Image Credit: MarketWatch
By Stan Szymanski
At yesterday’s New York Times DealBook Summit, Fed Chair Jerome Powell was asked by Andrew Ross Sorkin: ‘How does Crypto sit with you right now? ..At a time it appears that this next administration may legalize it in a much more broader way (it is legal now) that there might be a much more bigger groundswell for it?’
The essence of Powell’s answer was encapsulated in this snipet:
…’People are not using it as a form of payment or as a store of value. It’s highly volatile. It’s not a competitor for the dollar. It’s really a competitor for gold.‘…(Cointelegraph 12/5/24)
Powell is wrong on multiple claims in his short statement.
First, people can and do pay for things with Bitcoin (and other crypto). For example, some gold and silver bullion dealers take cryptocurrency as a form of payment for precious metals purchases. Alex Jones takes donations in Bitcoin.
So Powell starts off being full of baloney.
Secondly, people are using it as a store of value. The people that bought at $10,000 and now hold it when the price as I write is over $100,000 certainly have more as far as it is valued in US Dollars. Will it be this way going forward? It certainly is a tenuous store of value in my opinion.
Being that Bitcoin is only 15 years old I think it is still good to look at this asset as one looked at the ‘Nifty Fifty’ stocks of the late 1960’s and early 1970’s. Some of the stocks in the 50 were and still are viable household names such as GE, Coca Cola and IBM. However names like Xerox and Polaroid stumbled and did not make into the modern era even though the GUI (Graphical User Interface) that we all see every day o our Mac’s and PC’s was a product of Xerox Park research…and I can still buy an ‘instant’ camera for my niece at Christmas time. How will Bitcoin fare 50 years later like our review of the ‘Nifty Fifty’? Time will tell.
Will Bitcoin ever be used widely for transactions? BTC is not nearly as cost effective or fast as other cryptocurrencies. For instance Bitcoin Cash (BCH) is reported around be more than 28 times faster than Bitcoin. If crypto is ever truly adopted in a widespread manner IMHO it will not be Bitcoin-it will be some other crypto or CBDC (Central Bank Digital Currency) that will be used to handle vast amounts of transactions.
Powell was right to say the BTC is volatile. No one can dispute that. And as I have reported previously -The ‘StableCoin’ Tether is allegedly (and dubiously) involved in the recuperation of Bitcoin ascent upward after a fall in price. This vulnerability is something that should rightfully concern everyone-especially those in the incoming administration who are pushing for BTC to be part of a U.S. ‘Strategic Reserve’.
So IMHO, Powell is right that Bitcoin is not a competitor to the U.S. Dollar. There can only be a maximum of 21 million BTC ‘minted’ or ‘mined’, therefore if Bitcoin were our money supply, it could never expand.
And an even bigger deal is that commercial banks do not accept BTC as collateral for loans. Yes, there are crypto lenders like SALT Lending-but generally with crypto lenders-if you want a loan for $100k for instance, you have to put up $200k in BTC and then you are subject to what amounts to margin requirements because of the volatility of Bitcoin.
So when you put together the facts that the banking system frowns on Bitcoin lending and that Bitcoin itself cannot be hypothecated (there can only be 21 million BTC in existence when all BTC are mined) you have the unfortunate fact that while Bitcoin may be an asset-it can -never- be used as a currency.
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Without the ability to expand the money supply (like what Jerome Powell does when he clicks his computer mouse and writes a check out of thin air for more US Treasuries), Bitcoin can never be used as a currency. Quite simply, we would end up in a very dark and terrible depression. A fractional reserve banking system (which is what we have now) must have the ability to turn a $100 bank deposit into $900 in bank loans in order to create prosperity. If there is no expansion of the money supply-you end up in collapse.
So Bitcoin is -not- a competitor to the Dollar but it also is not a competitor for gold , as Powell claims.
Gold is -the- competitor to the US Dollar.
Why? Because Gold has been used for money (and currency) for thousands of years. A money system based on gold satisfies the need of an economy to have an expanding money supply-as more gold is pulled out of the ground it can be added to the money supply therefore crating a monetary expansion. It is a much more responsible expansion of the money supply because the money supply is only expanded by the amount of the increase in gold supply. It is not just someone with a money printer printing at will with no monetary backing.
Treasuries claim to have the backing of the ‘full faith and credit of the US Government’. With over $36 Trillion in debt and now growing another trillion dollars every 100 days or so now-just how much do you or more importantly the countries who (used to) buy our debt trust the creditworthiness of the United States?
Not much. Two of the biggest holders of U. S. Treasuries (Japan and China) have been huge sellers of late, divesting themselves of American Treasuries-an act which speaks volumes of the lack of trust the major economies have of our country’s financial condition.
Conversely, the demand for gold, especially by central banks has been insatiable:
…’In 2023, central banks added 1,037 tonnes of gold – the second highest annual purchase in history – following a record high of 1,082 tonnes in 2022.’…(World Gold Council)
Gold is a real asset. You can touch it. It costs money to pull it out of the ground as it requires investments of time, energy, labor and more to get an ounce of the shiny stuff in your hands. Therefore it is itself a store of energy and wealth.
Bitcoin was issued out of thin air. The U. S. Dollar is issued out of thin air, not backed by any real asset. The BRICS nations recognize this all too well and have plans to eventually issue a currency backed 40% in gold and 60% in other currencies-infinitely stronger and more trustworthy than the US Dollar. This is one reason for the almost frantic pace of gold purchases by world-To have a transaction mechanism that is trustworthy and would be harder to weaponize through the use of sanctions against a county that offends the world hegemonic issuer of the transaction currency (currently the U.S.).
This is what makes the statements of Jerome Powell a ‘psyop’, a psychological operation to distract people from truly recognizing that the Dollar is a Ponzi scheme that ruins the value of those hold the currency while they continue printing money out of nothing to serve their needs to service the debt and fund worldwide hedgemony.
What is a Ponzi Scheme?
…’A Ponzi scheme is an investment scam that pays early investors with money taken from later investors to create an illusion of big profits. A Ponzi scheme promises a high rate of return with little risk to the investor. It relies on word-of-mouth, as new investors hear about the big returns earned by early investors. Inevitably, the scheme collapses when the flow of new money slows, making it impossible to keep up the payments of alleged profits.’…(Investopedia)
In listening to yesterday’s Craig Hempke interview of Banking and Gold market expert Alisdair Macleod-the US Dollar is most likely in for a serious and meaningful decline in this, the endgame of the current financial system.
Many Americans invested in their retirement account resemble the latter entrants to a Ponzi scheme. They just will not get out what they think they should from their retirement commitments To the US Dollar. The progenitors (issuers of the debt-in this case the gubbamint) are the ones who reap the most benefit.
Many investors in their retirement monies (pensions, 401(k) and the like) have been limited in their choice of ‘safe’ investments to US Treasury investments, whether it be money market or bond funds. This ‘captured’ money, held hostage at least until the person retires (if not until they die) will remain in Treasuries as a means of funding the government deficits. If we indeed end up with a shellacking of the Dollar as Mr. Macleod expects, it will not go well for retirees and investors who have generally seen gains by investing in bonds for the last 40 years or so. At a minimum, it will mean a profound reduction in the purchasing power of their retirement monies through the effects of the expected inflation on fixed income assets, loss of capital and the decline in the creditworthiness of the Dollars that make up every percent of their holdings.
IMHO-This is not investment advice-a serious prudent consideration for every living person, to the extent they can afford it, is to consider allocating a portion of their assets to physical (not paper ETF’s) precious metals. Please recognize that there are unique and significant risks that come with investing in precious metals. Please consult an investment professional.
Charles Ponzi was arrested in 1920 and Bernie Madoff was convicted in 2008 for investment schemes that were not on the up and up and a lot of people got hurt trusting someone they should not have trusted. In my humble opinion I believe that placing 100% of your trust (because 100% of your assets are in financial assets denominated in US Dollars) in the mediums that did well for the previous generation of retirees is a fatal flaw when it comes to your own financial planning. Again, IMHO, diversification into commodity based assets such as physical gold, silver and perhaps a few of the other metals (copper, platinum, palladium etc) as well as food, water, shelter, energy, protection and communication is what will be a saving grace to one’s life and portfolio.
Pray to receive grace. Pray to receive wisdom. Pray to receive guidance. And learn to trust the man with the printing press a whole lot less .
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Stan Szymanski (or Encouraging Angels) is not a medical doctor. This is not medical advice. In all matters pertaining to the health and care of a human being consult a medical doctor. This is not legal, financial or personal advice. Consult appropriate professionals in those fields for that type of advice. For informational purposes only.
