Lets get a little technical…bills, bullion and bitcoin. Part 2

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Picking up where we left off in the last post…

How closely can we compare physical gold and/or silver to anything crypto/digital based?  In my opinion, stating the obvious (for the most part), there are similarities but there are more differences. In the grand scheme of hedges and investments, they are more different that a like.  FYI: there is a “gold based” crypto-currency being offered, I’ll cover that another day.

You need something physical to fall back on, anything digital is much more vulnerable, period.  You can not argue the there is not more risk involved with something that is digital verses physical gold and silver.

The best “defense” I have heard for owning only digital verses physical is that gold and silver could be deemed worthless and/or illegal.  Neither of which are valid arguments, as both are baseless.  Gold and silver have never in the history of man been worthless. Owning gold was against the law for a time, after 1933, however, the circumstances back then can not be compared to today. To be honest, anything could happen. The way things are playing out these days, nothing would surprise me.

If you have a valid argument that digital is safer than physical, please, seriously, email or call me or stop by Pacific Coin Exchange and educate me. I can’t find an argument or think of one that makes me feel as secure with owning a crypto-currency as I feel with physical metals.  That does not mean I do not think that owning some crypto-currencies is a bad idea, not at all, digital simply has a potential to be more risky than most.

One argument for crypto-currencies, particularly Bitcoin, is that they say crypto-currencies have a limited amount that can be distributed (mined). Here’s a fact,  it’s digital, there is always a way around that “limit”, it’s code that someone creates. Supposedly Bitcoin is limited to 21 million, here’s quote from Investopedia: “Once miners have unlocked this many Bitcoins, the planet’s supply will essentially be tapped out, unless Bitcoin’s protocol is changed to allow for a larger supply.” 

Let me repeat that, “unless Bitcoin’s protocol is changed to allow it”.  As I said it’s code, the greed factor always wins in these situations. Wait and see, 21 million will not be the limit.  You can not simply code physical gold or silver into existence.

They said the gold and silver ETFs would be limited too and we know where we are with those (if you don’t know, it’s approximately 300:1 – 300 contracts to every one ounce of physical gold held, they wanted it to be a 1:1 at one time).

What we do know is that gold prices have hit over $1380 for the first time in a long time and has retracted back to $1295 (as I type this). Bitcoin fell $1800 from its recent high of nearly $4950 a coin, with a recent rebound putting it back to $3563 (the price as I type), being that it was under $1000 around a year ago, that’s some great gains, no doubt.

Both are volatile, but only one of the two is truly risky, the crypto-currency.  All investments are risky, however, owning physical gold and silver is a hedge, an insurance policy against numerous economic issues.  Digital anything can go to zero, anything paper can go to zero, fact. Here is another fact, that every fiat currency (backless currency) has eventually become completely worthless, 100% of them have hit eventually hit zero.  Ggold and silver have never been worthless and has been used as money far longer than paper (longer by thousands of years).

Before you crypto-buffs get upset, I am not saying not to invest, an opportunity is an opportunity no matter what form it takes. I too am trying to jump on this crypto-currency band wagon (I haven’t just yet, something just doesn’t feel right right now for me). I’m being very (maybe overly) cautious at the moment and will continue to be.

I was speaking with a very knowledgeable client at Pacific Coin Exchange, his main concern was the loss of not only the internet, but the clocking (forced removal) of sites that cater to crypto-currencies.   Is that a valid concern? Of course it is!

What are the odds that the internet gets brought down by some attack or natural phenomenon or taken down, which would halt all digital trading? I say that those odds are  pretty slim. If it did go down or was brought down, it would not be permanent.

Could the sites be blocked or taken down (or made illegal)? Of course they could be. That is a much bigger concern than having the internet taken away.  Having a degree in Information Technology (not that that means much of anything) I can’t put my all my trust in anything digital, no matter how solid blockchain technology is and it is pretty darn solid, there are many other variables to consider.  It can go without saying that you have to consider all the pros and cons, however, it’s equally as important that you diversify.

This may make you go out right now and buy a crypto-currency, a JP Morgan chief executive by the name of Jamie Dimon said bitcoin was: “…a fraud. It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”

Central Banks around the world are looking in to ways regulate digital currencies, some say they are looking for ways to put a complete stop to them all. It seems to be only a matter of time before crypto is no more “safe” from “big brother” than a paper dollar when it comes to regulations.

If we have learned anything over the centuries of government regulation, we have most definitely learned that where there is a strict regulation (or prohibition) there will always be some form of a “black market” and/or an “underground economy” to combat the regulators.

There is no denying that bitcoin, and the over 800 other digital currencies, have attracted a ton of money from those searching to get rich quick and many have made out very well. There are countless scams and cons out there too.  Some have classified this rush to digital currencies as a massive Ponzi scheme that is paying out to the new money (temporarily as Ponzi schemes work), while leaving the long term holder exposed to a potential massive financial wipe out. Others are saying that bitcoin could hit $100,000+. What’s the reality if it all? I guess we’ll see.

We all know that anyone can say anything based on their interpretation of any situation. Could there be some Ponzi schemes out there in the digital world? With over 800 digital currencies floating around, I’d say the odds are pretty high that some are indeed scams, cons, etc…does that mean they are all? Of course not.

Physical gold or silver is the oldest form of money, a real asset that cannot disappear like dollars when the stock markets fall, nor can physical gold and silver be lost or corrupted as a computer code containing all the digital riches can.  Do your own due diligence, study, research, learn as much as you can about anything you put your hard earned money in to.  Do not jump in to anything that you are not confident in or at least willing to take the risks involved and are willing and able to accept consequences of those risks.  Just be careful.

Owning physical gold and silver is and has been the safest place to put your dollars.


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