Gold & Bitcoin – “Crisis Currency”

Posted | 12/06/2018 / Views | 5004
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Bitcoin dropped 11% over the weekend after drifting sideways for the last few months, and so many newcomers to the market may well be wondering where all those stellar gains have gone and again querying its merits per se.  It’s easy to forget it is still up 127% over the last year, well above any mainstream investments.  Also, it is easy to forget it can have long periods of what looks like macro sideways movement but containing wonderful micro buying the dip opportunities and crazy tops like we saw in December last year.  Gold and silver present similar opportunities.  That’s all fine for the unemotional active investor or the patient long term investor, but this interview we came across in Casey Dailey Dispatch titled “The New Crisis Currency” reminds us of the bigger picture for both Bitcoin and Gold.  It’s most certainly worth a read: 

“Justin Spittler: Nick, I want you to tell me why you think bitcoin is the new crisis currency… But first, what exactly is a crisis currency?

Nick Giambruno: A crisis currency is simply an asset that people go to in times of stress. It holds its value during times of crisis. It may even increase in value.

Gold has traditionally played this role. It’s done so around the world for thousands of years. This is because gold has many desirable attributes. It’s durable. It’s divisible, consistent, and convenient. It has intrinsic value.

Gold also doesn’t have any counterparty risk. That’s why gold has been the best crisis currency in the past.

Justin Spittler: And why is bitcoin becoming the new crisis currency?

Nick Giambruno: Bitcoin has many of the same attributes that makes gold a crisis currency.

Unless there is some sort of catastrophe that wipes out all of the world’s computers, bitcoin is durable.

Bitcoin is consistent. Each one is the same as the other.

Bitcoin is easily divisible, up to a hundredth of a millionth of a single bitcoin, or 0.00000001.

And bitcoin is very convenient. Anyone with a smartphone can use it.

Justin Spittler: What gives bitcoin intrinsic value?

Nick Giambruno: Yeah, that’s one thing that some people get hung up on. But bitcoin has a very clear intrinsic value. Let me explain…

You see, bitcoin doesn’t use the traditional financial system. It has no central authority. Instead, bitcoin runs on a decentralized and voluntary network scattered around the world on many thousands of computers. It doesn’t need so-called “trusted” intermediaries or third parties. Bitcoin has no counterparty risk and has no single point of failure.

Bitcoin’s intrinsic value is that it allows you to escape the matrix… the financial prison that governments have erected with fiat currencies, central banks, and privacy-killing regulations serving as the bars on the door. It’s like a Swiss bank in your pocket.

Bitcoin is hugely popular in Venezuela and Zimbabwe right now.

That’s no coincidence. Both countries are in the middle of chronic economic crises. They have some of the highest rates of inflation in the world.

Their governments also strictly control access to foreign currencies. This traps their citizens in a prison of rapidly depreciating fiat currency. It’s been difficult to escape… until now.

Bitcoin offers regular people a safe haven. They can use it to send and receive wealth while bypassing the unsound banks, worthless currencies, and government confiscation schemes of their home countries.

When a crisis hits, a government can easily steal money in the banks or steal purchasing power by printing currency units. But it cannot easily steal bitcoin or prevent people from using it.

In a crisis, bitcoin is invaluable to the common man.

Whenever there’s a crisis anywhere in the world, bitcoin’s price and volume spike.

That’s why I’m calling bitcoin the new “crisis currency.”

It’s also why I think that bitcoin use will soar during the next global financial crisis, which I believe is not far off.

Justin Spittler: So is bitcoin primarily a safe haven from currency crises? Or is it a safe haven during other sorts of crises, too?

Nick Giambruno: I think it can protect people from other sorts of crises, too, just like gold.

Now, bitcoin has not been around that long. It’s only been around for about 10 years, so it’s relatively new. But we can look at different crises around the world that have happened since bitcoin’s inception and there’s a clear pattern of bitcoin acting as an escape hatch.

Whether it’s a crisis in Cyprus, Greece, Syria, Ukraine, Venezuela, Zimbabwe, or North Korea, there is a clear pattern in bitcoin.

These are all relatively small countries. They’re not the economic powerhouses of the world. So just imagine what will happen if there’s a major crisis in the US, Europe, or China… I’d expect the bitcoin price to skyrocket.

Justin Spittler: Do you think bitcoin’s role as a crisis currency will be the primary driver of its price going forward?

Nick Giambruno: It could be, but there are also other powerful factors that will fuel bitcoin’s rise regardless. Less than one-half of one percent of the entire global population owns any bitcoin. And given bitcoin’s utility as a voluntary, resilient, and international currency and payment network, it offers tremendous value. I expect many more people to adopt it.

Justin Spittler: When you look at the world, is there any place or potential crisis that you think could spike a major move in bitcoin’s price?

Nick Giambruno: There’s not going to be a shortage of crises in the future.

There are a lot of troubling events coming out of the Middle East right now. In fact, I wrote in the latest issue of Crisis Investing about how the chance of a major conflict in the Middle East is higher than at any point since the 1970s.

If we look at history, whenever there’s a big war in the Middle East, we see spikes in the price of oil and crashes in equity markets. So I think turmoil in the Middle East could certainly be a trigger.

Then there’s the situation in Italy, which is the first large European country to elect a populist, anti-European Union (EU) government. On top of that, it has a ridiculous platform of introducing a universal basic income and other extravagant spending programs that easily break far above EU rules on budget deficits.

Italy is already saturated with debt. But since it cannot print euros, the only way it can finance this drastically increased spending is by issuing even more debt. Not surprisingly, no rational investor would invest in Italian government bonds right now. The only entity that is buying this toxic waste is the European Central Bank (ECB), which is printing euros to do so.

Will the ECB continue buying Italian government bonds even if Rome is breaking EU budget deficit rules? If it doesn’t, that would collapse the Italian government and banking system overnight… which would create an immediate existential crisis for the euro and the EU itself.

So Italy has really created a “damned if you do, damned if you don’t” situation for the EU. I expect that we’ll see this crisis come to a head in the coming months, and it will cause bitcoin’s price to go higher.

Both Italy and turmoil in the Middle East could be the pins that pop the bubble in the US equity markets, too. That could trigger a 2008-type crash, or possibly something more severe.

So I don’t think there is a shortage of potential crises out there… and that will be good for both gold and bitcoin.

Justin Spittler: So would you say that bitcoin is a threat to gold?

Nick Giambruno: I do not view bitcoin as a substitute or threat to gold, which I believe is still the best vehicle to preserve wealth over the long term. I view bitcoin as a complementary tool for individuals to advance their financial freedom.

In fact, I think bitcoin is a “gateway drug” to gold. Bitcoin gets people to think about the very nature of money, something very few people would ordinarily do. Many will discover the destructive nature of government fiat money and central banking because of bitcoin… and that will inevitably lead them to gold.”