. Despite
the best efforts of the bankers and their media mouthpieces, gold retains its
universal appeal (and respect) as a valuable asset.
Silver
is also money, for precisely the same reasons. In fact, as the more brilliant
metal it arguably has even more aesthetic appeal than gold. However, silver is
less-precious than gold (by a ratio of 17:1) and so most of the world’s silver
is currently utilized (consumed) in industry because silver is even more
valuable industrially than gold.
In contrast, mere currencies (such as all of our paper
currencies) are
not “money”. They are
not a store of value. They are not rare or precious. They have no intrinsic
value. Their utility is purely as a medium of exchange.
Crypto-currencies, as the name directly implies, are not
money. They are not a store of value. They are mere currency.
They can still be distinguished from our fraudulent (central
bank-created) fiat currencies. As was previously discussed, many credible
sources will attest to the fact that crypto-currencies are
not fraudulent.
This leads to the central point of this article. Are
crypto-currencies “as good as gold” (or silver)? In a word: no.
Gold and silver are money. Crypto-currencies are mere
currency. They are inferior by definition. Real money
must protect our
wealth (for the reasons previously given).
Two thousand years ago in ancient Rome, a one ounce gold
coin could be used to purchase the finest suit of clothing of that era: a
high-quality toga, along with accessories (i.e. a belt and sandals). Five
hundred years ago, a one ounce gold coin could be used to obtain a tailor-made
suit of that era. Perfect wealth preservation over time.
Today, as readers know, the price of gold (and silver) is
heavily suppressed. What does this mean for the holder of a one ounce gold coin
today? It means that – temporarily – we would have to buy our suit off the rack
rather than having it tailor-made.
Cyrpto-currencies might
preserve the wealth of the currency-holder, at least over the short term. But
they have no intrinsic value. They are not mere paper (like our corrupt fiat
currencies). They have even less substance: they are purely virtual.
How do they acquire their exchange rate at any moment in
time? Via a mathematical formula – a computer algorithm which is 100% a
function of supply and demand. When there is net, new demand for a crypto-currency,
its value rises. When there is a net decline in demand (i.e. net selling), the
exchange rate falls.
Crypto-currencies are direct competition to our corrupted
fiat currencies. Crypto-currencies are
a
direct threat
to the theft-by-money-printing organized crime of the Big
Banks and (Western) central banks. So what entities are now poised to move into
crypto-currencies? The
Big
Banks
and central
banks
.
What is the apparent strategy of the banking crime syndicate
(i.e.
the
One Bank
) to confront this threat to its single, most-lucrative form of
organized crime?
1) Create its own (corrupted) “crypto-currencies”,
promote them heavily, and lure as many Chumps as possible into this new form of
banker organized crime.
2) Infiltrate the existing crypto-currencies (by
surreptitiously acquiring a massive supply) so that these crypto-currencies can
be collectively “crashed”, and confidence in them shattered.
Both bitcoin and ethereum have experienced fantastic spirals
in their exchange rate.
Someone has
been accumulating vast amounts. Certainly, some of this demand comes from
legitimate buyers looking for shelter from the fraud-ridden paper currencies.
However, the banking crime syndicate has an enormous profit
motive to become the dominant holders of these crypto-currencies. As regular
readers are well aware, the One Bank has the capacity to (literally and
legally) counterfeit
infinite
quantities
of our paper funny-money. It thus has infinite resources to take
control of these competing crypto-currencies.
Means. Motive. Opportunity. All that we need to wait for is
the crime: the take-down of bit coin et al as the banking crime syndicate
liquidates its crypto-currency holdings (which are likely controlled by third
party shells).
How do we compare crypto-currencies to gold and silver?
Gold and silver are real money. As such, they provide
guaranteed protection for our wealth, over the long term. Their exchange rate
can be suppressed (as we see regularly), but the value of these hard assets can
never be driven to zero – or anywhere close to zero.
Crypto-currencies are not money. As such, there is no
express or implied guarantee of wealth preservation. As with gold and silver,
there is a strong motive (by the bankers) to attack these currencies. Unlike
gold and silver, because these virtual currencies have no intrinsic value, they
can be driven to zero.
Is there a role for crypto-currencies in the portfolio of
the Rational Investor? Yes. Even before their creation, precious metals bulls
did not channel 100% of their liquid wealth into gold and silver. Investors
have always maintained some reasonable “cash component” in their asset mix, to
allow them to easily meet day-to-day expenses and short-term emergencies –
without the need to liquidate bullion.
With the creation of crypto-currencies, this cash component
no longer needs to be in the fraudulent paper currencies owned-and-operated by
the One Bank. People can use bitcoin and/or ethereum as their “cash” (currency),
while continuing to utilize gold and silver for what they do best: protecting
our wealth.
Bitcoin versus gold? It’s a matter of apples and oranges.
They represent two separate tools, for two separate uses.
Full Disclosure: I hold gold and silver physical bullion.
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Jeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers and investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but with a background in economics and law, he soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.
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The views and opinions expressed in this material are those of the author as of the publication date, 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.
