What if all Governments ban Bitcoin?

To me it’s silly to ban bitcoin, but history and other countries have shown that banning a useful money that holds its value is often the course domineering governments take to meet their ends. China and India come to mind when it comes to banning cryptocurrencies or even certain higher denominations of their paper money. However, there is a spectre that other countries that are purportedly free market will also follow suit. This hard cutoff supposedly will coincide with the release of CBDC’s, or Central Bank Digital Currencies. If we want to see how this might play out it may be worth looking to the past.

In 1933, four years into the Great Depression, FDR enacted executive order 6102 (image below) which required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve in exchange for $20.67 per troy ounce. It would not be until 1974 that private citizens could once again own gold. The reason for this executive order was to stimulate the economy by being able to increase money supply which was at the time backed by a gold standard. By 1974, of course, the US was no longer really on a gold standard since three years earlier in 1971 Nixon permanently ceased the convertibility of the US dollar to gold by foreign countries. At that point the US had created way more dollars than it had gold to back them, and if all the dollars were redeemed for gold at their fixed price the point at which no more gold existed the financial system at the time would collapse. For those who held onto their gold either illegally or having had jewelry or numismatic coins (which were exempt from the confiscation in 1933), they would have seen the value rise tremendously – and most likely have been able to sell their gold in countries where it was not illegal to hold.

Executive Order

Executive Order 6102 banning personal possession of gold

The same goes for bitcoin in the countries that have banned it. Online it is pretty easy to find someone who would be able to transfer money if you send bitcoin, and if you have a hardware wallet and didn’t want to transact online but needed to sell bitcoin one method is to leave the country to do so.

What is interesting to me is that bitcoin and cryptos are being targeted but real estate and other assets are not – wait, that’s not true either! Certain countries are cracking down on mom and pop real estate investors by now making it harder to get investment properties. This could be in the form of bans on owning over X amount of properties, or introducing new punitive taxes to discourage buying properties as investments. Now wait a second, stocks are still available to purchase, aren’t they? Yes, they are – and if inflation is 10% per year and your stocks go up 10% a year you are effectively keeping your net worth the same until you sell and pay taxes. What about gold? In the digital age of Amazon gold and silver, in my opinion, have been overlooked as stores of value. That being said, most young people would not accept gold/silver for cash since it is so foreign to them. They’d probably value an unopened bar or chocolate more than a silver bar (see video).

Ultimately, it will be a real test of Democracy and the free market to see which countries do not ban cryptocurrencies. Buying them is not being forced on anyone, and banning them will take away the hope millions have put into get themself closer to financial security or financial freedom.

I really hope the US does not go the way of more authoritarian countries in banning the future of money for their own hyperinflating unit that gets created in the trillions without the consent of the people who earn dollars for a living.

What’s the Future of Bitcoin?

What’s Happened in a Year

So unless you’ve been sleeping under a rock without wifi you’re probably aware that bitcoin has made an astounding jump from about $8,000 to $54,000 in a year. A single bitcoin can now be a downpayment for a house, 31 ounces of gold (today’s gold spot price is $1,710), and depending on where you live in the world a year or two of retirement in comfort.

Now what’s the future of bitcoin? Should I keep it or sell it? Is it going to be killed off by quantum computers?

Should I keep or sell bitcoin?

I wouldn’t sell all my bitcoin just because the price has gone above $50,000. If you would like to use the money in other investments such as real estate I think it would be prudent to sell enough to buy a house but don’t sell everything because I think you’ll regret it.  If you’ve made money on bitcoin via Robinhood I suggest getting rid of it and converting it to “real” bitcoin on your controlled wallet as soon as your situation allows. Keep in mind taxes while you do this.

The whole point of the rise of bitcoin is getting away from holding cash, and putting money in bitcoin puts you in a limited supply cryptocurrency recognized and accepted in many places around the world as a store of value. Not unlike gold has been, which I will get to later.

Should I buy more bitcoin?

Keep in mind bitcoin historically has had huge pumps and then dumps, falling in 2017 from 20k down to the low 3k’s. Maybe this time is different, maybe not. Yes there are a lot more institutions buying up bitcoin such as Tesla and major banks and investment firms, but the possibility still exists for bitcoin to fall and hurt people that put money they depended on in this. If you still want to buy at current prices (mid 50k’s) I’d dollar cost average over a longer period of time by setting aside a few hundred dollars per month to purchase. I’m bullish myself on the long term prospects, but can see the coin drop all the way back to 20k and if that does happen it will be a great time to pick up more.

To me, bitcoin is like gold in a few other aspects. Gold has been around since early civilization, it may not be the smartest thing to carry around to do day to day transactions with but has been recognized a good store of value that is not easily defiled. Other cryptocurrencies that have come out since are not as distributed as bitcoin, meaning they are more easily taken over and manipulated and or controlled by a central authority. Yet even other  cryptocurrencies are not “mined” but instead “pre-mined” and distributed by a central node (such as Algorand). However, these other coins have features such as “proof of stake” which allow in their algorithms to dole out “interest” to existing coinholders. Coins with this feature include but are not limited to: Algorand, Cardano ADA, Cosmos, and Tezos. Of these Cardano ADA has by far the highest market cap with 36.8B as of today (March 9th, 2021). That’s still dwarfed by bitcoin’s enormous 1.001 T market cap. At the bottom of this post you can explore some details on various cryptos but you’ll see that bitcoin is closest to reaching its max supply of 21 million coins. Once that hits we may see price rise even further.

 

Crypto Market Cap

Crypto Market Cap

Should We Worry about Quantum Computers?

Short answer, yes. Quantum computers are far from being mature enough to run sustainably and accurately enough to overload bitcoin mining processing power to overtake 50% computing power and delegitimize the transaction verification process and spoof transactions. However, as the technology improves (and it will) it will post a larger threat to bitcoin. That being said, bitcoin can be upgraded if enough of the miners choose to upgrade and it would be in their best interest to do so to start to build improvements as Quantum computer mature. The largest threat in my opinion would be a state actor working in secret building up Quantum Supremacy before bitcoin (and other encryption used throughout the world for that matter) can adapt itself. I wouldn’t worry about it in the next five years.

If this possibility scares you away from Crypto, I’d just settle for real estate and gold. Any assets not on or depending on the internet for that matter, because ultimately banks and financial institutions and the internet itself and all that rely on it could technically be broken with a mature Quantum computer. All encrypted information over the internet would be at risk.

The bottom line is a new form of cryptography needs to be put in place ASAP before Quantum Computers can be used to destroy the internet, I’m not super worried this doomsday event will occur because safeguards will be built beforehand.

Let’s Talk about Bitcoin Versus Gold

Bitcoin Versus Gold

The gist of this article is to explain in clear English why bitcoin has outperformed gold and makes a more viable currency. I’m not going to speculate on price movements rather the utility of the currency. If you’re an older reader pay closer attention, bitcoin is no longer just “an idea in a geek’s head”.

The Charts

BTC/USD

BTC/USD 1 Year to Jan 9, 2021

SPRD Gold Trust Price

SPRD Gold Trust Price 1 year history ending on Jan 9, 2021

Why has Bitcoin Outperformed?

So why has bitcoin outperformed gold in the past year? The charts above show bitcoin and a gold ETF side by side and as you can site bitcoin is the clear winner. My answer is in the form of a question.

“How would you use gold to buy what you buy in a given year?” How can you use gold to buy pizza, how can you use gold to order items online, and how can you use gold on the go anywhere you are?

The answers are clear, you can’t. If you do, you’ll probably lose value, for example you can give a store clerk a gold coin and he’ll pocket it and then pay from his pocket because he just ripped you off, but he won’t go through the rigamarole of checking the spot price of gold and empty out his cash register to make it a fair transaction. Regarding online orders, forget it. It’s really dangerous and stupid to be carrying gold coins with you everywhere you go.

Now pose the same question with bitcoin. Well, in some foreign countries such as Japan I can buy pizza with bitcoin. The US is still catching on so most restaurants and stores will not accept bitcoin.  Many websites accept bitcoin, a long time WordPress started accepting bitcoin and others followed such as Steam, Reddit, Microsoft, AT&T. The biggest news of all I think is that Paypal will allow spending in local currencies with bitcoin. So you go anywhere in the world, imagine being able to spend in local currencies being converted out of bitcoin and a real-time rate. Amazing right? All you need is your phone, something undoubtedly you have either in your hand or pocket right now. Good luck bringing gold overseas, even locally TSA questions people that move gold around but if you go overseas you may be subject to paying a tariff to bring in gold.

What should I do if I have Gold?

Two People Debating

If you have gold don’t worry, I think gold prices will keep going up in the medium and long term. A short term fall is most likely institutions rebalancing as they add bitcoin to their portfolio. Institutions need to have bitcoin in reserve if they offer their customers the option to buy bitcoin on their platform. Gold does have a few benefits over bitcoin, including it’s time earned reputation as a store of value. A digital coin that’s been around for a little more than 10 years is not going to replace gold as the “gold standard”, and you are protecting yourself against inflation. Gold also has the title of being anonymous. As long as people aren’t writing down serial numbers of coins or bars they trade, gold can be untraceable. Bitcoin used to have that distinction but since it uses a public ledger if folks reuse their same bitcoin addresses its possible to trace down where addresses belong using some tricky sleuthing. Also, many people are keeping bitcoin on online wallets that are hosted by companies rather than keeping it in cold storage on hard drives. That means users don’t really own the wallets they are using a service to manage a wallet that then creates sudo wallets when transactions are performed.

You’ll want to make precautions to make sure you don’t get your gold lost or stolen, gold thankfully has elemental properties that prevent it from decaying or becoming dull over time. That being said, I feel it’s value as a currency are less than bitcoin so treat it more as a hard asset investment (much like real estate except without the power to cash flow). I’m going to get to preferred investments later.

What should I do if I have Bitcoin?

If you have bitcoin congratulations, you’ve probably already made a killer profit. That being said bitcoin is still growing as a currency and most folks that are older and less technology savvy may be less likely to “catch on”. However, the great thing about bitcoin is it is a deflationary currency meaning it has a hard supply cap and the mining becomes more difficult over time. Higher demand with limited supply will lead to higher prices, however a pullback from the recent price spike is very possible. What I would do if I did not already own real estate is sell enough bitcoin to make sure you own your primary residence. If you have a lot of bitcoin I’d also sell more to buy rental properties which pay back the mortgage and then some. Throughout time mankind has had great success in making fortunes from supplying housing to folks for a price. You are doing tenants a service by providing housing at a price they are willing to pay and they do not have to buy an entire house or deal with some struggles that come with owning properties such as maintenance, taxes, insurance. I wouldn’t sell it all though because during a rising period it’s hard to be certain how high bitcoin will go. Will it stop at $50,000 or continue it’s way to $1,000,000? With a max supply of 21 million coins a 1 trillion dollar total capitalization would mean each coin is worth $47,619. Does the world place that much value on this cryptocurrency? My guess is yes, and if bitcoin pulls back to less than $20,000 I will be dollar cost average purchasing more with each paycheck.

The Paycheck Conversion Plan

I learned of this when I lived in Malaysia. The Malaysia ringgit was getting hit hard with low oil prices and political issues, lines would form around all the currency traders (which were prevalent also because of lots of tourism). Locals would exchange their hard earned ringgit for either USD (US Dollars), SGD (Singapore Dollars), or RMB (Chinese Money). The reason for this was to prevent their money losing value as fast as it would otherwise. Also because they trusted the other currencies more.

I think it’s a great painless and stress free way of purchasing something your brain construes as “expensive” over time. Kind of like getting into the ocean inch by inch rather than taking a dive. Budget yourself, how much you need for your life and how much you use for investing. Divide your investing into stocks,real estate, and crypto. Divide your crypto into Bitcoin, Etherium, Litecoin, and any other coins you deem worthy (read the white papers and do so checking on how easy these coins are to mine and what they are already used for). After you come up with that percentage multiply it by your  wages (be it bi-weekly, monthly, etc) and then set a recurring purchase transaction on a website like Coinbase (join using this link to get $10 free bitcoin for you and me) for all the coins you’ve come up in your list.

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Why Bitcoin Trumps Dogecoin

 

Ok Dogecoin is cheap. Very cheap. Today it’s trading at $0.00351056, which makes it appealing the penny stock traders and the like who want to make it to the moon. I personally hold 50,000 of these coins, but do not believe in them. Here’s why:

  1. The supply of Bitcoin is constrained. The algorithm only allows for 21 million to ever be mined. That makes it harder to flood the market and drive prices down through the floor.
  2. The supply of dogecoin is 8 turned sideways. That makes this an inflationary currency and no better than the USD.

Additional Information

  1. Bitcoin is the gold standard of crypto, and built off the idea that currency can be democratized and protected against central bank shenanigans, Dogecoin was founded off a meme of a dog.
  2. Alternatives to Bitcoin that have a supply cap are:
    1. Etherium
    2. Litecoin
    3. Ripple (I have qualms with Ripple since a lot of the supply has been pre-mined and gets released periodically, sounds like manipulation to me)