:
To listen to the audio version of this article click here
Coinbase, a publicly traded cryptocurrency company, recently announced that it will sell 1.5 billion worth of bonds (then revised it to 2 billion). Dollars. A leader of the crypto revolution is borrowing dollars.
Without any awareness of the irony, crypto promoters say that this validates crypto. That a crypto company borrowed dollars supposedly validates crypto.
Think about it, take as long as you need.
I have been saying for over four years that bitcoin is not suitable for borrowing. And now the crypto bellwether demonstrates that they agree!
Bitcoin is Not Suitable for Borrowing
If anyone could borrow bitcoin, surely a company who handles large quantities of it for large numbers of passionate investors would. They chose not to. As any bitcoin enthusiast can tell you, it would be foolish to borrow bitcoin as the cryptocurrency is expected to go up to many multiples of its current price. Better to borrow dollars, which are expected to fall.
To be more precise, anything that rises or falls rapidly will have volatility. This is because dramatic price action attracts speculators, who bet (with leverage) and overextend the move. Then it snaps back, and they hit their stop-loss orders, and sometimes reverse their positions.
A borrower needs stability, not drama. Bitcoin provides plenty of the latter, but not so much of the former. Bitcoin is not suitable for borrowing.
Is Bitcoin “Digital Gold?”
Bitcoin is often called “digital gold”. Well, here is one difference. Gold can be used to finance productive businesses.
Not only can it be used to finance. It is being used to finance. My company, Monetary Metals, recently announced the maturity and repayment of the first gold bond since President Roosevelt wrecked the gold bond market in 1933. We will issue many more gold bonds (and have been leasing gold—which also pays interest to investors—since 2016).
The below photo is an example of the certificate investors received for investing in the Gold Bond. The certificates were printed on special 24 karat gold film manufactured by Valaurum Inc., a company we lease gold to (investors earn 2.25% interest in gold in that lease).
Is Bitcoin Better than Gold?
It is obviously better at skyrocketing (and also crashing). Much better. But price appreciation is just a means for sellers to get buyers’ capital. You see, when you buy, you fork over your hard-earned savings to the seller. He can spend some of it, as it is his winnings. You do this, of course, in the expectation that the next guy will hand you even more of his savings.
All bitcoin trading profits come out of someone’s accumulated wealth.
But gold can finance productive enterprise. Gold can enable businesses who make real things in the real world, to buy the equipment and pay the expenses to start or increase production.
This is why the next monetary standard will be gold, not bitcoin.
Additional Resources on Bitcoin and Gold:
Check out our research section on Bitcoin: Postmodern Money
You make some good points in your article. I agree that Bitcoin isn’t suitable for loans and most negotiable instruments because of its volatility. The US Dollar may be more stable but it still loses value over time. Is it smart to borrow money at 2% per anum and pay it back with Dollars that lose 6% of their value each year? (I know, that’s not the official C.P.I. figure.) I’ve seen arguments for deflation being on the horizon by certain financial people, such as Jim Rickards, Harry Dent, and Mike Maloney, to name a few. Oops! Maybe the loan idea isn’t so ingenious. That leaves us with a conundrum.
Should we jump on gold? You argue that Bitcoin was started in a deficit with borrowed US Dollars. In that sense gold has also started out in a deficit. Mining for gold isn’t free and there’s still a constant effort to acquire more of it. Doesn’t that also make gold less than “net zero” in real value? As with Bitcoin, peoples’ investment makes gold increase in value. Whether it’s the US Dollar, Bitcoin, gold, or anything else, value is created out of perception and desire.
If I were to don my turban and look into my crystal ball, I might predict that the US Dollar and most other currencies will fade into oblivion. Gold will become the preferred store of value and Bitcoin, or the surviving digital currency will be exchanged briefly with gold to facilitate transactions. Come to think about it, isn’t what you’re trying to do right now?