Will Bitcoin and Cryptocurrencies Suceed or Eventually Crash and Burn.
In a recent podcast Economist, Peter Schiff argues that Bitcoin would be a disaster to use as a currency. Start 17 minutes into podcast.
In a recent podcast Economist, Peter Schiff argues that Bitcoin would be a disaster to use as a currency. Starts 17 minutes into podcast here:
Let me summarize what Schiff argues: Bitcoin is in a bubble and will be set to crash sometime in the future, even if not in the near future. It is so volatile, no one would be surprised if it goes up or down by hundreds of dollars next week. Given the fact that there is that much volatility, how can it be money? Money needs to be a reliable store of value. How can you agree to pay an employee a certain amount of bitcoin per week if that value could change dramatically in a matter of weeks? How can you borrow money in Bitcoin when you don’t know what it will be worth when you pay it back? Can you contract to pay in Bitcoin for a long term contract where you expect to receive the product in six months or a year? There is uncertainty for both the buyer and seller.
Hey, Schiff makes some great points and he could be right. However, risky as Bitcoin is, he is not taking into account these reasons for use of Bitcoin:
- As a safe haven or alternate from the failing world currencies.
- To unplug from the fraudulent banking system and be independent
True, this rationale may be a smaller percent of the investors. Perhaps most of the cryptocurrency buyers are playing this market like a casino. I don't know the percentages. However, even assuming that is so, cryptocurrencies are in their infancy. Very few people know about them or use them. There is lots of room for growth in adoption and use.
Today, various countries are making deals and finding ways to opt out of the failing US dollar. The US Petrodollar World Reserve status is fast falling apart. http://ftmdaily.com/preparing-for-the-collapse-of-the-petrodollar-system/
China, India and Japan are seeing more movement into Bitcoin: https://news.bitcoin.com/countries-priming-bitcoin-demand/
There are lots of countries that are now friendly to cryptocurrencies. https://news.bitcoin.com/worlds-top-10-bitcoin-friendly-countries/
There are a growing number of companies accepting Bitcoin for payment for goods and services: https://99bitcoins.com/who-accepts-bitcoins-payment-companies-stores-take-bitcoins/
The UN Wants to Adopt Bitcoin And Ethereum – And Soon. http://www.coindesk.com/the-united-nations-wants-to-accept-ethereum-and-bitcoin-and-soon/
During periods of turmoil and instability, people in less stable countries are resorting to bitcoin. https://news.bitcoin.com/countries-priming-bitcoin-demand/
So I think Cryptocurrencies have a lot of room for growth. Most of them will be failures, but roughly speaking, the top ten may do well, particularly Bitcoin with its huge infrastructure and also Ethereum with its features for record keeping and transmission.
With all the flaws of Bitcoin mentioned by Peter Schiff, even gold and silver may be subject to greater volatility in the future as they shoot up later in this year (as people flee the failing world currencies). However, all the world currencies are in big trouble, being over printed and backed by nothing. What currency alternatives are there right now except for gold, silver and cryptocurrencies?
We have a rocky road ahead. Volatile or not, cryptocurrencies will look like a tempting alternative as people become more uncertain about the future.
Also, cryptocurrencies are not just for money, but the blockchain can serve as a business document and record library.
Ethereum is a programmable blockchain. Rather than give users a set of pre-defined operations (e.g. bitcoin transactions), Ethereum allows users to create their own operations of any complexity they wish. In this way, it serves as a platform for many different types of decentralized blockchain applications, including but not limited to cryptocurrencies.
30 Companies forming an alliance will create a standard version of Ethereum for businesses to track data and financial contracts. https://www.nytimes.com/2017/02/27/business/dealbook/ethereum-alliance-business-banking-security.html?_r=0
Microsoft has become very aggressive in its attempts to build a structure that depends on a specific blockchain called Ethereum. https://www.crypto-news.net/microsofts-use-of-ethereum-highlights-adoption-of-blockchain-as-a-service/
They say no risk, no reward. Is Bitcoin and Ethereum a risk worth taking or will you lose your shirt with these investments? Right now, I would say they are likely good investments. The worse the economy gets, the stronger Cryptocurrencies will get. At this rate, by 2018 Bitcoin could hit over $5,000 per coin. However, in my opinion the safest investments as a hedge against loss are gold and silver. Due to price suppression by the LBMA and big banks, gold and silver are greatly undervalued. There are signs that ability to price suppress are unraveling and that these precious metals will yield great rewards in the next year or two. However, that is a subject for a future article.
The difference between Cryptocurrencies and precious metals is that Gold and Silver prices are actually manipulated by big banks. See the early history of how this fraudulent manipulation began by clicking here: https://steemit.com/gold/@nicodemus/origins-of-the-manipulation-of-gold-and-silver-prices
Schiff is, of course, 100% correct. But so are you in terms of reasons someone still might look to cryptocurrency. Arguably, gold and silver are not volatile -- as I understand it, they traditionally hold value in terms of what they can buy, but seem to fluctuate in value because the fiat dollar is changing in value. If they rocket upwards, it's because the fiat system is rapidly losing value.
Gold and silver (and other metals) can be used by industry, so there is an inherent value that fiat money and cryptocurrency can never match. The latter rely on faith that someone will accept the currency in exchange for goods and services. This is why crypto will be a total crapshoot as we figure out which options people will reliably accept. But it seems clear that we're moving into a digital era and that people don't want centralized powers running the money system, where they can deflate the value of that money (i.e., steal from everyone who has any of that money) on a whim.
Thanks stevemcc,
Great comments. You are very reasonable. I am worried about new laws allowing the banks to treat us bank depositors as unsecured lenders. Derivatives get first priority now with FDIC insurance, which means the insurance can quickly run out in a crash leaving none of us depositors protected. The Banks can now do a Bail-in where they remedy their default position with depositors funds. In place of our money in the bank, they will give us stock in the worthless bank. Greece was a test run. (See James Rickards "Road to Ruin" book.)
Yep, cryptocurrencies are a crap shoot. My thinking is that regardless of what the mainstream news media tells us, the truth is that the world economies are in tremendous debt to the banks and the economies are failing. In a bank crash, people will flee to precious metals as a safe haven, but it will be too late, because investors following this trouble, who are ahead of the curve, will have bought up all the available gold and silver bars and coins. What's left? Cryptocurrencies will look more appealing, even if a bit risky. What other options are there if we can't trust the banks? Okay, hard assets.
Food for thought. (I hope I am wrong.) The issues are so complicated when you research, it is hard to know for sure how things will play out. Also, if the Trump administration has a plan to come out of an impending economic crash, they won't scare us by talking about it now.
Thanks again for great comments from you.
I hope you're wrong too. It's the old "hope for the best, prepare for the worst" situation, and I wonder philosophically how much we impact the outcome by our own expectations. So I try to stay positive about it all, but also want to do what I can not only to prepare myself but to encourage others to diversify -- not just out of traditional savings, but in terms of earning income from more than one source and so on. A new world is developing before our eyes, and I believe it empowers the individual more than ever before. But if that's what is happening, then individuals will need to take a lot more responsibility for things, and I'm not sure how many people want that.
Thanks to you also for the great feedback. This is a good community to be part of as we navigate into this new era.
stevemcc,
On a positive note, for crypto investors, it looks like Ethereum may be a good bet right now. Lot's of companies investing in Ethereum applications with announcements coming out in the next several weeks. Also, Cliff High's (HalfPastHuman.com) data mining confirms same conclusion.
Thanks for the input!