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Today's winner:Bitcoin Will Keep Rising as Digital Fiat Currencies EmergeChris Lowe Nov Daily Cut min readPrint
It’s been a wild ride for bitcoin holders over the past week.
Last Wednesday, the “king of cryptocurrencies” got to within $584 of the all-time high of $20,089 it set on December 17, 2017.
Then on Thursday and Friday, bitcoin plunged 16% to $16,450… stabilized… then skyrocketed again.
As I (Chris Lowe) type, at 3 p.m. Eastern Time, one bitcoin is trading back at $19,400, just $700 away from its all-time high.
I’ve been recommending you own some bitcoin since we launched The Daily Cut to paid-up Legacy subscribers in August 2018… when bitcoin was trading at $6,400.
Bitcoin is up 203% since then.
And colleague Teeka Tiwari added bitcoin to the model portfolios at our Palm Beach Letter and Palm Beach Confidential advisories in April 2016. Bitcoin was trading at $428 then.
Readers who acted on his recommendation are now up 4,433%.
If you still haven’t added bitcoin to your portfolio, don’t worry… You haven’t missed the boat.
That’s why, today, I’m continuing my long-running campaign to spur you into action to make your first investment in bitcoin.
You see, bitcoin’s gains are far from being a bubble, as the bitcoin naysayers will tell you. Folks are turning to bitcoin to protect their wealth outside of fiat (government-issued) currencies.
That’s more important than ever as the War on Cash ramps up.
Governments are phasing out physical cash…
And replacing it with a purely digital kind. This will not only make their currencies easier to create (and inflate). It will also allow them to digitally track every transaction you make.
And the pandemic is the perfect excuse to get rid of physical money altogether.
Since the COVID-19 pandemic began, store owners across America are saying no to physical cash.
They view cash as toxic… a vector for the coronavirus pathogen… a way to spread disease.
The pandemic is acting as a catalyst for the War on Cash… and speeding up the death of physical cash.
In the near future, all money will be digital. And as different digital currencies battle it out, bitcoin will reign supreme.
But if you’re new to the conversation, here’s a quick recap…
Even before the COVID-19 pandemic, physical cash was on the way out.
In the U.S., debit card transactions (electronic payments between bank accounts) have exceeded cash transactions every year since 2017.
Elsewhere – most notably in China and Sweden – nearly all transactions are digital.
In China, Alipay and WeChat Pay – social networking and payment apps you access through your smartphone – handle roughly $40 trillion worth of transactions a year.
That’s more than double the $18 trillion Visa and Mastercard handle – combined.
As I put on your radar in June 2019, social media giant Facebook (FB) wants to roll out its own e-currency and payments network – Libra. Its goal is to make sending money as easy as sending a Facebook message.
They know that paper money is practically a thing of the past. And that people are moving increasingly to digital alternatives.
So central banks are rolling out their own e-currencies in response to Libra and cryptocurrencies such as bitcoin.
In April, the Chinese central bank launched its first public test of its digital-only version of the Chinese national currency, the renminbi.
And last month, the European Central Bank (ECB), which issues the euro across 19 countries, launched a public consultation on a digital euro.
In September, the ECB went as far as trademarking the term “digital euro.”
These two major central banks join 36 others with e-currency projects in place.
It’s simple. It will be the only digital currency that enshrines sound money principles.
Governments and central banks can’t create more of it with a few keystrokes at a computer terminal.
An algorithm controls the supply of new bitcoin. And unlike the supply of fiat currencies, the bitcoin supply tapers off over time.
Roughly every four years, the supply of new bitcoin entering circulation halves. This will continue until we reach the hard cap of 21 million bitcoin in circulation.
After that, there will be no new bitcoin.
One way to measure that is through something called M2.
It tracks the bills and coins in circulation, plus the dollars that exist in electronic form in bank accounts and money market mutual funds.
According to figures from Bloomberg, M2 has been growing at a year-on-year rate of more than 20%. That compares with an average yearly increase of 5.9% in the supply of U.S. dollars since 1982.
On average, over the past three years, the supply of new bitcoin has grown at just under 4% a year. And as I mentioned above, bitcoin’s new supply will taper off over time.
The same can’t be said of the U.S. dollar.
President-elect Joe Biden has tapped former Fed chairwoman Janet Yellen to head up the Department of the Treasury. She’s on record saying the U.S. needs more spending. And she’ll work hand in glove with Jay Powell over at the Fed to make sure that happens.
A 20% growth rate for U.S. dollar supply may seem like a lot – now. After four years of Biden, Yellen, and Powell at the helm, it will look conservative.
And when the supply of something stays fixed or falls, and demand increases, its price goes up. This is happening to bitcoin already.
The chart below tracks the U.S. dollar’s exchange value versus a basket of rival fiat currencies (as measured by the Dollar Index)… an ounce of gold bullion… and bitcoin.
As you can see, the dollar is down 5% this year versus a basket of its fiat-currency rivals. Gold is up 17%.
Bitcoin is up 171%.
It’s the only currency – outside of gold – that protects you from fiat-currency debasement.
That’s no coincidence…
We still don’t know the identity of bitcoin’s pseudonymous creator, Satoshi Nakamoto. What we do know is he/she/they wanted bitcoin to be a digital version of gold.
That’s why the folks who verify bitcoin transactions in return for newly issued bitcoin are called “miners.”
It’s also why, in order to verify transactions, these miners have to solve complicated math puzzles that use huge amounts of computer processing power and electricity. Nakamoto wanted new bitcoin – like gold – to be costly to get into circulation.
Bitcoin’s resilience to inflation has helped it rise from a value of $0.06 when the first easily accessible cryptocurrency exchange went live in 2010… to where it is today at $19,400.
Right now, that’s growing by 1 million new holders a month.
Just imagine where it’s headed as inflation in the dollar, the euro, the yen… and even the Swiss franc picks up.
Traditionally, investors hid out in Japanese yen or Swiss francs when other currencies were being debased. But now, with money-printing the name of the game around the world, there are no longer any fiat-currency safe havens.
Folks who want to protect their wealth have to look outside of fiat currencies altogether.
One of the most bullish developments for bitcoin in 2020 is its adoption as a reserve asset by corporate treasurers looking to protect the value of the cash reserves they manage.
In August, MicroStrategy (MSTR), an enterprise software company, bought bitcoin worth $425 million. Square (SQ), an online payments company, bought bitcoin worth $50 million last month.
With the price of bitcoin skyrocketing higher versus the dollar, there’s powerful incentive for other corporate treasurers to make the leap into bitcoin now. Otherwise, they risk paying higher prices for bitcoin’s inflation protection.
Right now, all the bitcoin in circulation together are worth $359 billion. And all the above-ground gold in the world is worth $9 trillion.
So, as colleague Nick Giambruno has pointed out over at The Casey Report, if bitcoin becomes as valuable as gold, that implies a bitcoin price of $428,571. That would be a gain of 2,109%.
That won’t happen overnight… but it’s a reasonable assumption given people’s growing need for an escape from fiat currencies.
And even if bitcoin becomes only half as valuable as gold, we’re still talking a gain of 1,005% from here.
So if you haven’t already, now’s the time to dip a toe in the water. You can find out how to buy your first bitcoin in our free special report.
Just remember to keep your position size reasonable… and don’t bet the farm. Teeka recommends an initial stake of $200 to $400 for smaller investors, and $500 to $1,000 for larger investors.
by:Chris Lowe Nov Daily Cut min readPrint