Tuesday, December 29, 2020

WAR: Peter Schiff Versus His Son Spencer


 Peter Schiff sent this tweet out on Monday:


Of course, Peter is correct here when it comes to gold. You are way off if you somehow think gold is fiat money.

But his son Spencer strikes back pretty hard.


Spencer has a point here but there are problems. First, intrinsic value can simply mean that it has uses beyond its use as a medium of exchange. It has value in jewelry and has a metal. Bitcoin does not have this feature.

But the big problem is that Bitcoin is a highly trackable instrument. The Swiss have a saying, "gold has no smell." It means that when you exchange gold there is no "scent" as to how the money was obtained and there will be no scent as to where the gold came from when it is traded off to a recipient.

Karl Marx even understood this. He wrote in Das Kapital 1, "since every commodity disappears when it becomes money it is impossible to tell from the money itself how it got into the hands of its possessor, or what article has been changed into it. 'Non olet' [Money does not stink], from whatever source it may come."

It is an enormously significant feature of gold (and silver). Bitcoin on the other hand is extremely trackable so while Spencer is correct in that it has emerged on the free market, the trackability is a serious flaw that will prove the instrument of little value to gain freedom in a period of totalitarianism.

This makes gold (and silver) much better hedges against totalitarianism.

I hasten to add that I am writing the above while I have a buy recommendation on Bitcoin in the EPJ Daily Alert. I expect Bitcoin and other assets to climb because of the great Fed money pumping but I am also warning ALERT subscribers that there is regulation risk given that the government could impose new regulations on Bitcoin that could make it much more difficult to trade profitably. For the time being, the Bitcoin trade is working very well, but I am watching Washington D.C. movements for any indications of new stifling regulations, when I spot anything serious along such lines, I am going to give a sell signal to ALERT subscribers faster than you can say non olet.

 -RW

15 comments:

  1. How would one apply the regression theorem to Bitcoin? What is its value outside of speculation?

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    1. The regression theorem only explains how a society moves from barter to indirect exchange (use of money); it has nothing to say about changes in the form of "money." Thus the regression theorem explains how society moved from barter to the use of gold as the most accepted medium of exchange, i.e., "money." Over time, as "money" changed from gold to USD, you could still regress back from USD to gold to the original uses for gold to explain how the USD has value today. Likewise, were BTC to become "money," you could still regress back from BTC to USD to gold to the original uses for gold to explain how BTC has value today.

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    2. I don't agree with your chain of thought. I don't see BTC resulting from the US dollar. The dollar was originally declared to have value corresponding to a weight of gold. BTC was has no declaration as such. Therefore, if we regress back from BTC to barter, from where does it derive its actual value? Gold is used in jewelry and women go crazy for it. What is the case for BTC?

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    3. When gold first became money, it had existing value by reference to other goods. When the USD first became money, its value was set in terms of gold. When BTC was first traded, it was primarily priced in USD (and still is).

      Think of it this way: When the Euro first came into existence, its value was set by reference to the pre-existing currencies. That wasn't a violation of the regression theorem.

      To regress back from BTC to barter, you don't skip over the USD and gold, you have to go "through" them too.

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    4. Sure, and tulips were also priced in guilders, but they had a much-lower value outside of speculation. Again you're avoiding the question: what is the value of BTC outside of speculation?

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    5. We are quite far afield from your original question about the regression theorem, which has to do with money, which doesn't necessarily have anything to do with BTC (yet). So I wasn't aware that I was avoiding any question; I thought that I was responding to your regression-theorem question.

      But to respond to your new line of questioning, "value" is subjective. If someone acquires BTC, they must value it more than the dollars that they give up. Why that is is of no importance, and it's not for me or you to say that their conception of "value" is right or wrong. And "speculation" is just a pejorative for hoping to sell at a higher price than you bought, which we habitually do in many other areas too (stocks, bonds, inventory, real estate, etc.).

      When I look at the BTC world, I see people apparently valuing the ability to transfer wealth seamlessly across the globe, faster and with less hassle than fiat currency allows them to do. Miners are willing to give up a lot of time and money to acquire BTC, so they must value it too for whatever reason. There are applications being written on top of blockchains that might bring tremendous value to the users, and those users can only use the applications if the miners validate transactions on those blockchains, and the miners get paid in the relevant cryptocurrencies.

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    6. "I see people apparently valuing the ability to transfer wealth seamlessly across the globe". This was the answer I was looking for. MIT has courses on creating cryptocurrencies. There is a potentially unlimited supply of cryptocurrencies to transfer wealth. On the other hand, a limitless supply of gold doesn't exist. People are "mining" BTC because it's in a speculative bubble. They can "mine" any cryptocurrency as soon as it becomes a bubble.

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    7. It's a mistake to lump all cryptocurrencies in one basket for evaluation. You wouldn't do that with commodities, e.g., gold has characteristics that make it superior to iron ore as a store of value.

      So while there might be a potentially unlimited supply of different cryptocurrencies, if one were to pick a cryptocurrency to store wealth for eventual transfer, then one should pick one with scarcity and security, to maximize the chances that one's wealth will not be inflated away or stolen. Since BTC will only ever issue 21 million coins, its supply is limited (which is actually not true of gold, although the annual increases in stock are minimal relative to the existing stock). This true scarcity, plus the security that comes from its blockchain process, are two reasons why BTC stands out among those who are interested in holding cryptocurrencies.

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    8. It's not a mistake. Commodities have scarcity related to the ability of humanity to acquire them from nature. Different cryptocurrencies are more akin to different pieces of software that all perform the same function ("transfer wealth seamlessly across the globe"). The quantity limits of BTC appear to be wholly arbitrary. Are all of these people buying BTC because it's the highest-quality wealth-transfer option at the lowest price? Shouldn't all of the different cryptocurrency options produce an overall drop in coin prices?

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  2. What is Spencer thinking here? That gold and silver did not emerge on the free market, but bitcoin did? What is so great about the fact that a small group of people, for a very brief moment in human history, have chosen digital "coins" backed by nothing? So what if it emerged on the free market. If I convince someone naïve to exchange their labor for my "magical" beans, then are those beans not sound money, albeit for possibly no more than one exchange? Even if I force myself to choke down the belief that bitcoin is "un-trackable", what purpose will bitcoin serve when the tentacles of government are severed? Is it back to gold again at that point? I'm all for the market to decide the best medium of exchange, but at least give me something wieldable!

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    1. Ha. I was inarticulately making this same point. I should have just read your post instead.

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  3. Hasn't gold acquired its intrinsic value because people have freely chosen it and silver as the premier moneys for thousands of years?

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  4. BTC allows the intermediary-free transfer of wealth across the globe with much less hassle than current forms of wealth transfer, and much faster too. Why wouldn't that be a form of "intrinsic value"?

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  5. "First, intrinsic value can simply mean that it has uses beyond its use as a medium of exchange." Sure, but the "use" of something to a person is also a subjective phenomena. People can say that the simple ownership of a cryptographic asset has some direct use to them. It's just not a good idea to throw around the idea of intrinsic value, there is no such thing. But yes, gold is highly demanded for nonmonetary uses, and doesn't require a computer to utilize, and the benefits of cryptocurrency can easily be conferred to gold... You can't make a purely economic argument, but it's just common sense that gold is a superior money to crypto.

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