Is Bitcoin Here to Stay?
November 21, 2013
Much has been made of the recent move in Bitcoin. The digital currency started the year at around $20 and in the last week has traded as high as $900.
One of the biggest draws to Bitcoin is that it is currency that is beyond the reach of government control. This differs from the dollar in several important ways.
Because of the encryption that is an inherent part of Bitcoin, individual owners of Bitcoins can spend them any way they like, in complete anonymity. This is one of the reasons for the Silk Road’s success as a website. People were able to purchase drugs, prostitutes, and any number of other black market goods without any fear of being caught.
These sorts of purchases would obviously be much more difficult with standard forms of payments.
This anonymity is one of the reasons that governments are extremely concerned about the rise of the digital currency. When they control the money supply, they can trace anyone and everyone.
Of course you can use Bitcoins to purchase more innocuous goods as well. Many websites allow the use of Bitcoins for any number of normal transactions ranging from CrossFit equipment to rental cars.
Perhaps the most important difference between Bitcoin and any other major currency in the world is that it cannot be manipulated by central bankers. For all it’s power and prestige, the dollar is still just a fiat currency. It isn’t backed by anything and our government can create as many dollars as they wish. The quantitative easing policy of the Fed is a perfect example of this.
Bitcoins cannot be created out of thin air. There are a finite number of them and there always will be. In fact, the only method of producing Bitcoins, called mining, will eventually end. Once all the digital coins have been mined, the value will remain consistent. Bitcoins are also infinitely divisible. Even though the quantities are limited, it’s relative value can still be determined by using partial bitcoins.
Here’s an example. Once all of the bitcoins have been mined, you’re in the market for something relatively inexpensive, like a yummy Paleo dessert. Instead of paying x number of dollars per cookie, you would pay a fraction of a bitcoin. This is essentially where we are now. With one Bitcoin trading at roughly $700, you would only use the equivalent of .07 Bitcoins for a $50 transaction.
Another advantage of Bitcoin lies in it’s security. All transactions are safe because the entire network replicates the transactions almost instantaneously. This means that no one can steal Bitcoins or duplicate them through fraud.
For instance, if you were to go online looking to buy something for your home, perhaps some home decor. You would place your order. Upon finalizing the transaction, the servers within the system record it and replicate it. For someone to duplicate the order they would need a system bigger and faster than the existing network. Essentially it’s a mathematical certainty that this can’t happen.
So while governments may not be happy about Bitcoin’s arrival on the scene. It would appear that it is here to stay, as more and more merchants are accepting them worldwide.
For more information on Bitcoin, visit www.mtgox.com
What’s Behind The Recent Move In Gold?
April 16, 2013
The drastic price movement in precious metals over the last few days have seen some of the biggest drops in decades. It has shaken many investors confidence in the traditional safe haven during times of market turbulence. So what is behind the massive moves in the price of gold, silver, and other precious metals?
There has been a lot of speculation over the last few days as to the real reason behind the drop in the price of gold. Here is an excerpt from an article posted on the Emirates 24/7 website. It details how a massive sell order hit the market at the open on Friday April 12.
Reports suggest that a 4 million ounce (124.4 tonnes) sell-order, worth $6 billion (Dh22 billion) at current prices, by a large investment bank spooked the markets and led to this decline.
“It appears that the significant selling pressure last Friday was amplified by a four million ounces (124.4 tons of gold) selling order, to be executed on Comex opening. This was clearly too much for a relatively empty market to handle, and the initial pressure resulted into waves of selling, which in turn attracted further selling all the way down,” Gerhard Schubert, Head of Precious Metals at Dubai-based Emirates NBD, wrote in his weekly report. more at Emirates247.com
This would explain the initial downward leg on Friday. A 4 million ounce sell order in a relatively small market such as gold would indeed cause a bit of a panic. The collapse in the price would most likely cause a string of margin calls for those that were leveraged in the precious metal, causing them to sell their holdings. This has the effect of depressing the price even further since there are only sellers in the market.
Here is an accurate synopsis of what occurred according to ZeroHedge.com. It details the involvement of bullion banks, central banks, and of course Wall Street banks. All of these powerful forces working directly against those that are attempting to protect their wealth by investing in precious metals.
So the timeline here is easy to follow – the bullion banks:
1. Amass a huge short position early in the game
2. Begin telling everyone to go short (wink, wink) to get things moving along in the right direction by sowing doubt in the minds of the longs
3. Begin testing the late night markets for depth by initiating mini raids (that also serve to let experienced traders know that there’s an elephant or two in the room)
4. Wait for the right moment and then open the floodgates to dump such an overwhelming amount of paper gold and silver into the market that lower prices are the only possible result.
5. Close their positions for massive gains and then act as if they had made a really precient market call
6. Await their big bonus checks and wash, rinse, repeat at a later date… read more at Zerohedge.com
It paints a pretty clear picture of what is going on. The Federal Reserve is attempting to discourage investing in alternative currencies such as gold and silver by depressing the prices and scaring off investors. This forces them back into over-inflated stock market, which we all know is the only true indication of how the economy is doing.
All this continues along with the other policies of our government to keep the hood over our eyes. Anything to keep the truth from coming out about how bad the economy truly is. We continue to see poor employment numbers, declines in salary data, and rises in food prices. But this isn’t enough. We have to suffer through manipulations of the markets in which millions of people have their savings secured.
Americans are in one of the toughest economies in the history of this nation. People are having to resort to all sorts of methods just to keep paying their bills. Many have turned to selling things online. A classic example is to list things on Ebay or Amazon.com. Here is an example. Someone who used to be in corporate sales is now making things from home just to supplement their income. While it is a beautiful elephant pillow, it shows how it is becoming tougher and tougher to survive in this economy.
And of course it only makes things harder when the biggest bank in the world as well as all of Wall Street is working against you.
Update: Things have only gotten more obvious as the Fed has decided to move forward with their ‘tapering’. Its patently absurd that the entire financial world hangs on their every word. This can only lead to impending disaster.
In a world like this it’s best to keep some protection around. Having sharp knives is a good place to start. And sharp knives require the best knife sharpener you can buy. Just to be on the safe side, an electric sharpener should always be backed up by a manual sharpening system. That way if the power grid collapses, you wont be out of luck.
Commodities Can Be A Great Hedge Against Inflation
July 29, 2012
For anyone who is nearing retirement, inflation can be a major concern. You’ve spent your entire life building up your nest egg, the last thing you need is for the fiscal policy of your own government to start eroding it’s value. But this is a reality for millions of baby boomers that are just now retiring or are looking to retire in the next few years.
So what can you do to protect your retirement investments?
First let’s define inflation. Inflation is an increase in the supply of money, period. It doesn’t have anything to do with rising prices. Inflation occurs when the value of money is eroded because there is more of it in circulation. And that has been the exact policy of our Federal Reserve for the last 10 years. But since 2010, when the first quantitative easing was introduced, the increase of the supply of money has accelerated rapidly.
Then came QE2, and then ‘Operation Twist’, all of which were designed to allow our government to keep servicing our debt and pay for the welfare state that this country has become.
If you aren’t concerned yet, you should be.
So back to the question of what you can do now to protect your investments. Start looking at commodities. Unlike stocks, commodities are limited in supply. A company can’t just issue more gold, silver, or natural gas. They have an inherent value based on their scarcity. And because of this, they rise with inflation.
What is the most efficient way to invest in commodities?
In the last decade exchange traded funds have become extremely popular. They were devised to allow individuals to invest in things like gold, silver, platinum, and oil. In some ways they are similar to mutual funds in that you can purchase a stake in multiple companies with one investment vehicle. Unlike mutual funds, they are traded as shares on the open market. This allows investors to move in and out of them over the course of the trading day.
One of the more well known exchange traded funds is GLD. This is a Spyder fund that tracks the price of gold. So if an investor wants to take advantage of any move in the price of gold, they can simply purchase this ETF. This saves them from having to buy the physical gold and store it. GLD is also much more liquid than physical gold. It doesn’t require that you find a buyer in your area or online to purchase your gold when you’re ready to sell. So for many people looking for ways of investing in gold without having to store the physical product, an ETF makes perfect sense.
What are some other popular ETF’s?
Because of the price fluctuations in oil, an oil ETF has become a popular investment vehicle. These funds closely track the price of oil on a day to day basis. Obviously this is much easier for most investors than it would be to purchase barrels of oil.
Another popular option is a natural gas etf. Natural gas prices have recently hit significant lows. This is causing more and more businesses to turn to natural gas for their energy needs. This increase in demand, as well as the usual seasonal increase with the onset of winter could make natural gas a good investment.
Other ETF’s include the REIT ETF, dividend etf, and even silver or copper.
The main thing to keep in mind is that all of these commodities are of limited supply, so more can’t be created out of thin air. And since that’s what our government is doing with our money supply, prices are going to continue to go up. You need to start finding ways of protecting your investments today.