The Bitcoin Phenomenon Part 2

In part 1 of “The Bitcoin Phenomenon” we covered all the background about this currency. We covered a brief history of cryptocurrencies, and we covered some problems associated with them. We also covered some of the risks. If you have not read part 1 then click here.

Make no mistake, people have made money by investing in bitcoin, people have made money by investing in other cryptocurrencies too. This is not like the dinar in the sense that only the dealers and the gurus are making money. There has not been anyone that has ever become wealthy by investing in the dinar. In fact, the word is out that the dinar was pretty much an investment scam.

This is not the case with bitcoin. If this cryptocurrency was a known scam, as some have claimed, then NASDAQ would not consider trading it, and the exchanges would leave it alone. One of the main reasons bitcoin has soared in price is that the exchanges are now trading bitcoin. The dinar and other third world currencies were sold based on hype about a fictional revalue. The networks of gurus were actually getting kickbacks from dealers to promote the hype, while at the same time appearing to be independent.

However, I do see something that disturbs me. There seems to be a lot of hype based on fiction with bitcoin as well. Because of the potential to make money, common sense has left many investors. Reasoning and understanding is left in the dust as people rush out to buy it. Some of the same patterns we have seen in the dinar world are starting to emerge with bitcoin. This cryptocurrency has acquired its very own set of gurus, and information is made up. Nothing is vetted or verified, and total fictional fabrications are made up to make the investment more attractive. This causes many people to over-leverage, and they are not aware of the risks.

This seems to be the same identical behavior that has happened with other cryptocurrencies too. This is part of the pump and dump process.

  • Step one; your group buys a cryptocurrency in massive quantities and drives the price up through demand.
  • Step two; make up lies and events to promote the currency. The reason for this is to present the appearance that the currency is going to go much higher. “Oh my, how high will it go?” This will attract many new investors. It’s like the shiny part found on a fishing lure.
  • Step three; once the new investors are in, dump your investment and get out.

Please allow me give you an example of the current bitcoin hype,

Central Banks Buying Cryptocurrency in 2018

The above article claims that the G7 central banks will buy bitcoin in 2018 due to the problems associated with all fiat currencies. Inflation seems to weaken fiat currencies because they have no intrinsic value, and bitcoin is immune to that. Because bitcoin is rising in value and is worth more than fiat currencies, the G7 central banks will buy bitcoin to use as a reserve for their currency. It will be used in SDR transactions, and placed in the basket of currencies. Because it is well-known that the definition of fiat means “no intrinsic value”, bitcoin will replace all currencies as reserves over the course of time. At least this seems to be what this article claims to me. Maybe I am wrong.

CNBC has produced an article with the same information, but then it says these are the claims made by the CEO of blockchain. Ah ha! Something does not sound right to me. The two currencies presented to be picked up by central banks according to this CEO are bitcoin and ethereum.

CNBC article

The Truth Is……

Let me explain a few things and give my analysis. First, “fiat” does not mean “no intrinsic value”. Fiat currency is currency that is used by a government because of decree or law. Outside of that decree or law it has no intrinsic value. When gold was used for money it had value outside of any law or decree, whereas our paper currency does not have value. The law that gives the U.S. dollar value is the Federal Reserve Act, and a series of laws were passed during the early 1930’s which modified the act, making it even stronger. These laws serve to protect the dollar against counterfeiting and declare that it is the official currency of the United States. When you pay your taxes it must be in dollars!

Dinar gurus constantly made the claim that the definition of “fiat” is ‘no intrinsic value”, as if to imply that the dollar really has no value and it was all based on faith, even in regard to the law of the land. This is where some of the GCR propaganda comes into play. I now see bitcoin gurus making the same arguments that we debunked when the dinar was popular! The reason for this is to hype bitcoin so investors can make more money.

Well I’ve got news for you. Bitcoin has no laws issued by governments to protect it. In fact, the value of bitcoin is also based solely on faith! It is also perceived! “Cryptocurrencies are, at the moment, treated universally as assets, and not as currencies for tax purposes. This means that if the price of bitcoin rises against the dollar and you cash in, then you are liable to pay capital-gains tax on the appreciation of the currency. If the value of the U.S. dollar rises 20% against the pound, then you are not liable to pay capital-gains tax on that appreciation!

Bitcoin started out as a currency independent of a central banking system. Without a central bank to regulate bitcoin there is no way to control the supply. In the past, the Federal Reserve has reduced the physical money supply in the USA as demand drops. When demand increases, more physical currency is put back into circulation. This action preserves the value of the dollar and it controls inflation. The Federal Reserve can also reduce the money supply to match a reduction in demand!

https://tradingeconomics.com/united-states/money-supply-m0

While bitcoin expands due to mining, there is no built-in contraction mechanism should demand drop. This is probably the main reason bitcoin has been so volatile in the past. This is why all cryptocurrencies are subject to pump and dump schemes. Cryptocurrencies will almost always have massive imbalances in supply and demand, because there is effectively an unlimited supply of them but a clear demand ceiling. The fatal issue for cryptocurrencies is that the supply can only go up! There is unlimited upside to the supply of all cryptocurrencies.

Even though an individual cryptocurrency may have a ceiling on supply, there are many of these currencies out there. If a new cryptocurrency is introduced in the future, and if it is believed to be superior to all existing cryptocurrencies, then you would likely see a massive move out of existing cryptocurrencies and into the new superior currency!

Furthermore, because you cannot reduce the supply of a cryptocurrency, that drop in demand would not be matched by a drop in supply! If demand goes down but supply does not, we will all see a drastic reduction in the value of that cryptocurrency. Its economics 101.

The ever-increasing supply of cryptocurrencies can be seen in the recent boom in so-called “initial coin offerings”. One of the main problems with bitcoin and other cryptocurrencies is that people still view them as investments rather than a means to exchange goods and services. New cryptocurrency startups will issue digital coins or tokens in exchange for real money. This real money is then used to fund projects. Billions have been raised using this method.

This ultimately means that cryptocurrencies fail in the two key areas of what makes a currency a currency! A currency has to be a widely used as a medium of exchange. Cryptocurrencies are never going to achieve that as long as they are used as an investment.

Second, you cannot use cryptocurrencies to settle tax liabilities. On average, around 34% of all economic activity is taxed. Governments are not likely to accept cryptocurrencies that they do not control to settle tax debts. You are therefore removing one of the main sources of demand for a currency. One of the key issues, whenever we talk about monetary economics, is that the money supply should never be considered in isolation of demand.

All money supply needs to be considered against money demand. If you do not have the ability to use cryptocurrencies for the largest single transaction in the economy then it will never be used as a major medium of exchange.

The Jiaozi was a banknote that was used around the 11th century. They first appeared in the Sichuan capital of Chengdu, China. Many numismatists (currency collectors) regard it as the first paper money in history. The banknote came from the Chinese Song Dynasty (960–1279 AD). It was highly successful at first because the kingdom of Sichuan insisted that people pay their taxes using this paper currency. Because of this requirement there was an enormous demand. For a while the paper currency kept its value.

There were no economists in the kingdom of Sichuan. Unfortunately they just kept printing the stuff. They were in serious trouble when the money supply exceeded demand. This is why governments won’t accept bitcoin to pay taxes. It removes demand for the currency they control.

Another key feature of a currency is that it acts as a store of value. This means you can put your money into it and be reasonably sure that in normal circumstances its value will not fluctuate on a massive scale. Cryptocurrencies cannot do that. Bitcoin has had many hyperinflation episodes. In a few cases it has dropped as much as 80 percent in value. In some cases its ability to purchase goods has dropped more than 25% in the course of just one week. That is not a stable store of value.

The G7 countries (Also known as The Group of 7) is a group made up of Canada, Germany, Japan, France, Italy, the United States and the United Kingdom. These countries have the 7 largest advanced economies in the world. These economies represent more than 62% of the global net wealth with an approximate value of $280 trillion. It is highly unlikely that these countries will use a cryptocurrency that has a track record of being 18 times more volatile than the US dollar! Furthermore, if these central banks ever accept bitcoin it will remove demand for the currencies these countries already use and control.

Will the International Monetary Fund allow bitcoin to be used along with SDRs to settle debts when the value of bitcoin changes so rapidly? That is highly unlikely! Let us recognize these assertions for what they really are. This is hype to make these cryptocurrencies appear to be an investment without high risk!

I think that in the end it would be ironic if central banks controlled a cryptocurrency like bitcoin through buying all of it as an asset. They would control a currency that was never designed for them to control.

The Wealth of Iraq

In dinarland we often hear gurus talking about the vast wealth of Iraq as the reason we can expect an unprecedented revaluation of their currency.  Iraq has a reported 143 billion barrels of proven recoverable oil in their reserves, which would amount to over $7 trillion dollars worth of oil.  While that’s an impressive amount, I think we need to put it in context.  You see, their neighbor to the east – Iran – has 158 billion barrels in their reserves.  Canada has 170 billion barrels in their reserves.  Saudi Arabia has 266 billion barrels in theirs, and Venezuela leads the world with over 300 billion in theirs.

Now, let’s take a look at their currencies.

The Iranian rial is valued at $.00003, down from $.000033 in 2015 and $.00004 in 2013, despite all of the hype generated by dinar/dong/Zim/rial pumpers in recent years.  Okay, maybe their reputation as a renegade radical Islamic state has kept the rial’s value down, so let’s look at the others.

Canada’s dollar (the loonie)  is currently valued at $.79, up from $.76 two years ago but down from about $.96 four years ago.

The Saudi riyal is valued at $.266, just like it was two years ago and just like it was four years ago, because it’s a pegged currency on a managed float just like the IQD.

And then there’s the Venezuelan bolivar, currently valued at $.10 after the country has fallen into an economic crisis.  Four years ago the bolivar’s value was $.16 and five years ago it was at $.23.

So we can see from these numbers that oil reserves don’t determine the wealth of a country or the value of its currency.  Why would the US, with only 35 billion barrels in their reserves, have a higher standard of living and a more valuable currency than the others?  Because the country has a diverse economy, an educated populace, a strong military, a stable government, and an arrangement with almost every oil producing nation to sell their oil for USD.  Many countries use the dollar along with their currency, or they use the dollar exclusively and don’t even have a currency of their own.  Countries want US products and US services, and they need US dollars to get them.  When Iraq has all of the qualities with its economy that the US has with its, maybe their currency will have a value near that of the USD.  Maybe by the end of the century that will happen, but by that time the IQD and the people who own it will be long gone.

 

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The Dinar After Mosul

Recently I did a call with RamblerNash and Ssmith from Dinar Daily about the future of the IQD after the liberation of Mosul.  The gurus were saying for months that ISIS’ occupation of Mosul was delaying the RV, so with the news reports of the immanency of Mosul’s liberation we thought it would be a good idea to go on record saying that the net result for the dinar would be a big ol’ goose egg.  In the weeks following the announcement from Iraq’s PM Abadi that Mosul is now free, the IQD hasn’t budged from its rate of 1184:1, and the hopeful speculators are slowly catching on.  Enjoy the call.

 

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Podcast- The Global Currency Reset

Recently I sat down with Sam I am and we started to discuss the global currency reset. One hour and twenty minutes later we finished our conversation. We went into many aspects of this belief system. We covered a lot of the same information that is in the book and we talk about other areas of our websites where you can go and find much of the same information that is in the book. I put together a new website that promotes the book and it has links to the articles on ICW that contains much of this information. The link to the new site will be posted below the podcasts.

We recorded this conversation because we wanted to bring out areas of this belief system that are seldom talked about. I wanted to bring you the conversation in its entirety without chopping it up into weekly segments. Therefore I made two parts. If you are short on time then this should allow you to take a break. You can listen to the second half at a later time.

This should generate a lot of conversation in the comment area. So join us and get your tinfoil, fold it into a hat. Now kick back and join us as we discuss “The Truth About The Coming Global Currency Reset”

Global Currency Reset Podcast Part 1

Global Currency Reset Podcast Part 2

http://www.globalcurrencyresetfacts.com/