There’s no use arguing BitCoin versus gold

BitCoin and cryptocurrency forums have been reacting emotionally to arguments illustrating the flawed technical fundamentals of cryptocurrencies.

Just google bitcoin+ponzi, bitcoin+intrinsic value, bitcoin+myspace, etc. All arguments have been made. Honeybadger doesn’t care. It moves onwards & upwards.

Anyone who’s longer in bitcoin than a year has heard all this nonsense before. Even today i got lectured by some loser telling me btc is just hype built on 1s & 0s.

Heck I’ve come to expect it. Some people are just hardwired against accepting changes. They reflex into denial or abuse.

“Nonsense”, “loser”, “hardwired against accepting changes”, “reflex into denial or abuse” are all character attacks and do not rationally address the arguments.

Like the political landscape that has now taken over the western world, the cryptocurrency versus gold debate is just as polarized. The two sides are arguing for extremes rather than acknowledging nuance.

I do not have a vested interest in either gold or BitCoin.  As I’ve stated in a prior post “When non tech savvy people talk about BitCoin, is it a sign of a bubble at its peak?” all asset classes are in a debt-fueled bubble. I am critical of both being overvalued (in fiat currency and public perception), simply because speculators in gold and BitCoin are over-leveraged betting on the “next big thing”.

There is no way the layman can tell whether the debt-fueled bubble will burst with an inflationary or deflationary outcome. Debt is either going to be forgiven and interest rates kept at record lows, or repaying debt will be desirable as a result of rising interest rates.  The central banks are in complete control and they are the true insider traders. They will know whether the value of assets priced in fiat currencies will rise or fall and will consequently control the perceived value of other asset classes such as gold and BitCoin.

In an inflationary environment, BitCoin and gold will rise in tandem when valued in fiat currency, and in a deflationary environment they will both fall as debt-fueled speculation becomes reversed. BitCoin has technological properties that increase its perceived value, whereas Gold has some physical properties that increase its intrinsic value. Both, however, are subject to the same speculative value — they are both only worth as much as the public’s positive attitude towards them. If either asset class suddenly becomes undesirable due to a change in psychology, that is, when people start to feel they are useless, then the value flows out of that asset class and into another in a zero-sum fashion.

The argument can then be made that the flows will be in and out of fiat currencies. A crypto or gold advocate says that when people feel fiat currency is useless they will adopt crypto or gold. Fundamentally speaking, this is still all speculation, and is not rooted in technical analysis. It will take a change of public perception for a flow from fiat to crypto or gold to happen. How can anyone be certain which way the mob mentality will go? It is a battle of persuasion, and the market makers and central banks can do a lot more persuading than the usual name-calling happening on Internet cryptocurrency forums.

The underlying constant value of crypto, gold and fiat currency is the unit of production.  That is, crypto, gold and currency are all acting as placeholders for the exchange of goods and services. When the supply of crypto, gold or currencies are inflated by the introduction of new cryptocurrencies, discovery of more gold or other precious metals, or issuance of more debt and forgiveness thereof (“money printing”), then only if the amount of desirable goods and services transacted is proportionally increased will the perceived value of these asset classes increase as well. Otherwise, they are merely competing with each other for public attention. In other words, when production drops off significantly in a country there should be a legitimate fear of hyperinflation as the ratio of placeholders to production approaches infinity. See Venezuela and other communist experiments as examples.

The more of these placeholders for the exchange of goods and services that are introduced, the more diluted the pool of these asset classes become.  A good short term question to ask is which asset class is going to dilute the pool the most. Will the central banks forgive all debt and keep interest rates low, increasing fiat currency supply, thereby making BitCoin and gold relatively scarcer? Or will they tighten interest rates causing a flight to the dollar to pay off debt, making BitCoin and gold less desirable in favor of avoiding high interest rates? Considering Moore’s law, will new competitive cryptocurrencies or a new technology altogether replacing all cryptocurrencies come out? Will gold be considered an antiquated notion, or be superseded by a new precious metal with similar physical properties as gold?

One thing is for certain is that the central banks (and consequently, corrupt governments) have too much input in to the direction we’ll be headed. They have the ultimate insider trader’s perspective. They can set their market positions accordingly prior to any big moves. Unfortunately, rather than address that issue, the rest of us are arguing uselessly with each other whether BitCoin is better than gold.

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