I love it when I get mail in the Money Morning inbox. It means that you really pay attention to what I write.
That’s a good outcome for me. As a writer, all you want to know is that people are actually taking in what you’re saying. The fancy term for it is reader engagement. But it just means you read all of what I write, and it makes you think.
This will go out to over 119,000 Australian inboxes today. Even if just one person writes back to say, ‘thanks’ or ‘you’re an idiot’, then job well done.
Yep, happy to take the good with the bad!
I had a doozy come through this week. It was a reader who had seen another article and they wanted some feedback on it. Clearly they’ve been paying attention to my work.
Now forewarning, the article sent in was pretty long. It was a cracking read, but in particular there was a section about cryptocurrency that the reader, Ron, wanted me to pay attention to.
As such I’ve included that section below, it’s important. Now it’s a complex topic. And can get a little technical. But as ever I’m going to break it down for you in simple English — or at least try to.
As such you’ll be able to read my full response across today and tomorrow’s Money Morning.
We start off talking about cryptocurrency. We quickly move into quantum computing. And then circle back to cryptocurrency and the entire global financial system.
Hence, there’s a bit of ground to cover!
Common questions about crypto
The article was by Egon Von Greyerz. I don’t know Egon. But from what I was able to find out online, he’s an asset manager with long standing expertise and experience in gold markets.
I wasn’t overly surprised at some of the problems brought up in his article.
Ron wanted my take on a number of points Egon made about crypto.
After reading the article and the points, I thought yes, I will tackle this. These are the kinds of questions I get about crypto quite a lot now. And if one person’s thinking it, then there are bound to be more.
With that in mind, let’s kill 119,000 birds with one stone…over the next two days.
Egon’s article appeared on the Gold Switzerland website. Here’s a number of dot points from the article, under the subheading, ‘Cryptos are not wealth preservation’:
‘Governments are unlikely to ever allow cryptos to be an alternative to fiat (paper) money without their approval and control. Cryptos can easily be banned by closing down all exchanges and making all trading illegal.
‘Yes if it is banned, a black market of peer to peer trading would still be possible even though illegal. Conversion to fiat would be made a criminal offence and every illegal transaction could be declared null and void. So if you bought a house with cryptos, it would be confiscated.
‘In the end, governments are likely to ban private cryptos and issue their own to replace current paper/electronic money. This will be a wonderful way for governments to totally control all money, to tax every transaction directly and to turn off the system or certain accounts at will. This is a very likely development in the Big Brother is Watching era we are currently in.’
Look, Egon is right when he says crypto aren’t wealth preservation…sort of.
Right now, you wouldn’t look to crypto markets as a way to preserve wealth…if you were solely focused on converting crypto prices back to fiat money. I mean if bitcoin was worth $10,000 last week and $8,000 this week, that’s not exactly capital preservation is it?
But think of bitcoin as the only true, global unit of exchange. And price everything accordingly in bitcoin. In that sense, bitcoin is the only preservation of wealth, as one BTC today will be one BTC in 1,000 years’ time. Its purchasing power may fluctuate, but if you want to talk about hard money and demand and supply, then arguably bitcoin is as good as gold.
The tricky aspect is where value is seen by the masses. And that’s intangible. Long term we see bitcoin and other crypto having that mass market, mainstream value attached to it in the same way markets attached value to gold.
And sure, crypto might be in its raw form just data, but in its raw form gold is just atoms. And last time I checked an atom was worthless too. Long term when entire supply chains are priced in bitcoin or other crypto, then we will circle back to this capital preservation piece and see how it pans out.
Now that’s just the first issue to talk about.
The next is this idea of outlawing crypto by government.
Parts of the world are already outlawing crypto
Government has form. You only need to Google Executive Order 6102 to find out about that. That’s when they outlawed and confiscated gold.
And parts of the world are already outlawing — or trying to outlaw — crypto. India is one such place that’s trying. The Reserve Bank of India and the government are trying to ban cryptocurrencies and cryptocurrency-related businesses.
The court has ruled against them twice, and now postponed the proposal again.
So they’re trying. But not doing very well. Furthermore the US could also ban crypto. So could Australia. And Europe.
However too many of these governments are already deep into the crypto revolution. Too many private and public organisations are already involved in the development of crypto. Too many of them are exploring ways to use this technology to benefit their own existence. And too many of them are already working on their own cryptocurrency — to ban it would be to ban themselves from development and innovation.
And then there are countries that see crypto as a way to pull themselves and their economies forward into the modern era. And on the way lift the living standards of their citizens. This alone is creating country competition to encourage and foster innovation in this nascent industry.
Countries like New Zealand don’t decide to allow employers to pay employees in crypto and withhold tax without serious consideration. Places like Portugal don’t decide to allow tax-free crypto transactions, trading and capital gains without the desire to attract talent, financial and human capital.
The world is already too deep to just hit the kill switch. So yeah, it could happen. But they could also ban cash, which many are doing. They could also confiscate your bank account, savings, and investments. The commonwealth can already confiscate your property. They could and can do a lot of things. So why is this only a problem for crypto?
The point here is that crypto is a challenge to the financial powerbase of central banks and government. But it’s also an opportunity for them to realise economic potential and to lift living standards in a difficult world.
That’s the kind of opportunity that crypto presents. And it’s why you shouldn’t be dismissive of its potential to impact the world long term.
Now I’ve already banged on far too much today, tomorrow I’m going to answer the challenging questions around quantum computing and the threat it does (or doesn’t) pose to the very existence of cryptocurrency.
Don’t miss it!
Editor, Money Morning
PS: Want to learn how to buy crypto? Download this free report for everything you need to know.