The Bitcoin is ‘as-good-as-gold’ myth is over
When you invest in gold or buy silver coins you are choosing to invest in an asset that has no counterparty risk. Sadly, those who have been holding their bitcoin on the crypto exchange FTX, have not experienced the same level of reassurance and service from the exchange’s management. This event is all part of a much wider lesson about which assets really are safe havens. Also, how to reduce the level of counterparty risk your investment portfolio is exposed to. This time last year, cryptocurrency enthusiasts were still touting “Crypto as the new gold”– crypto touted as having the same ‘safe’ attributes as gold. The main attribute is that it is a currency that government doesn’t control. Also, it is without counterparty risk. The latest debacle has once more proved this is not always the case for cryptocurrencies. The news that the crypto exchange FTX was filing for bankruptcy on November 5 sent Bitcoin plunging down a further 25%. This is on top of the more than 60% Bitcoin has already declined since its November 2021 peak. This brings the total decline to more than 75%. The extent of the collapse and its fallout is still unfolding as more details are uncovered. The main risk goes back to one we have discussed many times before counterparty risk. What Happens to your Bitcoin as FTX Collapses The FTX collapse has brought to light that the CEO, Sam Bankman-Fried, had authorized billions of dollars’ worth of customer assets to be lent to its affiliated trading firm Alameda Research to fund risky bets. According to news reports Alameda Research owes FTX upwards of US$10 billion. This is more than half of its US$16 billion in customer assets! The bankruptcy case is likely to take years to unravel. There could be more than one million creditors, and more than 100 other related corporate entities involved. Everyone who thought they owned Bitcoin held by FTX became an unsecured bankruptcy creditor. These are the ones who must now rely upon some Court to confirm just how much, or any Bitcoin they will receive. FTX is not the first crypto exchange to collapse – Mt. Gox, which accounted for over 75% of all Bitcoin transactions until it filed for bankruptcy in 2014 after being hacked. Hundreds of thousands of bitcoins were lost (removed from the network). Some of these coins later recovered but withdrawals from the exchange were already stopped. It wasn’t until seven and a half years later, in November 2021, creditors and the court reached an agreement. The FTX web of deceit and ‘poor judgment’ in Mr. Bankman-Fried’s words, goes much deeper and is far more convoluted than the Mt. Gox bankruptcy. Article courtesy from GoldCore
The Oldest Form of Money – Do You Own It?
Centuries before the first gold coins were struck…There was another form of money: pure gold jewellery. Gold jewellery was used as savings, currency, and even as a form of barter. In fact, the tradition is so tied to our idea of money that modern currencies like the Thai Baht are named for the jewellery that preceded it. In that case, one could even break off detachable gold links to pay for goods and services. Even today, in India, jewellery is the primary form of gold within the country. They buy pure gold necklaces and bracelets instead of coins and bars. For every ounce of gold in coin or bar form bought in India, roughly another three ounces are bought in jewellery form – it’s their preferred form of investment gold. Throughout much of history, individual wealth has been denominated in jewellery form. Because in the past, you couldn’t leave your wealth in your home – even if you had a coin or bar — it just wasn’t safe. People lived very close together, in community homes, huts, etc. Storing gold at home wasn’t as secure as it is today. As a result, most people wore their wealth for security reasons. Thus, gold jewellery quickly evolved into one’s “wallet.” People wore jewellery as a way of carrying their wealth. They kept their money draped around their neck or wrist, which amounted to a form of portable wealth. Wearable Wealth: Jewellery with as Much Pure Gold Content as American Eagle Coins This brings us to today… Most jewellery sold in stores doesn’t contain that much actual gold. The jewellery you find in malls, and even high-end places like Cartier or Tiffany’s is typically 14-karat gold or less. That means, almost 50% of the metal composition consists of alloys including brass and steel. But mall jewellery still costs a pretty penny — typically selling for 3x to 4x the amount that its gold content would warrant. Why the huge markup? People are buying the brand as a fashion statement. When it comes to gold, we believe only pure gold is gold. And when you buy it, you should pay reasonable premiums now and then be able to recoup its market value later. That’s why all our real gold jewellery has the same purity as sovereign coins — 22 karat (91.6%), the same as an American Eagle or Krugerrand. Of course, there’s no substitute for owning gold bullion coins and bars. But for those seeking diversification, pure gold jewellery offers portability and discretion, all in wearable form so that you can enjoy it. Most ordinary people have no idea how much gold is in a single piece or what it’s really worth. And while an individual piece’s intrinsic value may be nearly impossible to guess at a glance, there’s no denying the beauty of real gold. Each piece is designed to be worn daily, with many timeless styles to choose from. This makes it easy to give the gift of gold to loved ones this holiday season. Article courtesy of Jeff Clark from GoldSilver
The Wealth of Nations
In studying monetary history to identify cycles, it is necessary to examine both sides of the coin so to speak. The temptation is for people to blame all their woes on their government. Certainly, governments are often at fault when it comes to inflation through fiat monetary policy, but one must never forget that in the end, we are ultimately the ones who consent to our government’s rule. History is full of examples of greed leading a populace to do incredibly stupid things. Indeed, we don’t need the government to ruin our economy. We can get by just fine by ourselves, thank you. John Law and Central Banking Another great example of a society replacing its money with an ever-inflating currency supply is the story of John Law. Johns Law’s life was a true roller-coaster ride of epic proportions. He got into a fight over a woman and his opponent challenged him to a duel. He shot his opponent dead, was arrested, tried, and sentenced to hang. Being the knave that he was Law escaped from prison and fled to France. Meanwhile, Louis XIV was running France deeply into debt due to warmongering and his lavish lifestyle. John Law, who was now living in Paris, became a gambling buddy with the Duke d’ Orleans, and it was at about this time that Law published an economic paper promoting the benefits of paper currency. When Louis XIV died, his successor, Louis XV was only eleven years old. The Duke d’Orleans was placed as regent (Temporary king), and to his horror he found out that France was so deep in debt that taxes didn’t even cover the interest payments on that debt. Law, sensing opportunity, showed up at the royal court with two papers for his friend blaming the problems of France on insufficient currency and expounding the virtues of paper currency. On May 15, 1716, John Law was given a bank (Banque Generale) and the right to issue paper currency, and there began Europe’s foray into paper currency. The slightly increased currency supply brought a new vitality to the economy; John Law was hailed as a financial genius. As a reward, the Duke d’Orleans granted Law the rights to all trade from France’s Louisiana Territory in America. John Law wasted no time capitalizing on the public’s confidence in his company’s prospects and issued 200,000 company shares. Shortly after that share priced exploded, rising by more than 30times in a period of months. Just imagine, in a few short years, Law went from a gambling addict and penniless murderer to one of the most powerful financial figures in Europe. Again, Law was rewarded. Law was now at the helm of France’s central bank. Now that his bank was the royal bank of France it meant that the government backed his new paper notes, just as our government backs the Federal Reverse’s paper notes. And since everything was going so well, the Duke asked John Law to issue even more notes, Law, agreeing that there is no such thing as too much of a good thing, obliged. The government spent foolishly and recklessly while Law was specified with gifts, honours, and titles. Paris was booming due to rampant stock speculation and the increased currency supply. All the shops were full; there was an abundance of new luxury goods, and the streets were bustling. As Charles Mackay puts it in his book Extraordinary Popular Delusions and The Madness of Crowd, “ New houses were built in every direction, and an illusory prosperity shone over the land, and so dazzled the eyes of the whole nation, that none could see the dark cloud on the horizon announcing the storm that was too rapidly approaching”. Soon, however, problems started to crop up. Due to the inflation of the currency supply, prices started to skyrocket. Real estate values and rents, for instance, increased 20-fold. The ‘smart money’ began to exit fast. People started converting their notes to coins and bought anything of transportable value. Jewellery, silverware, gemstones, and coins were bought and sent abroad or hoarded. In order to stop the bleeding, in February of 1720 the banks discontinued note redemption for gold and silver, and it was declared illegal to use gold and silver coins in payment. Buying jewellery, precious stones, or silverware was sold outlawed. Rewards were offered of 50 percent of any gold and silver confiscated from those found in possession of such goods (payable in banknotes of course). The borders were closed and carriages were searched. The prisons filled and heads rolled, literally. Finally, the financial crisis came ahead. On May 27, the banks were closed and Law was dismissed from the ministry. Banknotes were devalued by 50 percent, and on June 10 banks reopened and resumed redemption of the notes for gold at the new value. When the gold ran out, people were paid in silver. When the silver ran out, people were paid in copper. As you can imagine, the frenzy to convert paper back to coin was so intense that near riot conditions ensued. Gold and silver had delivered a knockout blow. By then John Law was now the most reviled man in France. In a matter of months, he went from arguably the most powerful and influential force in society back to the nobody he was before. Law fled to Venice where he resumed his life as a gambler, lamenting, “Last year I was the richest individual who ever lived. Today I have nothing, not even enough to keep alive, “he died broke, in Venice, in 1729. The collapse of the Mississippi Company and Law’s fiat currency system plunged France and most of Europe into a horrible depression, which lasted for decades. But what astounds me most is that this all transpired in just four short years. From the book “Guide to Investing in Gold & Silver” by Michael Maloney
