Direct financing by the central bank is probably the only way to accomplish these goals. President Donald Trump has been busy obliterating presidential norms through his harassment of the Fed, and it’s not unreasonable to conclude that his successor will do the same or maybe even eliminate the institution altogether. The Libertarians like to point out that the dollar has lost 96% of its value since the Fed was created in 1913. Wait until they see what happens when there is no Fed, which at least makes some pretense at maintaining purchasing power.
I like gold, but I like Bitcoin better – and I own both. The technology of blockchain is actually quite boring (a distributed, open ledger), and if you didn’t take the time to learn about it, it would be easy to miss its significance. No government can ban Bitcoin or seize it. It is technologically impossible, without a piece of technology known as a quantum computer. It is the ideal way to move capital seamlessly and secretly around the globe at minimal cost.
I’ve found that people tend to be attracted to cryptocurrencies for different reasons. The true Bitcoin geeks are Utopians who envision a society unencumbered by centralised central banks with policy makers who tend to concentrate risk and mistakes. The finance guys, like myself, see a creeping authoritarianism in politics, which has the potential to translate into very illiberal economic policies. But there is more to it than that.
If you believe that Bitcoin has a future, then the math is simple. If you assume that only 0.5 per cent of the population has adopted Bitcoin, and that there are only 16 million to 17 million Bitcoins available, then as adoption inevitably increases the price of Bitcoin will rise significantly. But I also look at it in another way, which is that with every new technology, there is an initial bubble phase. Dot-com stocks in 1999, for example. The Internet held such promise, and investors were discounting that promise out into infinity and the bubble eventually burst.
But the promise of the Internet was real, and over 20 years that promise came to be realised, and a real bull market-not a bubble-developed. It seems like 99 per cent of the dot-com stocks disappeared, but a handful went to $1 trillion market caps.
This pattern will be repeated with Bitcoin and blockchain. We’ve already had the initial bubble, replete with “CoinDaddy” and “Bitcoin Jesus.”
Now we get down to the hard work of realising the potential of the technology, which could be as influential as the internet itself. I believe there will be another bull market, much larger than the first one where the potential is finally realised. Bitcoin is currently in a state of neglect. I don’t think we’ll have to wait 20 years for the second act.
Jared Dillian is the editor and publisher of The Daily Dirtnap, investment strategist at Mauldin Economics, and the author of ‘Street Freak’ and ‘All the Evil of This World.’ He may have a stake in the areas he writes about.
For more articles like this, please visit us at bloomberg.com/opinion
©2019 Bloomberg L.P.