Greeks are about to learn the virtues of Bitcoin

6/28/2015 Portland, Oregon - Pop in your mints…

It appears that the Greek government is once again on the brink of an inevitable default on its Euro denominated debt.  This time, however, Greece’s Prime Minister Alexis Tsipras appears determined to take it over the edge, calling for a referendum on the whether or not the Greek people should continue to abide by its creditors’ bailout terms and extend their own misery or to give the proverbial middle finger to their oppressors in the north.

Monetary oppression

Greece, Where the Euro pays tourist prices

We use the term oppressors, for the current state of affairs has been held in place to ensure that Germany maintains a death grip on the Eurozone.  Greece stopped benefiting from being a member of the Eurozone the moment it accepted the yoke of a common currency.  Sure, it was a nice run for the entire Eurozone when times were good, but when times got tough circa 2008 the Euro handlers at the ECB cut rates too slowly, citing a tired “stable currency” bias, and generally struggled to maintain liquidity, which is pretty much “job 1” when one is running a currency regime.

Maybe the Treaty of Lisbon wasn’t such a good idea after all.

What happened next was a catastrophe that is only possible in a Central Banking/Tax Farm disconnect that the Eurozone’s half baked approach to unity has left as the norm.  You see, fellow taxpayer, in the United States of America, we have one Central Bank which runs the tax collection mechanism for the government.  This means that, with localized exceptions, the tax farm’s tactics and the Central Bank’s liquidity functions can work in an awkward harmony.  For those of us who pay Cesar annually via the IRS, this means that in a demented sense we share society's burdens across 50 states.  To those of us in Oregon, it matters not that the State of California cannot pay its obligations (unless, of course, one is a creditor of the State of California).  It is taken as a given that the Federal Government will bail them out and the Federal Reserve will provide the cash (indirectly) to the Feds in order to do so.  Then, and this is where the magic happens, we all pay for California’s misdeeds via Federal taxes and inflation.

This same scenario was possible in Europe until January 1, 1999 (a day that lives in infamy) and had played out throughout much of modern history.

Not so today.  For today, in Europe, when the government of Greece hits hard times and cannot pay its bills, it has to beg its rich neighbors to the north for Euros, and accept whatever conditions they impose.  What is funny is that neither Greece nor its northern benefactors can actively emit currency in sufficient quantities to ensure their new contract can be paid.

What does it mean?

Which brings us back to the upcoming referendum.  While in our mind it is still even money that there will be a further modification of the Greek bailout and that the Eurozone will carry on as it has for 16 years now, there exists the strong possibility that Greece will “opt out” of the inconvenient currency part of the European Union.  What does it mean?  Nobody knows, nobody has ever opted out of the currency after opting in.

The Greek people have decided that it means they are in big trouble, and they have been lining up at ATMs in order to get their hands on as many Euros as possible before the lights go out.  For Mr. Tsipras, this in turn means he must declare a banking holiday and capital controls, which is a time tested recipe for causing any remaining economic activity to screech to a halt as anyone with a brain and more than a few Euros to their name starts working 24/7 on ways to keep their assets off the government’s confiscation radar.

Bitcoins: What they are and how to use them

However, as in Cyprus, smart Greeks with a working data connection have a medium at their disposal that may ensure that their assets stay well away from their government: Bitcoin.

The mini-spike in Bitcoin indicates that the Cyprus scenario is playing out again.  If anyone recalls that event, it took the Bitcoin from relative obscurity to trading at around $1,100 before the mania wore off.  Will it happen again?

It is anybody’s guess, but here are some statistics that may help guide your own educated ponderings:

Population of Cyprus: 1.14M, pre banking holiday bitcoin price: $49 (March 2013), post banking holiday Bitcoin spike: $1,124 (October 2013)

Population of Greece: 10.82M, pre banking holiday bitcoin price: $249 (June 2015) , post banking holiday Bitcoin spike:  ???? (January 2016????)

We’ll let you do the math on the hypothetical situation we have planted, but the dynamics of what is occurring in Greece, from a monetary standpoint, are extremely similar to the Cyprus scenario.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for June 28, 2015

Copper Price per Lb: $2.61Oil Price per Barrel:  $58.74

Corn Price per Bushel:  $3.85
10 Yr US Treasury Bond:  2.48%Bitcoin price in US:  $249.46FED Target Rate:  0.13%
Gold Price Per Ounce:  $1,174

MINT Perceived Target Rate*:  0.25%Unemployment Rate:  5.5%
Inflation Rate (CPI):   0.4%Dow Jones Industrial Average:  17,947M1 Monetary Base:  $2,929,400,000,000

M2 Monetary Base:  $11,970,200,000,000

Bitcoin Panel Illuminates the World of Crypto-currencies for the Oregon AFP

2/21/2015 Portland, Oregon - Pop in your mints...

For those who were unable to join us on Wednesday, the Bitcoin panel discussion at the Oregon AFP was a great success.  With us were six of the finest minds in Crypto-currencies in the Portland area.  These minds, together with some of the finest financial practitioners in the city, worked to bridge the gap between the Bitcoin universe and mainstream commerce. 

We were pleased to find that the two are really not that far apart.

While there were a number of keen insights shared at yesterday's meeting at the Multnomah Athletic Club, three stood out in our minds:

1) Transactions volume in Bitcoin has soared over the past two years and the USD/Bitcoin price action has settled down as a result.  Further, Venture Capital is pouring into the Bitcoin industry, proving that crypto-currencies, once on the exciting confluence of technology and money, are now entering the relatively boring yet infinitely more profitable economic mainstream.

2) Bitcoin innovators have largely solved the problem that has thus far kept most bankers at bay:  KYC, Know Your Customer.

3) Concerns about Bitcoin's wild fluctuations in value are addressed by services that instantly exchange Bitcoins accepted in trade into national currencies. This is especially important for those who transact day-to-day business in Bitcoin, as it is technically considered property for tax purposes and could otherwise create an accounting nightmare. It also allows for a clear delineation between Bitcoin speculation and Bitcoin circulation, two completely different activities before were often unwittingly commingled by virtue of one's use of Bitcoin in trade.

Bitcoin has come a long way since we published our 48 hour crash analysis of the emergent monetary revolution back in 2013, and our panelists did a superb job of presenting a balanced discussion of the present state of crypto-currencies.

A special thanks once again to all of our panelists, Lawrence I Lerner, Ian Pulicano, Anna Guyton, Mike Fors, George Fogg, and Rhys Faler, who was planning on spectating and found himself on the panel in the midst of an incredibly rich, informative, and relevant discussion of the merits and challenges of Bitcoin.

Ian had the difficult task of breaking the ice of ignorance and/or skepticism that is often associated with presenting the concept of Bitcoin to someone for the first time, which is never an easy task.  Beyond explaining the technical side in a concise manner, the slide near the end which highlighted the exponential growth in transactions and VC funding over the past 3 years got everyone's attention and set the stage nicely for the discussion that followed.  Anna did a great job of stepping up as moderator and added valuable insights throughout, Lawrence did an excellent job of bridging the knowledge gap between industry and Bitcoin through helpful analogies, Mike and Rhys provided the evidence that Bitcoin can and is being used in everyday transactions, and George added insight into the inherent challenges and opportunities of Bitcoin on the regulatory and securitization side of the house.

At the end of the hour, the audience was left with one inescapable conclusion: Crypto-currencies are here, are here to stay, and will be part of one's economic experience in the not too distant future.

For the benefit of those who were unable to join us yesterday, we offer the following bootleg recording of the event over at The Mint:  Bitcoin Panel Illuminates the World of Crypto-currencies for the Oregon AFP

We also offer the hope that these types of panels will be held in other venues where finance and technology intersect, and that mankind will be all the better off for it.

Stay Fresh!

David Mint

Key Indicators for February 21, 2015

Copper Price per Lb: $2.58
Oil Price per Barrel:  $50.81

Corn Price per Bushel:  $3.85
10 Yr US Treasury Bond:  2.13%
Bitcoin price in US: $246.31
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,204

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  5.7%
Inflation Rate (CPI):  -0.3%

Dow Jones Industrial Average:  18,140
M1 Monetary Base:  $2,884,400,000,000

Happy Halloween from The Mint!

As all hallows eve approaches, we are glad to inform you that we will be in attendance at the AFP annual conference in Washington, DC along with Dr. Ben Bernanke, Thomas Friedman, and 6,500 other Financial ghouls and goblins over the early part of next week.  If any of our readers will be there, feel free to drop us a line, we would love to connect with you, it will be a welcome respite from the deluge of mainstream economic/finance/banking information that has already started to bombard us in the mail!

We leave you today with what may just be the world's first "Bit o Latern": 

The World's First ever Bit o Lantern?

We wish you all a safe and fun Halloween here at The Mint!  

A Brief Bitcoin Q&A

We were recently contacted by someone who had seen our volume on Bitcoin, cryptically entitled “Bitcoins: What they are and how to use them” which was written on one of those weekend trysts which economic thinkers are prone to, in which a flurry of ideas flies at one’s mind from all quarters and scream to be put on paper.

Bitcoins: What they are and how to use them

The book, which was literally cobbled together over the span of four days, has been our bestseller recently, which naturally has more to do with Bitcoin than ourselves.

In their inquiry, the reader had three further inquiries which we present below for those who are interested in such matters. Enjoy!

Q: What do you think about the relation between physical and virtual currency?

The Mint: Generally speaking, the relation between physical and virtual currencies can be judged by examining the price for the physical currency expressed in the virtual currency. However, I think it will be helpful to make a distinction, as the concept of virtual currency is simply another extension, or “strata”, as I like to call it, of something I refer to as the “Monetary Premium.” Allow me to explain:

The concept of currency stems from the Monetary Premium that is attached to something, ultimately giving it value in trade. (please read this post for a description of the Monetary Premium concept and its origins: http://davidmint.com/2014/02/08/the-division-of-labor-gives-rise-to-the-monetary-premium/ )

Over time, as the division of labor has increased, the need for credit and, by extension, something by which to exchange the monetary premium (i.e. serve as money) in order to settle the debt, has increased as well to the point that, today, all currency issued by government’s is a credit instrument (a liability of the Central Bank) and has only an indirect relationship to anything physical.

Given this, virtual currency, to the extent that it is accepted in trade, is synonymous with all other forms of currency in that it represents an indirect claim on physical wealth.

What many consider to be hard, or physical currency, such as gold and silver, will then have a relationship to either virtual currencies (such as Bitcoin) or credit based currencies (such as US dollars or Brazilian reais) which is expressed as a ratio, or price. By extension, both virtual and credit based currencies will serve as pricing mechanisms for goods and services.

I hope the above makes sense, as it is getting to a key misconception that many have regarding money in general.

Q: What is the future of Bitcoin? 

The Mint: As with any currency, bitcoin will have value and be traded until people lose confidence in it. That said, bitcoin has two flaws that will make it increasingly difficult to use in trade:

1) By design, there can only be a very limited amount of debt denominated in Bitcoin. While most see this as attractive (indeed, it is what helps support its value), it will severely hinder the expansion of Bitcoin proper in trade as the algorithm ticks closer to the limit of ~21 million Bitcoins (never mind that many Bitcoins that previously circulated are trapped in wallets on hard drives which are in rubbish heaps now, never to be “mined” again!).

2) The limitation on Bitcoin creation will dramatically reduce incentives to support the Bitcoin transaction validation process (known as “mining”) right at the time when it is most necessary. This is where Bitcoin will shoot itself in the foot, and nobody knows what will happen then, but what is certain is that transaction processing will become a paid feature by providers or that it will become so slow that people will gravitate away from Bitcoin to other digital currencies who have no such flaw.

What is likely to occur is that Bitcoin will assume its place as the “gold standard” against which all subsequent virtual currencies will be measured. In the same way that many national currencies are still measured against gold on the open market, so it will be that Bitcoin, given its finite production, will become, as gold has become, little more than an important point of reference for whatever virtual currency is currently predominately used in trade.

Q: What is the effect on the world economy?

The Mint: While the origins of Bitcoin and other virtual currencies may have been experimental and ideological in nature, their increasing acceptance is owed to the fact that they are filling a void in trade. Namely, mediums of communication facilitated by the Internet have expanded trade exponentially and created needs for mediums of exchange (a way to transmit the monetary premium mentioned above) that national currencies cannot keep pace with. 

The current system of national currencies and banking provide a number of barriers to currency creation which leaves a void that solutions such as Bitcoin are able to fulfill, in the process creating a windfall for those who have successfully speculated in such currencies.

The effect of virtual currencies such as Bitcoin on the world economy, then, has been and will be to further facilitate trade and, by extension, the division of labor in the world economy. This is a very good thing as it will ultimately lead to a more perfect balance of trade, one that is not subject to the whim of a Central banker’s assessment of the need to expand or contract the money supply.

The latter has implications for the current nation-state which I won’t go into, but the people of the world now can, through the Bitcoin and broader virtual currency story, begin to envision a world economy that is not dominated by currencies emitted by National Central banks, what will happen with that vision is something that is likely to play out in our lifetimes.

Of Money and Metals: The Operation of a Free Money Supply Explained

We’ve been at it again!  Be the first to download our newest e-book,  now available on Smashwords and Amazon’s Kindle:

Of Money and Metals: The Operation of a Free Money Supply Explained

Of Money and Metals: The Operation of a Free Money Supply Explained is Volume II in the “Why what we use as Money Matters” series. Of Money and Metals presents the fallacies of the current day practice of circulating debt in the place of money and explains the urgent need for and the operation of a free money supply. This volume also explores the phenomenon of Bitcoins and digital currencies.

It is available to our dear readers for free until January 31, 2013 at smashwords.com, just enter coupon code: MA65L

Thank you for your support!