For 16 years, my career AND personal investments have revolved around “sound money” - which itself is a misnomer, as nothing DEFINES “sound money”; let alone, GUARANTEES it. Plus, what may be considered “sound money” one day, could be archaic next; which, as it turns out, has occurred thousands of times throughout history.
Traditionally, gold has best symbolized “sound money” – in that governments cannot control its supply and it has features that make it more “monetary” than other assets, natural or man-made. The problem being, that attitudes about gold have changed over time – to the point that it is used for essentially nothing today, other than jewelry and speculation that one day, it might be used as “money.” Not to mention, the fact that Bitcoin’s monetary properties put golds to shame.
Fiat currency’s history is 1,000 years long – during which, it has wrought unspeakable political, economic, and social horrors…particularly, debt, inflation, and wealth inequality. Which, in today’s world of 24/7 Central bank control and market manipulation, is worse than at any time in history. No one has ever mistaken fiat currency with fiat money – but unfortunately, the world’s masses are so uneducated; and used to (and dependent on) government control; they in most cases embrace it, via a warped financial version of Stockholm Syndrome.
Despite gold and fiat currency representing the polar ends of the monetary spectrum, they have one important characteristic in common; or should I say, MYTH - perpetuated throughout the centuries by propaganda and ignorance. Which is, that their value is derived from “backing” by something else.
In fiat currencies’ case, “backing” is provided by the “full faith and credit” of the issuing government or Central bank – which itself is an oxymoron, given that no issuing government or Central bank has proven to be a beneficent custodian of sound money. To that end, fiat regimes are INCENTED to print currency to maintain what amount fiat Ponzi schemes – yielding the aforementioned, relentlessly rising debt, inflation, and wealth inequality that by definition, constitutes UN-sound money.
As for gold, it is said to be backed by “intrinsic value” – which some define as the cost of production; and others, 5,000 years of monetary history. The problems being, that…
No economic law states that assets must trade above their cost of production – particularly gold, which has traded below it (or been held there) for long periods of time;
As “past is not prologue,” there is no guarantee gold will be considered to have “intrinsic” value forever
The term “intrinsic” itself is anomalous, as there’s no way one can rationally sell the concept of money by simply saying it has value “in and of itself”; and
Not only has gold under-performed nearly all asset classes for the past decade (manipulation notwithstanding), but history’s supposed top “inflation hedge” is trading at an all-time inflation-adjusted low – at a time when monetary inflation, globally, has NEVER been higher.
As for Bitcoin, nocoiners and unabashed Bitcoin enemies (like Peter Schiff) claim Bitcoin is “worthless” (despite being WORTH $100 billion) because it is not “backed.” To that end, the latest propaganda of John Crudele – which is quite ironic, as he has been an extremely vocal critic of Central banks and governments…in which, he discusses the “fake currency” Bitcoin.
https://nypost.com/2018/07/04/why-bitcoin-may-be-soon-worth-nothing/
“Bitcoin…is worth 70 percent less than it was at the beginning of the year. (However),
I use the term “worth” cautiously because bitcoin is really worth nothing, since it’s backed by nothing or no one. It’s a confidence game that has value only because people are convincing other people that it’s worth something.”
Quite the amusing statement, as one could easily replace Bitcoin with gold or fiat currency. In gold’s case, I still don’t understand what it is “backed” by; and as for fiat currency, the “backing” has for 1,000 years debased and destroyed the “monetary value” that fiat currency, which can be fabricated out of thin air, supposedly has.
In the big picture, the only “backing” money has is the confidence investors have in its ability to maintain purchasing power. In fiat currencies’ case, not a single one has achieved this goal…including the U.S. dollar, which has lost 99% of its purchasing power since the Federal Reserve was created - and yet, is considered the “reserve currency” because it’s so “stable.” As for gold, its inability to be fabricated has enabled it to maintain value for long periods of time. However, governments have destroyed its scarcity with paper derivatives; as well as outright bans and confiscations, that have made it impossible to profit from when needed most.
Most importantly, the emergence of Bitcoin – “unbacked” as it is – threatens BOTH fiat currency and gold; as for the first time in history, a monetary asset has the ability to maintain “sound money” properties indefinitely, no matter how much governments oppose it. This is why it CANNOT, and WILL NOT, lose!