There’s an old photo-bug saying that goes something like this: “what’s the best camera?” and the answer is, “the one you brought with you.”
Applying that same pithy wit to the question posed in this post’s title, the answer could be “the price at which you bought it.” Here’s a chart for the USD price for an ounce of gold over the last 100 years. No adjusting for inflation (because it’s tantamount to a measure of inflation in itself) and no log scale.
…”Just the basic facts can you show me where it hurts.”
The post today is what I’ll call a #FridayFreebie. My Patrion initiative, barely a week from launch, is going quite well with 90 patrons and counting. I’ve put out the cryptocoin positions I hold, I post about all trades I make, and most recently, I’ve made available the portfolio I created for this venture (Bitcoin and seven other cryptocurrencies) to patrons with real-time updating.
The next thing to come is my How-To Guide designed for the newbies (or “nobies,” as my wife describes herself in this context) so they can easily get started in minutes, no matter how small, and do so with some confidence that they’re not going to accidentally lose their coin.
Given the news and volatility over the past several days, it’s probably a good thing that it’s taken me a bit longer to finish up the guide than I’d anticipated. The less freak out initially, the better
So let’s talk about “the news.”
I’ll pick two most recent; Jaime Dimon, CEO of JP Morgan Chase, and the whole China deal. Dimon:
It’s just not a real thing, eventually it will be closed…It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed…Currencies have legal support. It will blow up.
It reminds me of drug kingpins and cartels being the staunchest supporters of drug prohibition, which underpins the core basis of their own license to steal. Setting aside the criminality represented by that gold chart above—collusion between guys like Dimon, central bankers, and legislatures… their “legal support”—the ignorance displayed is pretty woeful.
Saying “eventually it will be closed” is tantamount to calling for the “closing” of TCP/IP, the root protocol by which the Internet operates. Blockchain is a protocol. It’s not a database. There’s nothing to “close.”
This is typical thinking for a banker with his license to “print money” and charge interest on it. Banks can fail. Regulators can close them. In cryptocurrency, there is no bank. Or, you can say, everybody is their own bank. When you pay someone in bitcoin, it literally goes directly from your digital wallet to theirs, using the blockchain protocol, which currently runs on 9,275 nodes, globally. And you can bet for sure there are lots and lots of dark nodes, ready to be fired up should anyone get any silly ideas.
So, Dimon’s is about the 160th Bitcoin Obituary from mainstream conventional wisdom since 2010. Hit that link and scroll down. Some real howlers and screamers.
My judgment? Jaime Dimon is dismissed.
On to the China news. First, let’s determine what’s true and what’s not true.
- China is going to prohibit Initial Coin Offerings (ICOs) from here out. Apparently true.
- China is going to shut down their Yuan –> (x)Coin currency exchanges by the end of September. Apparently true.
- China is outlawing Bitcoin and other cryptocurrency and purchase or trading in them. False.
In terms of #1, minuscule impact, if any. There are already like 1,000 different coins, most fraud, garbage, or stupid. And there’s going to be a lot more fraud and garbage to come, ICO wise. Unless you have some specific insight or insider knowledge or know the principals, probably best to stay clear of ICOs anyway—unless you just want to throw 20 bucks at it and see if it goes all Bitcoin on you, someday.
For #2 and #3, people will apparently still be able to buy and trade Bitcoin and other cryptos over the counter (OTC), a fancy way of saying through a dealer or broker. There’s a ton of articles to read about the whole deal but here’s one that at least offered some insight and if correct, you guessed it: they’re totalitarians. Gasp. Shocked. Who knew?
Bitcoin has always been something of an awkward fit for China, which strictly regulates financial markets and limits the flow of funds overseas. Chinese officials have apparently concluded that Bitcoin has become too popular as a way to circumvent those regulations.
Reuters quoted a Friday comment by a senior Chinese official that may explain the Chinese government’s thinking:
Li Lihui, a senior official at the National Internet Finance Association of China and a former president of the Bank of China, told a conference in Shanghai that global regulators should work together to supervise cryptocurrencies.
“Digital tokens like bitcoin, ethereum that are stateless, do not have sovereign endorsement, a qualified issuing body or a country’s trust, are not legal currencies and should not be spoken of as digital currencies,” he said. “They can become a tool for illegal fund flows and investment deals.”
He said there should be a distinction between digital currencies, which were being studied and developed by authorities such as the Chinese central bank, and digital tokens such as bitcoin. Digital currencies developed by authorities could be used for good, with the right regulation, he said.
The Internet finance association was set up by China’s central bank, and according to Reuters, it “urged members to abide by Chinese laws and not deal in cryptocurrencies.”
Well, that says it all, if that’s policy. It’s not official Chinese Totalitarian State currency, but merely a “token,” and it shall not even be spoken of as currency.
So shocked. ;)
So we’re still left with the question, how to handle the news or “trade the news?” To explore that, let’s draw a distinction between investing and trading. If you’re an investor…say, you have a 401K, perhaps a brokerage account where you buy some stocks or ETFs you like, here and there, you probably don’t care about the news, nor should you.
If you’re a trader; meaning, in and out of positions frequently—sometimes multiple times in a session—then you’re both a market maker and a market taker, depending. How you trade the news is going to depend. You can, for instance, sell (short, or a position you hold) on bad news, in anticipation that’s what everyone else is going to do. Then, you buy back in after the selloff once trading volume cools down.
You can always take the contrarian view which is, generally speaking, that good news is a sell signal and bad news is a buy signal.
But let’s come full circle and back to the question in the post’s title. If the price at which you bought it is the best price to buy gold, then why would you be overly concerned with news events? Well, perhaps maybe on news of something like FDR’s Executive Order 6102 in 1933 which was basically an Eminent Domain action on a commodity, not real estate. Americans were required to surrender their gold for $20 per ounce. Once the surrender period concluded, the Gold Reserve Act of 1934 set the “market” price at $35. Ha, a 75% fiat profit to the state.
I ignored the news about Bitcoin. In fact, I made a buy after the first round of news created a selloff. The portfolio I began creating only 12 days ago—fresh, in order to simulate what will happen to folks just now getting into the market—hit its low point (so far) at 4:20 am PDT this morning. In less than 12 hours, it has gone up 36% from that low. What a ride!
Otherwise, gold has a strong track record of being an excellent hedge against all and various fiat currency cartels throughout world history. But it has its drawbacks. It’s not easy to get physical gold to the other side of the globe (Bitcoin can do it with peer-to-peer smartphones, even SMS, in minutes at near zero transaction cost). Moreover, gold and silver in circulation have inflation problems of their own, since it trades at face value and not by weight. Ever heard of “coin clipping?”
But people say, “Bitcoin has no intrinsic value.” They complain that it’s not tangible. They ask, “how do you value it?” To those objections, complaints, and questions, I have a challenge of my own: value TCP/IP for me, please. Can you identify a proper “unit” of TCP/IP and give it a value? Please ensure that you account for all valuers; that is, integrating the value an American household with two computers, three smart TVs, two iPads and three iPhones places on it compared to say, a dude in a mud hut in Somalia.
People get hung up on the “ridiculously high, bubble price” of a Bitcoin. But, each Bitcoin is already divisible by 100 million units, or Satoshis. It’s built into the protocol. At this instant, one Satoshi trades for USD $0.0000373507. From that perspective, Bitcoin sounds pretty cheap. See, in part, we’re dealing with scales and semantics here.
…So there’s my 532 Satoshis on the matter (as of the time of this writing).
Last, I urge everyone to take less than an hour and watch this marvelous speech by Andreas Andropolous, The Stories We Tell About Money.
In this talk, Andreas recounts the history of Bitcoin and what it represents, building upon all the stories we’ve been told over the centuries about what ‘money’ is, how we perceive its value, and why the old answers have changed as we adjust to this new world of digital peer-to-peer currencies. He also discusses global threats to economic stability and trust in the financial system, including demonetization and wealth destruction through inflation.
Alright, enjoy the weekend patrons, and soon to be patrons…