A Bitcoiner’s rebuttal

Tuesday, 9 May 2023 — Melbourne

[13 min read]

Dear Reader,

My name is Ryan Dinse. I’m usually found over at our sister publication Money Morning.

But I felt compelled to write to you to about an article that was published in The Daily Reckoning Australia last Tuesday: ‘BitCON…It’s All in the Narrative’. It was a scathing attack on Bitcoin [BTC] and cryptocurrencies…you might remember it.

It was written by my colleague, Vern Gowdie, who I respect a great deal. But in respect to Tuesday’s article, I think Vern was a little unfair and — in parts — inaccurate.

Now, to be clear, I’ve no problem with Vern or anyone else disagreeing with me about any investment idea. That’s what makes a market, after all.

But today, I want to address some of those inaccuracies, specifically around Bitcoin. And I want to give you an alternative point of view about cryptocurrency as an asset class — and potentially the very future of money.

But why should my word carry any weight?

Well, I’ve got 10 years of history with Bitcoin. I discovered the benchmark cryptocurrency back in 2013 — and never looked back. I first invested when the price was at US$600. No one was talking about it back then.

10 years is a long time in finance. But even in 2013, I could see the promise of this new asset. Not just its investment potential — but its pioneering technology that could — and in my view, still WILL, pave the way for a new decentralised financial system.

Suffice it to say, I gave up my mainstream career in financial advice. In 2017, I joined Fat Tail Investment Research to help launch crypto advisory services for its subscribers.

I didn’t just want to help people profit from this nascent boom...I wanted to share my passion for cryptocurrency and help educate investors to avoid the very misgivings and misunderstandings Vern called out in his piece on Tuesday.

In short, I’ve been around the block when it comes to crypto.

Which is why I feel qualified to mount this spirited defence...

Six points Vern got wrong

I want to address several points made in Tuesday’s article, ‘BitCON…It’s All in the Narrative’.

Let’s start with…

1. Bitcoin as a currency: Vern argued that bitcoin is not a true currency because it’s not widely accepted as a medium of exchange. This is an oversimplification.

Currency can also serve as a store of value and a unit of account. Indeed, that’s what gold does well already.

Fidelity said recently that ‘…the cryptocurrency possesses many “good qualities” of money — “combining the scarcity and durability of gold with the ease of use, storage, and transportability of fiat (even improving on it)”.’

Furthermore, bitcoin is already a legal tender in El Salvador and is being accepted in more and more regions over time.

For example, last year the city of Lugano in Switzerland launched a ‘Plan B’ initiative, and most businesses in the city now accept bitcoin as payment. And just this week, the Prime Minister of Liechtenstein, Daniel Risch, stated he wanted to allow citizens to pay for government services with bitcoin, including taxes.

I expect this trend of nation State adoption to continue, and eventually turn into an avalanche.

2. Transaction limitations: The argument that bitcoin’s transaction speed and cost make it impractical for everyday use is short-sighted.

Layer two technologies like the Lightning Network will increase bitcoin’s transaction capacity.

In fact, a report came out a few weeks back that stated the Lighting Network was already 1,000 times cheaper than Visa or Mastercard.

3. Centralisation: Vern argued that bitcoin is just as centralised as traditional fiat currencies...but this is a misunderstanding of Bitcoin’s design.

Bitcoin operates on a decentralised network spread across millions of computers worldwide, making it resistant to censorship or control by any single entity.

It’s true that certain entities hold significant amounts of bitcoin, but this doesn’t equate to control over the network or the ability to arbitrarily create more bitcoin — a power that central banks hold over fiat currencies.

4. Security: Vern conflated the hacking of cryptocurrency exchanges with the security of Bitcoin.

It’s important to distinguish between the two.

Based on cryptographic principles, Bitcoin is secure. The vulnerabilities that have been exploited are often on the exchange side and not within Bitcoin’s underlying technology.

Bitcoin the protocol has never been hacked.

5. Failed experiments: Vern cites various failed projects to discredit the entire cryptocurrency industry.

However, failures are common in every industry, especially in emerging technologies. The dotcom bubble saw many internet companies fail, but the internet and many internet-based companies thrived afterwards.

6. Intrinsic value: Vern suggested that because Bitcoin isn’t backed by physical assets or the promise of work, it holds no inherent value.

However, this theory — the labour theory of value — has largely been discarded in modern economics. Today, value is understood to be subjective based on what someone is willing to pay for it.

The value in bitcoin lies in its ability to function as a decentralised, borderless, censorship-resistant currency and store of value.

In our fast-changing world, these properties are already literal lifesavers for millions.

And as a hedge against government overreach and ongoing currency debasement (through inflation), it makes a lot of sense for anyone to own some bitcoin in their own self-custodied wallet as part of a diversified portfolio.

Yes, I know that bitcoin is a love/hate proposition for a lot of investors. But ask yourself: if it’s such a big scam, how come bitcoin is still around in 2023? Why are people still buying it? What’s the draw? There must be something, right?

Doomsayers, I’ve seen a few

I reckon I’ve heard every single prediction of bitcoin’s doom there’s ever been. And let me tell you, there’s been a few!

There’s even a website that tracks every ‘Bitcoin obituary’ since the very first ‘Bitcoin is dead’ piece was published way back in 2010.

Back then, one bitcoin was priced at just 23 cents.

Over the next decade and a bit, hundreds more obituaries were written, even as the price of bitcoin sailed past US$69,000.

To date, all 474 obituaries have been wrong.

Bitcoin is still churning out block after block of transactions every 10 minutes or so without missing a beat.

And despite some gut-wrenching volatility (I’ll agree with Vern on that score), the bitcoin price has bounced back more times than I’ve had hot dinners.

The same is happening right now, too

Despite what you hear or even read in the pages of this e-letter, things are bubbling beneath the surface, preparing for the next bull run.

Observe here:

The orange line shows that the adoption of bitcoin — the rate at which companies and private individuals accept it as part of the financial landscape — continues to grow exponentially, despite the large fluctuations in the price.

Think about that for a second…

Despite the negativity you might read about crypto, there’s still a mad rush right now to buy bitcoin.

This next chart is even more illuminating, but it might need a bit more explanation...

This shows how bitcoin mining — the process of dedicating computing power to secure the network — is also at all-time highs:

Without getting into too much technical detail, that’s the opposite of what you’d expect in a bear market.

Usually, miners turn off their machines when prices fall...because they’re losing money due to electricity costs.

But in this ‘bear market’, miners are turning on more machines to mine as much bitcoin as they can, no matter the cost!

This should make even the sceptics stop and think, ‘is there something they’re missing’?

But will they?

That’s a different question!

Why Bitcoin mattered then...and still matters now

Bitcoin came into existence following the 2008 Global Financial Crisis (though it’s the result of decades of prior cryptographic and computer science research).

From the start, the goal was clear: to fix the money.

As the anonymous creator of Bitcoin, Satoshi Nakamoto, wrote:

‘The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.

‘Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.’

More than a decade later, these sentiments still ring true.

Do you trust any of the jokers in charge of our financial markets these days? I don’t.

I mean, the money printing we saw during the COVID crisis made the GFC ‘easing’ look like a rounding error!

Today, those same ‘masters of money’ are bankrupting the US banking system by raising interest rates at the fastest pace on record. All to solve an inflation problem they caused in the first place.

Of course, no one has been fired. In fact, their solution is to give themselves even more power.

They’re currently forging ahead with plans to create monetary panopticon with central bank digital currencies (CBDCs). If — or when — that happens, your financial life, your freedom of movement, freedom to transact, even freedom of speech could be under threat.

China does this already with its social credit scores. Don’t think that the power-hungry Western technocrats aren’t licking their lips over wielding that same kind of power.

Splurged out a bit this month?

Sorry, you’ll have to cancel that flight you booked until you build up your carbon offset credits again…

If you think there’s no way Western governments would use banking to coerce people, remember this only happened a year ago:

I think we can all agree that no government should be able to cut off access to your own money simply for protesting government policy. And yet, that’s exactly what Canadian Prime Minister Justin Trudeau did.

It was a warning for anyone who was paying attention. Even democratic Western governments will use their control over money when they want to.

Of course, many non-Western countries are in an even worse state already.

That’s why you often see the highest uptake of bitcoin and crypto there first.

Check out the adoption rates:

Incidentally, Nigeria’s number one position is even more remarkable when you consider that bitcoin has been banned there for a few years!

Which brings up another point I must rebut.

Vern insinuated in his piece that only ‘despots’ will adopt bitcoin.

In fact, the exact opposite is true.

Despots hate bitcoin the most because they can’t control it. It’s the people who live in such countries that use bitcoin to escape the tyranny they live under.

Alex Gladstein of the Human Rights Foundation wrote:

‘Maybe you don’t need bitcoin. Maybe you don’t understand bitcoin. Maybe PayPal, Venmo, or your bank account serves your needs just fine.

‘But don’t write off bitcoin as simply a vehicle for financial speculation. For millions of people around the world, it’s an escape hatch from tyranny — nothing less than freedom money.’

Then there’s the matter of wealth preservation.

Make no mistake, many currencies around the world are in trouble. But bitcoin priced in Argentine pesos and Turkish lira is already back at all-time highs.

Check out the price of bitcoin priced in Argentinian pesos:

Currently, Argentina has an inflation rate of more than 100% and its currency is fast becoming toilet paper.

In these situations, US dollars aren’t easy to come by as banks lock up their dollar reserves. No one can lock up your access to bitcoin.

So, for many people in countries like this, bitcoin is already a financial life saver.

Lastly, there’s rapidly shifting geopolitics and the potential end of US dollar dominance

In 2022, the Biden Administration took the ‘nuclear option’ of confiscating Russian holdings of US Treasuries.

This could have been the biggest foreign policy misstep of all time.

The US dollar is now seen as ‘political money’. It’s not a good store of value for many export-driven countries that need to park their large trade surpluses somewhere.

Never mind the likes of China and Russia, even ‘friendly’ nations like Japan and India are cutting back on their US dollar holdings.

The days of US dollar dominance could be ending.

In short, the entire world of finance and money is in flux right now.

And over the next few years, we’ll likely see more upheaval as everyone tries to figure out where they can safely stash their savings through this changing monetary order.

Where will these funds flow?

Gold versus bitcoin

Gold will be one beneficiary.

But don’t underestimate the role bitcoin will play too.

Gold simply can’t do the job our digital world demands. Digital gold — bitcoin — is a better bet, in my view.

The best way of thinking about it is this…

Physical gold allows you to preserve your wealth over time. It’s accomplished that job for thousands of years.

While bitcoin is newer, it’s pre-programmed absolute scarcity means it has a similar type of wealth preserving quality as gold over time.

But because it’s digital, it also allows you to preserve your wealth over space too.

What do I mean?

Well, I can send bitcoin (down to as small a unit as 0.00000001 BTC) from anywhere to anyone in the world as easily as an email. They’ll receive the bitcoin in 10 minutes or so. Try doing this with gold!

Also, you can literally travel anywhere in the world and keep your entire bitcoin wealth ‘in your head’ simply by memorising/storing a seed phrase.

This is an extreme example but try lugging a few gold bars over border control in times of crisis and see what happens.

In the early days of the Russia-Ukraine conflict, we saw this choice play out:

The point is, bitcoin offers all the benefits of gold but with many more useful features.

And investing-wise, a heck of a lot more upside too. Bitcoin is still a tiny part of the financial system, but as you can see here — compared to other entities and assets — it has a chance of becoming a very large one.

And it’s not just me saying that.

Some of the biggest names in traditional banking think there’s a good chance of this happening.

Blackrock and Fidelity made significant moves into the crypto space through 2022’s downturn, setting up trading and custodial solutions aimed at both retail and institutional investors.

They missed out on the last two crypto bull runs and you can be sure as heck they won’t miss the next one.

Will you?

Some final thoughts

Everyone says bitcoin is ‘risky’.

But to my mind, NOT having an allocation of bitcoin — whether that’s 1%, 2%, 5%, or more — is the riskier position to be in.

It’s the only asset that lives completely outside the traditional financial system. The only hedge against the financial instability rocking the world right now.

That’s not to say bitcoin is a sure thing. It isn’t. But it’s the very definition of an asymmetric bet. An asset with huge upside compared to its downside.

For that reason, it deserves a place in everyone’s portfolio.

And if I’m right, you won’t see an opportunity like this again in your lifetime. The limited nature of bitcoin supply means ‘whole coiners’ — those who own one whole bitcoin — may be a very rare species in the future.

Anyway, I hope I’ve given you some food for thought today.

Bitcoin is a rabbit hole that takes a bit of effort to fully appreciate it.

But to date, I don’t know anyone who’s made that effort and not come out the other side as bullish as I am.

Good investing,

Ryan Dinse,
For The Daily Reckoning Australia

Dear Reader,

Last week, the stupidity of smart people was on display. But as failure often leads to success, youth leads to old age, and holding up liquor stores leads to jail time…

…so do bad ideas sometimes lead to good ones. Today, we offer a solution to the ‘debt ceiling’ shenanigans.

Note to McCarthy, McConnell et al — no need to send thanks.

We begin with the weekend news. From CNN: ‘Jack Lew: We are weeks away from a potential financial disaster’:

‘Congress must act now to extend the debt ceiling to clear the path for fiscal negotiations and to avoid default, a self-inflicted wound that would hurt our economy, burden hard-working Americans and damage our influence internationally.’

The Establishment is giving the Debt Ceiling a full court press. From Janet Yellen:

‘If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests...’

Really? Our ‘national security’ would be put at risk by not borrowing more money? We already owe US$33 trillion. Isn’t that enough? Apparently not.

Moronic economics

Stupidity is our daily fare. The news is full of it. But so often are we mired in mere mediocrity…surrounded by commonplace knuckleheads — it was refreshing to see genuine, Full Stupidity Imbecility on display. And from a Nobel Prize winner no less.

We speak of Paul Krugman, lead economist at The New York Times…and a moron.

From Markets Insider:

‘A $1 trillion platinum coin could prevent the US government from defaulting on its debt without making inflation worse, according to Nobel laureate Paul Krugman.’

The idea behind the coin is for the Treasury to use its authority to mint platinum coins and create one with a face value of US$1 trillion that gets deposited at a Federal Reserve account to pay bills while lawmakers remain deadlocked on lifting the debt ceiling.

The Fed could simply ‘print up’ a trillion paper bucks and put them in the Treasury’s account. But that would obviously increase the money supply and therefore be ‘inflationary’.

A public scam

Krugman imagines that there is some magic about a palladium coin…that somehow, it defies the basic laws of the monetary universe.

So, let’s think about this. ‘Inflation’ means adding to the money supply…such that, later, consumer prices rise. This is the ‘natural order’ of things. That’s the way it works. Just like adding wood to a fire makes it burn hotter…and eating more makes you fatter.

What has Krugman been watching, we wonder? What bread doth he eat? What air doth he breathe? He thinks he can outsmart the natural order of things. But how?

A $1 trillion palladium coin would not add to the world’s money supply, for example…but only if it were really worth $1 trillion. But that would defeat the purpose. If the feds had US$1 trillion to buy a $1 trillion palladium coin, they wouldn’t need the coin. Instead, they need the coin because they don’t have US$1 trillion. So they create a coin, stamp it with ‘$1 trillion’…and perhaps add ‘In God We Trust’ just to make it sound like the Almighty is behind the deal. The idea is to make people think it is somehow worth US$1 trillion…even though it’s not. The whole idea is to scam the public, in other words.

Just to make it easier for us to understand…forget the coin. Let’s just say the feds could deposit one trillion worth of palladium in the Treasury. At today’s prices, that would be about 1,024 billion ounces of palladium. But according to the LBMA, there are only about 20 million ounces of palladium in existence. Which is why it is valuable; it’s rare. The US Treasury could neither find that much palladium, nor afford to pay for it. So that won’t work.

Krugman’s plan is, of course, not to mint a coin worth US$1 trillion…but simply to mint a coin and say it is worth US$1 trillion. Obviously, the difference between its actual palladium content and the US$1 trillion price tag is ‘money’ that didn’t exist previously…and never will really exist. It is fake money, in other words; it is as if the Fed were inviting you to sit down on a chair that isn’t there. Go ahead. Have a seat. You will fall to the ground, and we will laugh.

The idea is just too dumb to take seriously. It makes us wonder not only about Krugman’s professional expertise…but about his sanity.

Cash strapped feds

But wait…don’t worry about the inflationary impact, said the Great Man on Twitter last week. ‘The Fed would surely sterilize any impact on the monetary base by selling off some of its huge portfolio of US debt’, he said.

Holy schmoley. Now he’s on to something. Krugman is imagining a slick move…in which the Fed trades long term assets (bonds) for short-term assets (cash). Then, it uses the cash to pay the federales’ bills. We will pass over the obvious flaw — the Fed’s T-bonds are a liability to the federal government, not an asset. They are an asset to the Fed and would have to be purchased from the Fed before they could be sold — obviously, a waste of time.

But maybe we’re missing something. In any case, the federal government does own lots of real, non-performing assets, which could be off-loaded for cash.

What do other people do when they run out of cash? They have a yard sale.

So, here’s the idea — the largest yard sale in history. Sell some tanks. A few battleships. Think of all the jeeps…back-hoes…and nuclear missile silos that could be auctioned off. And there’s Yosemite! Think of all the surplus…superfluous…and super-duper stuff that the feds could let go.

On the block

There’s really no need to raise the debt ceiling, not as long as the feds have something to sell. And they’ve got a lot. Why not dispose of those 800 military bases overseas…? They serve no purpose. And there are as many as 500 military bases in the 50 states…surely we could get by with half as many.

According to the GSA, the feds have 645,000 vehicles, many of them owned by the Post Office. There’s some easy money right there. Most of the ‘mail’ has moved to the electronic genre. And private companies — such as Fedex and UPS — are willing to deliver the rest. And there’s AMTRAK. Why not sell off these losing enterprises, raise some cash, and reduce annual expenses?

The US Government also holds title to more than 600 million acres of land in the US — nearly 30% of the entire country. That ought to be worth something. Auction it off. Even at just US$2,000 an acre…the nation’s available cash would rise by US$1.2 trillion.

So here we have our solution. Hold a ‘zoom auction’. What fun it would be. Putting out for bids all the bad investments, overbought, and misguided acquisitions of a spendthrift Congress. Would you like to buy an F-15 fighter, dear reader? How about a two-seater ‘Eagle?’ Take your main squeeze for a spin at nearly 2,000 mph. Impress the neighbours with a ‘vertical’ takeoff. This would be your chance. Or how about something more practical — the Department of Education headquarters at 4th and C SW, District of Columbia? Or how about the Mary E Switzer building on C St SW? We don’t know what they do there…but it probably wouldn’t be missed.

The list of assets goes on and on — more than enough to replenish the feds’ coffers….

Just put it up for auction.

And make sure you translate everything for Chinese bidders.

Regards,

Bill Bonner,
For The Daily Reckoning Australia