Cryptocurrencies and avoiding the “poof moment”…

I am writing this at the behest of David Schectman for Miles Franklin readers as he wanted my opinion on cryptocurrencies.  Let’s start by saying I have no doubt within only a short time, “crypto currencies” will be issued and embraced by central banks.  This is not to say I am endorsing Bitcoin, Ethereum or any other digital currency.  It is even possible that not a single existing crypto will exist when central banks finally make their leap.

Issuing and embracing cryptos make total sense from the standpoint of central banks for several reasons.  First, what crypto bulls consider as “privacy” today, central banks will see as “total knowledge” if they are the issuer.  This will mean total knowledge of all transactions which also means a near impossibility of any tax evasion even down to the lemonade stand (assuming you have your lemonade permit!).  Also, if central banks issue the crypto currency …you can pretty well bet they will also have a back door …that allows them to either freeze or even empty “your vault” of digital coins …whenever or for whatever they choose.

Whether we are headed toward a one world currency or several currency blocks (this is more likely), digital money is coming if the central banks have anything to say about it.  As I mentioned above, I highly doubt central banks will want “competition” to their currencies so some sort of legislation (either by individual sovereigns or collectively on a global basis) can be expected as an attack on existing “private” cryptos.  In my mind, there does exist the possibility that an existing currency (or a very small handful of current cryptos) is used as the “platform” for central banks but I would not place my hope on this.  I also would not want to bet “which one” or ones will be chosen if this is the case?

In my opinion, the volatility of digital currencies while wicked and speculative (upward so far?) is not the real danger, and the ride is not for the faint of heart.  The real dangers are several and basically involve a “poof” moment that does not exist with gold or silver.  When I say “poof”, I am talking about “poof, it’s gone!”.  Do not say this is impossible because it is not.

I would ask, what if we experience an EMP and the grid goes down?  No electricity, no computer.  Yes you can go to another area or country but good luck getting there.  Another argument you hear for digital currencies is “they are not hackable” …to which I must call utter bullshit because EVERYTHING including the NSA is hackable!  Even the modern car you drive is hackable and can be overridden with a joystick today.  We see it all the time, this entity or that entity gets hacked.  We have even heard of people’s cell phones being hacked and digital currencies stolen that way.  One must also worry about the exchange(s) being hacked, we have already seen this where coins just disappeared.  I just recently read this article  for more potential pitfalls or arguments. Suffice it to say, in the case of Bitcoin, no one even knows who its creator Satoshi is, how does anyone know he did not install a backdoor when he launched it?  It does make sense that the programmer has a back door doesn’t it?  Maybe he was an “honorable” programmer?  Are all the others the same?  We do not exactly live in an “honorable world” no matter how badly you’d like to believe it …

To finish, maybe I am old school but I see a vast difference between digital currencies and precious metals.  Most important of all, precious metals cannot “disappear” overnight if you have them stored properly.  Can they be made “illegal”.  Yes governments can try this but how do you make silver illegal with all of its medicinal, solar, industrial and technological uses?  Can jewelry be made illegal?  An EMP will not destroy the value of metal.  Neither will a fire or flood.  They can be taken from you at gunpoint which is why you should have metal stored in several places.  Metal will work for barter in the situation of a full out meltdown of financial markets.  Will your local farmer trade his eggs, beef, extra tools or diesel fuel for Bitcoin?  Probably not.  Will he trade for metal?  I think so.  Then I would ask, if you want to “trade” your digital currency when financial institutions are closed …”how do you get paid” if financial transaction are frozen?  The same can be said of metals but I am pretty sure a guy with two motorcycles might trade one for 100 ounces of silver …(or less?) …I’m not so sure he’d accept a digital currency?

I could go on and on with examples but I am of the school that “possession is 9/10ths of the law”.  In the case of outright anarchy, (which we very well may be facing) “possession” itself may become the law?  If you take nothing away from this article other than just one concept, please understand that metals cannot experience a “poof” moment where you go from wealth to nothing in an instant.  We face a credit meltdown dead ahead where return “OF YOUR CAPITAL” will trump return ON your capital.  Gold and silver are money, not credit, they may very well be your ONLY capital before this “credit episode” is all over?

The entire world faces a “poof moment” because nearly everything either is itself credit or relies on freely flowing credit for its value.  Gold and silver rely on nothing because they “are” money. They do not rely on credit nor are they the liability of anyone or any nation.  They do not rely on an internet (which governments do have the ability to shut down) or computers.  They do not rely on a user name or password either.  Nor do they rely on the simple and basic technology of electricity.  They can’t even be hacked (unless you use a hatchet to make change?).  Call me old fashioned but subjecting yourself to a poof moment makes no sense at all when it is the coming poof moment you see coming …and are trying to protect yourself from!

Standing watch,

Bill Holter
Holter-Sinclair collaboration