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November 20, 2017 | Unleashed

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Being paleo, I’m no Bitcoin buddy. But you can’t ignore this thing. There’s a growing mob of people convinced the future of money will not be like the past. No fiat currency. No central banks, No government controls. No interest rates. No printing presses. No cash tied to political decisions or interference. As a result Bitcoin, and other rival cryptocurrencies, have spawned a Wild West of finance. Compared to this, real estate in Toronto or Vancouver is a giant, boring, brain-dead GIC.

The latest news comes as Bitcoin advanced to $8,000 US. That’s a 700% gain this year, taking the total value of the invisible, digital, unbankable currency to $130 billion. Along the way there has been extreme volatility – three recent plunges of 25% each, enough too freak out even the most iron-gutted investor.

Despite this, the number of supporters is ramping up daily. Surprisingly, now the doomers have signed on. Some people say Bitcoin is sucking off a lot of support from the traditional hedge-against-paper-money, which is gold.

Wow. Look at this chart. Gold’s comatose. Bitcoin is on fire.

 

Of course, why someone who thinks the world might blow up would put all their faith in money that only exists if you have a good Internet connection and a charged-up phone is curious. Our gossamer grid might be the first piece of infrastructure to fail. Go figure.

But the appeal of digital money to those who trust no elected person, national government, central banker or multinational, globalist corporation is obvious. Bitcoins are hard to mine, unlike the way the US government prints trillions of dollars, for example, or the Fed simply balloons its balance sheet. A limited supply is intended to maintain value – but it also means when demand for the stuff increases (like now) the worth of each digital unit inflates wildly.

Bitcoin isn’t actually money you can possess and hoard. Instead your pile is kept in a virtual wallet forming part of an online payments network which is completely decentralized. That’s called the blockchain – at the heart of the up-yours mentality which created digital currency. Anonymous. Sovereign. Free.

Bitcoiners (and the lovers of other forms now rivaling it) look at the way the world almost went off a cliff during the credit crisis and have decided they want nothing to do with a system that can ricochet, domino-like into utter mayhem. At least that was the genesis. Now speculators, traders and institutions are piling on, with the smell of quick profits in their nostrils.

Next month, for example, Bitcoin futures will start trading on the world’s biggest exchange. There are now bitcoins backed by gold. Could it be long before we see one tied to dollars? Will digital money ultimately be co-opted by global financial institutions who themselves are looking for relief from capricious national governments and paternalistic central banks? With free trade having broken barriers everywhere, a single protectionist leader like Trump has the potential to wreak havoc. Maybe non-political, uncontrollable, non-inflationary money is the answer – freed from the jerking around that one nation’s interest rate policy can create.

So, yes, Bitcoin has a future. But we’re not there yet. And investing in it poses extreme risk.

The very thing that attracts – the absence of manipulation – is what also makes digital money toxic to average investors. Fiat currency (the stuff we use every day to finance our lives) is tightly controlled by central banks to smooth out wild gyrations affecting its value. They do this by expanding or contracting the overall money supply, adjusting the cost of money (interest rates), actively fighting inflation and deflation and working with governments to issue and control public debt. Just look at what the Fed has done since 2008. Astonishing. And witness what an engineered collapse in interest rates did to Canadian housing prices. Stunning.

As a paleo, bitcoins are not in my portfolio. The volatility’s too much. The downside too great. But this week the Canada Pension Plan Investment Board revealed it has a staff of 100 people watching, analyzing and possibly preparing to jump in.

Imagine that. Your CPP dollars, out there, braless, untamed, astride blistering neurons with survivalists and nomads. Now I need a scotch.

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November 20th, 2017

Posted In: The Greater Fool

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