If Bitcoin really is a safe-haven asset,
is it behaving like one?

The title of today’s post is not intended to be a serious question as much as it is “gallows humour”, as they say.

Since the Russian invasion of the Ukraine in early 2022, it’s been speculated that future historians may look back on that event as the beginning of WWIII. I have privately wondered (and meant to write it up in the last monthly letter, but it slipped off the radar), whether the cascading military coups throughout the CFA (Central African Franc) nations were the slow opening of a second front in what was becoming a global conflict.

As the ruling, CFA-aligned governments are being deposed, in Niger, Ghana, Central African Republic and Burkina Faso (eight coups in the past two years, so far), Russian military advisors are appearing on scene, coaching the generals. Meanwhile China is ready with infrastructure incentives and loans. That front isn’t hot – yet – but it’s – “War By Other Means”, to quote the Robert Blackwell & Jennifer Harris book by that title…

“Today, nations increasingly carry out geopolitical combat through economic means. Policies governing everything from trade and investment to energy and exchange rates are wielded as tools to win diplomatic allies, punish adversaries, and coerce those in between.”

Except for the United States, the authors lament, both of whom belong to the Council on Foreign Relations. The USA is still somewhat retrograde in that it reflexively seeks to use its military stature to either threaten or force issues – an increasingly obsolete strategy.

I’ve mentioned 5th Generation Warfare before (5GW), which is all about “war by other means” – so much so that at least one of the combatants may not even realize that they’re embroiled in a war:

“In 5GW, violence is so dispersed that the losing side may never realize that it has been conquered. The very secrecy of 5GW makes it the hardest generation of war to study. Because 5GW attacks occur below the threshold of observation, COIN in 5GW is the preemptive, system-wide, automatic degeneration of 5GW forces into more primitive gradients of warfare. The 5GW warfighter hides in the static, and the most successful 5GWs are those that are never identified.”

Abbott, Daniel H.. The Handbook of 5GW: A Fifth Generation of War? (pp. 16-17). Nimble Books LLC. Kindle Edition.

I think this has been the case in the West for decades, with the rise of far-left ideologies and bat-shit wokery permeating (infiltrating?) our core institutions (basically, Fabianism writ large).

Yet as I type this, it is still early days in a new hot war in the Middle East, which is possibly – if you listen to Patrick Byrne’s theory on how it occurred – the side-effect of a geo-economic battle between the US and Israel of all things.

What REALLY Caused Israel’s Foggy Intel? Read it Here 1st.

The MSM has the what and the why, but not the how. Let me tell you what really caused this catastrophic failure in Israeli intelligence last Saturday.

As my regulars are aware, I have spent some time this year in… pic.twitter.com/8uR0QzSupB

— Patrick Byrne (@PatrickByrne) October 12, 2023

In any case, it’s another 9/11 moment and at some point I’ll explain why I use that comparison specifically, instead of the “Pearl Harbor” references we’ve seen a lot of since the Hamas surprise attack on Israel (possibly in the monthly macro Bitcoin Capitalist if I don’t get to it here).

The mid-month portfolio review issue is intended to be a more tactical focus on Bitcoin, cryptos and the companies we own, within the backdrop of whatever is going on that affects these spaces directly.

But the dial for geopolitical tension just got ratcheted up to 11, so we have to acknowledge here that something very bad has occurred, and like it or not, it stands to become a core driver of what unfolds from here on.

Hedge fund billionaire Paul Tudor Jones appeared on CNBC October 10th, saying that it was hard to own stocks amid such geopolitical uncertainty, and citing three flashpoints: Ukraine, the Middle-East, and sooner or later: Taiwan.

In a widely circulated quote, PTJ said he liked gold and Bitcoin although he said so within the context of the two performing well in recessions, which he predicted would occur by Q1 of 2024.

I don’t necessarily know if that’s true. Bitcoin has never been in an official recession, although when we were in a “technical” one earlier this year, it was coming off the lows of a bear market nadir with a good head of steam on it, so I don’t know how much we can infer from that.

Recall, Paul Tudor Jones was arguably one of the catalysts behind “the institutions are coming” mantra of the 2020 cycle when he disclosed holding a position in it within his hedge fund.

As I’ve observed since, that wave, which included Michael Saylor, Stanley Druckenmiller and (for a while) Elon Musk, wasn’t really an institutional wave, per se – more like a vanguard of maverick billionaires. But it was a start.

It’s the inevitable, perhaps even imminent arrival of spot Bitcoin ETFs in the USA (they’ve been around here in Canada for years) that will truly lay out a carpet for institutional investors.

But the geopolitical and macroeconomic environment today is very different from anything experienced since Bitcoin emerged as an asset class.

The great bond supercycle is over, as is The Everything Bubble and likewise is the (so-called) “unipolar world”.

We’re neck deep in The Jackpot now , or what Strauss and Howe called a “Fourth Turning”.

The End of The Unipolar World (as we know it).

All bets are off, and nobody really knows what happens next. When people use the phrase “the end of the unipolar world”, they are typically thinking in terms of nation states jockeying for primacy in a presumably multi-polar world. Russia, China, Brasil, India, Turkey, Saudi Arabia, Israel… Iran – I think this is a one-dimensional view and doesn’t fully capture the shift we are undergoing.

But for my own meaning of “multi-polar world”, the potpourri of nation states vying for geopolitical “Lebensraum” is only one layer of it. Add to that non-aligned, non-national, autonomous organizations …think supra-national Borgs like the WEF, and their polar opposite: Network States and crypto-anarchist enclaves.

Some countries may coagulate into the former (like the entire G-20) while others splinter out and morph into the latter (El Salvador).

Then factor in cartels, consortiums and corporations. Terrorist cells, organized crime, hacker networks, not to mention completely artificial entities with no human agency – like smart contracts, DAO’s, autonomous 3-D printers, weaponized drones or computer viruses.

Now imagine decentralized, anonymous (and autonomous) networks of 3-D printers cranking out kamikaze drones that take them out. pic.twitter.com/kaWClCBLQx

— Mark Jeftovic, The ₿itcoin Capitalist (@StuntPope) October 7, 2023

That’s the multi-polar world we are headed into, and we’re naive if we think we’re just dealing with a bunch of nationalist upstarts. In such a world, Bitcoin “the money of enemies” becomes necessity.

Where does it leave Bitcoin?

Until now it has only really had one long macro-economic cycle, with relative geopolitical stability, during which it was always theorized that Bitcoin was a safe haven asset, just like gold.

Couple problems.

One is that over the past fifteen years or so, not even gold traded like gold. It was supposed to be safe when everything else went to hell, but in the Global Financial Crisis and every other mini-crisis that tanked the stock market, gold usually tanked too.

Yes, gold took off like a rocket after the GFC bottomed, and did so a good six months before everything else. But for the most part, everything took off and highly correlated markets became the norm for the next ten or fifteen years, because “money printer go brrrr”.

That gave rise to the mantra, “it’s all one trade”. During that same cycle, Bitcoin tracked the Nasdaq for long chunks of it, and even traded like a meme stock – the right hand chart above showing correlations between BTC and Gold (top), the Nasdaq (middle) and AMC (bottom). The closer the line tracks along the top, the closer the correlation.

Now we’re in what seems like a global crisis for reals.

Bonds have had a somewhat under the radar implosion, owing to the fastest rate hike cycle in history. Stocks have done something barely recognizable, and gone down for a few months; debt is exploding at an accelerating pace, as if that was even possible; and that’s on top of: rolling energy crises, a hot war in Europe, escalating tensions between China and Taiwan and now, the Middle East erupting into war.

Gold has reacted vigorously to the Hamas attacks on Israel, and the anticipated reprisals and repercussions (a more than $60/oz move on Friday the 13th alone).

Bitcoin looked asleep, when a new hot war broke out in the Middle East. If it’s been reacting to anything since that happened it seems to be the ongoing breakdown of the bond markets. It may truly “be different this time” if the markets wake up to the reality that debt is well and truly out of control.

Granted, gold took a major dump in the weeks leading up to the Hamas attacks, and Bitcoin is still the best performing asset class of the year, so if we can infer anything, it feels like the “all one trade” correlation is starting to break down a bit.

Absent rampant money printing (on pause for the moment, to be sure), assets seem to be zig-zagging toward their own fundamental drivers and at the moment, it looks like this: fears of World War III are acting as a tailwind for gold while fears of the global financial system imploding (and possibly the inevitable arrival of CBDC’s) are what’s lifting Bitcoin.

My base case is that the latter is pretty well baked in. I’d like to hope that the former isn’t, but, as I noted earlier, we may already be past that.

My forthcoming ebook The CBDC Survival Guide will give you the tools and the knowledge to navigate coming era of Monetary Apartheid. Bombthrower subscribers will get free when it drops, sign up today.

Today’s post was an excerpt from The Bitcoin Capitalist Mid-Month Portfolio Review. TBC provides actionable intelligence on the macro forces shaping Late Stage Globalism and a tactical toolkit for growing your wealth as it plays out. Try it today here.

Follow me on Nostr, or Twitter.

It was a pleasure to connect with Nick Giambruno – international investor, who specializes in “off-the-beaten path” situations, currently in Argentina. He’s invested in gold, Bitcoin and among the early adaptors of the decentralized messaging protocol taking the internet by storm: Nostr.

Show Notes:

• Nick Giambruno’s Financial Underground
  • Follow Nick on Twitter, or Nostr ( npub1wgjh30uxvvepumxhl3qlfzmt4chueprxmcvrxyw0wjtv9m4w8zwq3se082 )

The inaugural episode of the Bombthrower.TV podcast series is a rip I did with Lawrence Lepard and John Rubino over on DollarCollapse.com

Show notes:

• Lepard’s iconic “Fix the money, fix the world” talk given at the New Orleans Investment Conference in Nov 2021.

This is the second part of my look at the age old “Gold vs Bitcoin” debate, which I outlined in Part 1: “Gold vs Bitcoin is Fscking Stupid” as being faith-based and pointless.

While it is thoroughly enjoyable to watch it play out between the symbolic archetypes of  near-boomer Peter Schiff and his millennial son, Spencer, I sometimes suspect that to  be a staged, WWE style confrontation….

Future tweet: “Now that Bitcoin has hit $500,000 I must admit that a move up to $1,000,000 can’t be ruled out. However…”

— Spencer Schiff (@SpencerKSchiff) February 16, 2021

However I bring up the elder Schiff for a reason, because part of his core thesis is that after the coming global monetary reset, the world will move back to a gold backed currency.

A return to a gold-backed standard would be a disaster

This I find not only unlikely, but undesirable. Anybody paying attention to the way the world works now absolutely shouldn’t want a return to a gold-backed currency, especially people holding their wealth in gold.

The reason is very simple: if that were to happen, there would occur with that a corresponding global ban on private gold ownership. Anybody who thinks this through can see that is the most likely way it would play out.

The religious goldbugs think the USD will implode (probably correct), lose it’s global reserve currency status (correct) and then… government will admit defeat, remonetize the world with a gold backed currency. Doing that would instantly make the goldbugs who were outside the system, who were highly critical of it and who reject the legitimacy of much of it, the most wealthy and powerful participants in the new monetary regime.

Do you really think it would play out like that? Do you really think that governments who double-down on incompetence, who think nothing of changing the rules and moving the goalposts, who stop at nothing to preserve their own position and serve their own interests are going to throw their hands up in the air, shrug their shoulders and walk offstage to clear a path for a next generation of goldbug power elites?

I don’t think so.

This is what happens instead:

1. A new narrative begins to emerge:  gold bugs are damaging the stability of the banking system
2. Sudden focus on how gold mining accelerates climate change and exacerbates systemic racism
3. Gold jewelry = white privilege (even in India,  remember, by this point 2 + 2 = 5)
4.  Private gold hoards are exacerbating wealth inequality

After a few months of this and then the time is right, a coordinated set of policy initiatives will emanate from some elitist circle jerk like Davos or Jackson Hole:

• all gold mines nationalized globally, possibly structured into an International Gold Pool.
• mandatory buybacks of private holdings at capped prices
• criminalization of unlicensed private gold ownership

…and gold jewelry will be the MAGA hats of the future. It’ll end your career.

I may be off on the details, but that is in essence what I would expect happens if the global monetary reset heralds a return to the gold standard.

The powers that be will never admit causing the monetary crisis, will never concede that it was their policies over successive decades caused it, and they will never voluntarily allow a tectonic shift to move power and wealth to anybody other than themselves.

So if you’re a big believer in preserving your wealth through holding gold (as I am), then this is definitely what you don’t want to be wishing for. This is what the Bitcoiners should be hoping happens to the goldbugs.

As for the Bitcoiners….

Bitcoin as world reserve currency will never happen

Some Bitcoin maximalists think that it is destined to become the global world reserve currency because (wait for it)….

It would essentially force governments to be honest.

I should be able to rest my case here. Governments are congenitally incapable of honesty. Perhaps there was a point in time when that wasn’t the case, but it certainly isn’t today, and the governments we have today will not voluntarily move to a system that forces them to be honest.

The only way Bitcoin gets made the world reserve currency is if it’s done in a way that removes any and all advantages from those who own it today. This is how the system works: the elites are in charge, and anything that comes along to challenge their authority is either co-opted or criminalized.

The system is hardwired to preserve the power and privilege of the people running it, and as I’ve said in the past, the privilege isn’t race based, it’s based on the structure of the monetary system. 

Both goldbugs and Bitcoiners think government bans are unlikely or unworkable. Just last week on Coindesk’s The Breakdown, NLW’s Long Reads Sunday was Alex Gladstein’s Can The Government Ban Bitcoin?, who wrote about the mechanics of implementing a ban on bitcoin…

“a military home-by-home raid couldn’t work very well and would constitute a mass set of human rights violations.”

…possibly overlooking that we are one year into a New Normal where that which is not expressly permitted is forbidden.

Anybody under-estimating the level of overreach and oppression that all governments globally can undertake, in concert, has to either have been asleep for the last year or is so comfortably cocooned  in one of those “post-physical” lifestyles that they didn’t care.

To be clear however, I mostly agree with Gladstein’s reasoning on why Bitcoin can’t be banned effectively. Which is also why I think that precludes it from being part of any kind of government sponsored monetary restructuring (that said, some central banks may start buying Bitcoin as a part of their own reserves, the first national central bank to ponder it that I know of was Barbados, back in 2015)

If Bitcoin were to become the rails of the global monetary system, it would happen in a way where the governments can completely regulate every single aspect of it, including where and how you HODL, whether it’s legal to mine (or stake for other or future cryptos) and whether or not you’re permitted to self-custody.

So if you’re a big believer in preserving your wealth through migrating into the crypto-currency economy (as I am), then this is definitely what you shouldn’t be betting on. This is what the goldbugs should be hoping happens to the Bitcoiners.

The true enemy is EvilCoin

If I can see horrible outcomes as a result of what either camp thinks would be “victory”, what am I doing about it? This is what I said in Part 1,

“the entire debate pointless because people who invest in either asset class are doing so for the same reasons…If the job at hand is to protect one’s wealth from systemically rigged and disintegrating monetary regime, arguing for one over the other feels like trying to defend against it with only half the available toolkit….The entire gold vs crypto argument goes away when one realizes that there is more overlap in the objectives of each asset than there are differences”

I’ve never been a Gold vs Bitcoin guy, I’ve always been a Gold and Bitcoin guy. And by “gold” I mean precious metals, and by Bitcoin I mean crypto currencies in general (I also like Ethereum, as described in part 1).

Personally I don’t see any danger that either camp will ever see that their preferred monetary asset becomes the global reserve asset. Gold doesn’t allow governments to embezzle wealth from its subject and Bitcoin is off the table. They would never go with an open source project pioneered by an anonymous cypherpunk. They just won’t.

What is more likely and what I personally am betting on is this:

There will be some form of global monetary reset involving Central Bank Digital Currencies (CBDCs). China is already a fair way down the runway with their Digital Currency Electronic Payments (DCEP) system and the use of digital cash is far more pervasive there already.

China is dictatorship. There is zero personal freedom and there are no sovereign individuals. Their social credit system will increasingly regulate every aspect of every citizen’s most minute activities and it will be the envy of technocrats the world over.

I am betting on The Great Bifurcation playing out in the classical liberal world as follows:

Erstwhile democratic nations will implement CBDCs which will be the rails of MMT, UBI and eventually full social credit systems “with Western characteristics”.  As the middle class gets hollowed out, most people will fall below an impermeable membrane into the new serfdom. The defining characteristic of the underclass:

• no assets (“The year is 2030, you will own nothing and be happy…”)
• no income as we understand it today, it’ll be UBI which is more of a digital “scrip” than actual money
• no job, no career no profession other than side-hustles, gigs and the odd outlier shot at being in influencer

The people who owe more than they own will basically be screwed and if there is another financial crisis before all this happens, say one in which equities, property values get smashed down while the cost of living skyrockets, then what’s left of the middle class will be quickly sorted into either category.

I am always surprised at how few people I talk to have ever watched Mr. Robot.  However its explanatory allegory around the two-tiers of digital money after a global financial crash is a compelling one.

So called “Evilcoin” is the CBDC, run by the establishment and is more like company scrip of yore, redeemable across the company platform. Alongside EvilCoin is Bitcoin, which people prefer and what actually holds value and confers a greater amount of economic freedom.

In short: we’re headed into two-tier society, one where the tier you’re in relies on which form of digital currency economy you’re participating in the most. That’s what we look at specifically in my premium letter The Crypto Capitalist (including which publicly traded companies will be the best ones to own here in the New Normal).

If there is any single take-away from all this, it is this, as long as “the system” as we know it, stays on the rails, then:

“Gold vs Bitcoin” is the wrong question.

“What are the alternatives to EvilCoin?” is the only question.

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With all due respect to the people arguing this one way or the other – many of whom are super intelligent. This argument is a self-defeating doom loop that can only be resolved via an act of faith.

Introducing your Economic Apocalypse Toolkit

With both Bitcoin and gold (and stonks, for that matter) at or recently off of all time highs the age old debate of whether gold is better than Bitcoin or vice versa is everywhere. I finally sat down and mapped out the Economic Apocalypse Toolkit after listening to Grant Williams and Bill Fleckenstein’s End Game podcast episode with Fred Hickey, who writes The High Tech Strategist.

In it they hit on the perennial question of “gold vs Bitcoin” and Hickey laid out his objections to it. I’ve been a subscriber of The HTS for several years now and think it’s absolutely fantastic, and of course I also subscribe to Grant Williams TTMYGH and Fleck’s newsletter as well. All great stuff, well written, from extremely intelligent people. I do get the sense that Williams is somewhat open to Bitcoin and he wants to talk about it and explore the idea that it may be something more than the usual tropes: a ponzi, based on nothing, Tulipmania, etc, but maybe he’s hesitant at prospect of taking heat for suggesting it.

I just find the entire debate pointless because people who invest in either asset class are doing so for the same reasons. They are reacting to the same threat, they see the same unsustainability, they are preparing for the same End Game, if you will.

Given that many of the people who see the underlying issues are of a capital allocator, long term mindset, why is this being thought of in terms of either/or and not in terms of probabilities and scenarios?

If the job at hand is to protect one’s wealth from systemically rigged and disintegrating monetary regime, arguing for one over the other feels like trying to defend against it with only half the available toolkit. Is there a mechanic who wouldn’t be caught dead with a screwdriver in his toolbox because he can give you a list of reasons why every problem can be solved with a wrench? “Screwdrivers for suckers!”

The entire gold vs crypto argument goes away when one realizes that there is more overlap in the objectives of each asset than there are differences. And if you can get your own biases out of the way, then even the differences when looked at objectively seem to have uncanny parallels

Gold has a 5,000 year track record, and has never failed to hold its value, which is quite impressive and has to count for something….
Bitcoin has broken out of nowhere and taken the world by storm in an astonishingly small amount of time, which is quite impressive and has to count for something…

Bitcoin is backed by nothing.
Gold is just a shiny rock.

Without electricity, Bitcoin is useless.
You can’t eat gold.

Quantum computing will eventually destroy Bitcoin’s encryption.
Asteroid mining will eventually make gold abundant and cheap.

Bitcoin is a ponzi.
What’s the definition of a gold mine? A hole in the ground with a liar standing beside it.

I could go on….

Since the future is unknowable and certainty elusive, aligning with one aspect of the above over the other has to be a choice not a fact. It’s an act of faith. So why not embrace agnosticism and make use of both sets of tools in your financial survival toolkit?

The Toolkit

Let’s just step briefly through some of the items in the mindmap. We have metals on one side, cryptos on the other.

On the cryptos side, I just think Bitcoin is the crypto-reserve currency and will continue to be for the foreseeable future. My preferred way to accumulate BTC is to earn it via my businesses. easyDNS has been accepting Bitcoin since 2013 and we’re developing a payments service for clients that will be based on BTCPayserver.

I put Litecoin and alts in there to trigger the maximalists. As per the Supersuckers song, “I like it all man. (All or nothin’ I’m all in even when I’m bluffin’)”.

Ethereum is different animal, I think the Bitcoin vs Ethereum schism is every bit as fucking stupid as Gold vs Bitcoin. They do different things, and while they overlap in some aspects, that doesn’t mean there should only be one path forward.

The way I think about it, Bitcoin is the value, Ethereum is the execution. When I hear people dismiss Bitcoin because “there is as yet no ‘killer app’ that anybody has come up with for Bitcoin” I like to ask them “what is the killer app for the money in your wallet?”. Do you want to be able to play video games on your money? Collaborate on a document with your coworkers before you spend it? Dollars or  euros aren’t dismissed as useless because nobody has come up with a compelling use case for them. You just spend it. That’s the use case.

Ethereum on the other hand, well that’s a whole different ball game. Smart contracts, DeFi, even Dao’s (despite early setbacks) will completely transform our lives. Ethereum, and other projects like it (Cardano, EOS, and even Ravencoin, which is actually a Bitcoin fork)  are going to provide ways to code parameters and instructions around value and wealth that will be guaranteed to execute and can outrun government overreach.

We’re now coming out of that “Trough of Disillusionment” I wrote about back in 2018 and we have actual companies, actual businesses and ways to derive income now in crypto. We can invest in miners, in crypto based publicly traded companies, we can stake our assets or lend them and earn a return on them. Multiple income streams available here so we actually have some ability to compound whatever wealth we’ve managed to port to the crypto-economy separate from any nominal gains garnered in fiat terms.

And of course, with crypto we have the ability to move capital, in figurative terms, simply by thinking about it. If Actual Communism comes to your habitat and the best you can manage is to get out with your skin and some pass phrases you’ve remembered in your head, you can retrieve some of your assets wherever you come up for air (read “We The Living”. Take it to heart. This is the fate we seek to avoid, and large chunks of the world are barreling straight at it).

On the precious metals side you have your physical metals which, if all goes well, you simply keep vaulted in various places and your currency never collapses and you teach your kids that they should preserve the hoard and only use it in extreme emergencies down the road. And to teach their kids the same. You have junk silver in case there is a currency crisis and you don’t want to have to carve off a piece of a Krugerrand in order to buy some food at the market.

You have some gold tucked away in international vaults like Bullionvault and Goldmoney. My cousins run TrustableGold.com which rates these places.

All of this stuff, especially on the crypto side, has to be set up in advance, and you have to know how to navigate these systems before TSHTF. When a mob of mostly peaceful democratic socialists are tearing through your town and burning down your homes and businesses, or when the government is hanging both goldbugs and HODL-ers from lamposts, you do not want to be learning how to set up a Monero wallet and frantically converting as much as you can into it, nor do you want to be just then opening your Goldmoney account and trying to wire in some funds.

It has to be ready now, so  when the inevitable Financial Repressions intensifies, or God forbid, the Financial Tyranny occurs, you can focus on executing your exit plans and coming out on the other end with enough capital and wealth to rebuild.

The missing link

What we really need are bridges between crypto-currencies and gold. Not metaphorical “can’t we all be friends” bridges, I mean gateways, tokenized/staked storage and transfer of precious metals. Conversion into or out of crypto from metals. This is not easy.

There have been attempts in the past, Roger Ver, in Sal the Agorist’s recent “Gold vs Bitcoin” podcast mentioned e-gold. easyDNS was the only domain registrar to accept e-gold back in the day and that’s how we amassed our physical gold which remains on our balance sheet even now. But contrary to Ver’s assertion that the government’s shutdown of E-gold speaks to gold’s inferiority to Bitcoin – that’s not entirely accurate. E-gold turned a blind eye to governance and it really was a wild west of ponzi schemes and criminal activity. Contrast with other DGCs of the day, like Pecunix or Goldmoney, the latter of which still exists. Goldmoney had far more stringent KYC and governance protocols, self-enforced, and here they are – still up and running.

In fact it was Goldmoney who had one of the more recent attempts at Bitcoin to vaulted gold convertability under their incarnation as Bitgold. They’ve since discontinued this precisely because of the governance hurdles.

I won’t trivialize how hard this is, but for people droning on about the need for a ‘killer app’, this one would probably do well.

It’s all about optionality

Both metals and crypto tribes look at the financial system and our legacy institutions as entering some form of breakdown and decline. Because the future is inherently unknowable, what makes more sense?

A) Betting on one half of a toolbox that may pay off huge in some scenarios but be worthless in others, or

B) Having a full toolbox that can give you some good outcomes under most imaginable circumstances?

If you’re a goldbug, would it kill you to have a fraction of your liquidity in Bitcoin, knowing that from past events crypto superspikes tend to 10X or 100X or more with stubborn repetitiveness and increasing magnitude?

If you’re into Bitcoin, buying the right gold miners now with a fraction of your capital may very well set you up with an increasingly fat, cushy dividend stream in a few years that you can use for living expenses while you continue to HODL.

Now there are many End Gamer luminaries out there who are invested in both even though they prefer one or the other.

But there are too many out there who are not only completely dismissing the other side, they are going even further and acting under an assumption that their preferred asset will prevail so totally that it will in the fullness of time become the world reserve asset.

In part 2 I’ll discuss why the odds of that happening in either case are near infinitesimal. For anybody paying attention to how governments actually function, it is not even desirable.

If your thesis is one that of these assets will form the basis of a new global statist monetary system and you’re an extreme skeptic of gold or Bitcoin, you should be hoping that the other guy’s favourite asset is the one that gets used.

Get on the list or follow me on Twitter if you want to know when Part 2: Careful What You Wish For, is available.

Further Reading:

• Gold vs Bitcoin Part 2: Careful what you wish for

The theme for today’s post is from Scott Galloway’s (@profgalloway on Twitter) “Casper Should Not Go Public” post on Medium, which he wrote in response to the news that Casper, a mattress company I had never heard of, had filed to go public, having lost $73.4 million on $250.9 million revenues in 2017 and another $92.1 million loss on $357.9 million in 2018.

This post isn’t about Casper, the Galloway article is superb in analyzing exactly why anybody dumb enough to buy this IPO deserves to lose the 30% decline in stock price he posits for the first year (which I think is being charitable).

However, Casper will not go public, as it has no business being public. Casper’s numbers are a sign of a frothy economy: firms that should be sold in the private market doing a kabuki dance (“technology” mentioned over 100 times in prospectus), asking people to suspend their disbelief until the founders, VCs, and bankers sell their shares and get their fees. That’s not going to happen. Here too, yogababble won’t cut it: “We believe we are the first company that understands and serves the Sleep Economy in a holistic way.”

The economics work better if Casper sent you a mattress for free, stuffed with $300.

He also compared Casper to other players in their space, and adjacent space, mentioning that Away, is better differentiated in a less competitive space (there are 175 online mattress retailers!), and Warby Parker, who actually looks to be headed toward a successful IPO (because they actually have a real business).

It was a phrase near the end of the post which grabbed me, having  circumscribed almost perfectly the frustration and angst rational economic actors have been feeling these past several years. Said rational economic actors include

• non-VC funded business owners
• people who save money
• people who pay down or pay off their debts
• fiduciaries responsible for investing and allocating capital
• and most anybody with a time horizon longer than the next quarterly earnings report

What he said was this:

Casper is being drowned and likely won’t survive. Away needs to be adopted by someone who will feed, clothe, and protect them. Warby looks to have the muscle and fat to survive an Amazon winter and emerge stronger.

It was that phrase “Amazon winter” that got me. Amazon poses such an existential threat to any sector it enters that even speculation that it may enter a space is enough to tank every public stock in it.

But it isn’t just Amazon that is scouring the economy looking for spaces to disrupt and so-called “value to unlock”, it’s every Amazon wannabe, trying to become the Amazon of their own space, or to lock up a “blue ocean” before somebody like Amazon can move in and eat it.

The end objective of all these players isn’t to have viable businesses, ones that do business the old fashioned way, at a profit.

Instead the end objective is to set in motion a cascading series of financial events at successively higher valuations. That’s the game now, and I’ve decided to call that game Unicorn Bingo. The macro effects of Unicorn Bingo are to usher in Unicorn Winter.

Unicorn Winter is the long, hard slog where credit induced asset bubbles on Wall Street suck up all the oxygen from Main Street.

It’s the Cantillon Effect, when geometrically increasing central bank balance sheets lift up the Unicorns’s valuations while pushing up the cost-of-living for everybody else.

The Unicorn Winter brings central bankers out of hibernation if the stock market pulls back 5%.

“Free markets”

Futures go up -> shorts get smoked

Futures crash -> CME steps in immediately -> Trump makes statement -> Powell capitulates -> Exchanges use circuit breakers -> Plunge protection team steps in -> Media starts doing 24/7 specials about buying the dip

— Quoth the Raven (@QTRResearch) December 5, 2018

The Unicorn Winter isn’t about making money, as in profits. It’s about monetizing what goes on in the mind of people who have no idea they’re being datamined.

Unicorns don’t create jobs. For the most part they create gigs. Temporizing everything from your home, your office, your server space, everything is delivered as-a-service, most likely at-a-loss and if there’s any humans involved in the chain at all it’s as part of somebody’s side hustle. Because that’s all there is now that everything else has been disrupted away in a sweeping tide of financialization.

In the Unicorn Winter even the also-rans get their hallowed exits.

• Adam Neumann became a billionaire for vaporizing WeWork
• Elizabeth Holmes is out seeking funding for her next deal
• And it all started when an entire class of banksters got bailed out for creating a financial crisis…

None of the bailed-out financiers here at #Davos2016 who live in Greenwich & collect Lamborghinis can understand why US voters are unhappy.

— Rudy Havenstein, Comité de salut public. 99.6°F. (@RudyHavenstein) January 21, 2016

But in the Unicorn Winter the people who didn’t want to play Unicorn Bingo don’t get exits. They get shut down, liquidated, foreclosed or stripped out in asset sales.

Ground Hog Day is Coming

We’re now in that part of winter that usually gets to me the most, when it’s cold, wet, miserable. It’s dark in the morning when I walk the dog before I take the kid to school, it’s dark when I walk her again after dinner. It’s always dark, always cold. The dog doesn’t seem to mind. She’s a Siberian Husky who was named “Tenacity” by the rescue folks who found her, all those years ago, chained to a pole in a swamp and left for dead.

During these early dark mornings it feels like it will be like this forever and I can’t even imagine walking her around in shorts and my “Got Hedge?” t-shirt someday in the future. But even though it feels like winter will last forever, I know it won’t.

To rest of us, exiles from game of Unicorn Bingo during the longest and strongest Unicorn Winter on record, we could use a dose of this Tenacity. Owning gold (and silver) is one way to just wait it out. As Bill Fleckenstein opined on a QTR podcast in the fall of ’19 (I think this one), you can argue with the Unicorns, you can try to short them, because they should be shorted and they should come back to earth, someday. 

But it’s usually a disaster because of the Fed put, which looks to keep working until finally, one day, it won’t. There was another podcast I recently listened to with Grant Williams (which I can’t seem to find now), when he talked about his witnessing the end of the Nikkei Bubble from his vantage point in Japan at the time. No crash, no notable day of reckoning, the way he described it, “one day the Nikkei just stopped going up every day. It just started going down”. And it’s been down ever since, for thirty years.

But if you buy gold then everything the central banks do to keep the Unicorn Winter going is actually wind at your back. It feels good not to be endlessly fighting the Fed and doing it without having to actually drink the kool-aid.

If you run a business, like I do, that has to survive the Unicorn Winter, then you need that muscle and fat Galloway ascribes above. You need actual customers for whom you can provide value, not data cows to mine and surveil. If you’ve made it this far without taking on VC, don’t start now.

Connect with other unfunded, real businesses doing actual stuff and start working together: joint ventures, co-branding, white labeling, sell your customers what they want instead of loading up on VC and taunting them with shiny new objects.

If you aren’t already, get involved in the crypto economy.  After the everything bubble pops, I think it will be one of the segments that fills the vacuum.

If you can get your business to the point where you can continue operating in your niche no matter how long the Unicorn Winter lasts, just imagine how things will be when it’s over. I’ve said it before, the two periods where we experienced the most explosive growth at easyDNS were immediately after the bursting of the .com bubble and then again after the GFC.

My latest book: Unassailable: Protect Yourself From Deplatform Attacks, Cancel Culture and other Online Disasters is available now.

The Gartner Group is widely credited with formulating the “Hype Cycle”, a trend curve that is said to model the adaptation of a new technology or paradigm.

Simply put it looks like this:

(read on Medium)

It certainly seems to have held sway regarding the Internet revolution, where the Peak of Inflated Expectations culminated in the Nasdaq blow-off-top of 2000 and the ensuing “Tech Wreck” crash. I remember that well, for a number of reasons including that my co-founders and I were still in “start-up” mode with our company, easyDNS.  I remember profoundly misunderstanding what was happening in those final few months.

I remember thinking, literally “this is an entirely new economy, it’s not about running profitable businesses anymore, it’s about running up your stock price.” There was a Sun Microsystems commercial that was near music video length, set to the soundtrack of the iconic rock track “Hocus Pocus” whose sole call-to-action at the end of the ad was the “SUNW” ticker symbol. And then it all imploded. That was when I started seriously learning about economics, history and finance.

I remember sitting in a diner one night having a coffee with a friend, mere months before the crash. Bullshit .COM’s were getting funded all over the place and everybody else, except me it seemed, were becoming millionaires overnight.

“I suppose if we hit the jackpot and got rich tomorrow, I’d probably think I was a master of the universe and crash and burn with drugs and booze”, I conceded (having recently gotten clean and sober). He said “For that reason alone it’s probably best for you if you don’t become wealthy until your sobriety can handle it.” Then he told me the story of the Roman Triumphs, which I never knew about beforehand.

When a Roman consul returned home after a particularly spectacular military campaign abroad, a “Triumph” was held – which was a parade through the streets Rome celebrating his accomplishments. But there was an additional component that (as it was told to me then), a slave would be put in the chariot beside the consul, who’s sole job throughout the Triumph was to whisper into the victorious leader’s ear “Remember, thou art mortal”.

I’ve never seen an original source for this, it’s been attributed to Julius Caesar, to Tiberius and to Marcus Aurelius. Or it’s possibly even apocryphal – but one thing I know for sure, there was nobody nearby whispering “Remember, thou art mortal” to any crypto-millionaires over the course of 2017.

This is the “gotcha” peculiar to success and good fortune. The illusion of invincibility. Infallibility. Omnipotence. It can happen to individuals and it can happen at a collective, archetypal or sub-cultural level.

When I sat down to finally write this (I went on record saying this would be the year Bitcoin enters the Trough of Disillusion on New Year’s Day) and researched a bit, I found that “The Trough of Disillusionment” for Bitcoin has been called almost as often as the Bubble Top was over this unprecedented price run since Bitcoin’s inception.

The similarities between the DotCom top and 2017/December were striking.

The “ICO Craze” were the pets.com and boo.com’s of the day.  I honestly don’t understand most ICO models: they’re not equity. You’re not getting a piece of the company, and they’re not debt, so there’s no yield. They’re for the most part utility tokens. Many with the flimsiest utility value. I mean if you’re going to shoehorn a utility token representing a banana into an ICO and raise funds selling them, people are going to buy them because they think what? That the price of bananas is going to moonshot? It doesn’t make any sense.

I understand the “kickstarter” analogy to ICOs, people want what you plan to create and they fund you by prepaying it, ok that part I get. But why am I, as an investor going to buy a given utility token unless I plan to consume a lot of your utility. Looked at this way, Basic Attention Token (BAT) makes sense if one has high hopes for the Brave browser (as I do) and wants to be in a position to participate in that ecosystem early. I also understand the impetus toward “tokenization” which I credit Adam Levine at Tokenly for seeing it coming early.

But in 2017  all that devolved, rapidly, into a bullsh*t money raising racket. It reflected badly on much of the space and to mainstream commentators it made everybody in it look like charlatans and hucksters.

Then there were the Ponzis

I hadn’t heard about Bitconnect until the day they shut down (exited?) But anybody who went through the Digital Gold Currency (DGC) era who looked at Bitconnect would have instantly recognized it as a “High Yield Investment Program” a.k.a  “HYIP”. We got wise to those early enough in the days when easyDNS was accepting e-gold to specifically ban them from our service. In this incarnation they are being touted as “Crypto Lending Programs”. Make no mistake…

…as soon as you see “daily interest” you know you’re dealing with a HYIP. Especially after 10 years of ZIRP and NIRP, anybody who is guaranteeing you 40% interest per month is running a ponzi.

Apparently bitconnect resurfaced long enough to float (get this), an ICO….

But seem to be gone again. There are more out there.

Probably everything listed in this site is a ponzi. If it says “daily interest”, it’s a ponzi, if it says “guaranteed” it isn’t.

If you have any funds in any of those sites and they are still up and running, stop what you are doing, and go cash out, at any price, right now.

Why This Time May Have Been “The Secular Top”

When people get excited about something, and I’m as guilty as anybody of succumbing to this, they tend to get myopic about it.

Example from outside the space: During the heyday of the domain name aftermarket, the “Tea Party” political movement in the US started looking like it was picking up steam and people speculated that the rock band from Windsor, Ontario, “The Tea Party“, who owned “TeaParty.com” were about to become very rich selling their domain name. (They ended up not selling it and they still operate from there to this day).

This was back when .com’s could still sell for millions. Here we were heading into the 2012 election cycle with a “dark horse” political movement coming out of left field (sorry, I guess that would be right field) and the domainers were enthusiastically predicting outlandish valuations for the domain name. I can’t find the thread now but one prognosticator was putting a value of 1 billion dollars to the name.

That was plain delusional, but a good example of what happens to the mind under the spell of an asset-bubble induced tunnel vision. At the time I did some searching and realized that valuing a single domain name at $1 billion would have exceeded the total cost of an entire presidential campaign run by 2X or 3X.  That’s when you know your price targets are out of whack.

So look at 2017.We have Bitcoin starting the year with a 10 – 15 Billion dollar market cap, and then pulling into December well north 100 billion, 200 billion, 300 billion! While the total crypto-currency space peaking at close to 750 Billion, that’s three-quarters of a trillion dollars.

What felt different about this spike high was that this time was the first time that Bitcoin fever truly broke outside of the crypto-currency space and out into the wider public consciousness. Sure, people were hearing about it before, but this time, people were getting pulled in.

For months leading up to December all anybody wanted to talk to me about was Bitcoin. Most of them didn’t even know I was “into Bitcoin”,  just that I was a technology guy. In December it got manic. A friend of a friend got my cell number and called me wanting to meet up and literally hand me a briefcase of cash for some bitcoin, right now! I was getting emails from people I hadn’t heard from in years wanting to hire me for consultations on getting into Bitcoin.

It’s about the technology, not the price

At the time I wrote “This time is Different”, Part 1 & Part 2 I did try to stress that what was exciting and revolutionary about Bitcoin was the technology and disruptive ramifications moreso than the price action. I admit I was being dismissive of the price action, and not fully cognizant of the spike-high/bubble aspect until it seemed to reach a crescendo in December.

Then after correspondence with Mike Swanson of WallStreetWindow, who I’ve been following for a long time (over a decade) I realized that yes, he was probably right that this was a blow-off top. Mike is more skeptical of the underlying technology than I am, hell, I’m a believer, he isn’t. But I was also a believer in internet technology – I owe my livelihood to it – and know from experience that technology revolutions do go through these cycles.

The big question then remains: Is this really a technology revolution going through this Hype Cycle? Or is it e-gold and Digital Gold Currencies of yesteryear, which showed promise but ultimately went bust?

I think it’s the former, in fact I’m almost certain of it for many reasons. Bitcoin has demonstrated that anti-fragility, no matter how badly it gets mangled or maligned, it’s that “honey badger” of technologies and it just keeps marching forward and coming back stronger than ever.

When Mt Gox crashed I said it was a victory for the space precisely because there was no central authority, it put everybody on notice that the Saviour State wasn’t going to step in and clean up our messes, and that meant that people had to do real honest due diligence and they had to take personal responsibility for their actions.

It’s the exchanges that are still the Achilles Heel of all this. Those are the choke points for getting into or out of the crypto space and over this last stage of the blow-off they did not fare well. Freezes on new accounts were one thing, but freezes on withdrawals are another and there have been rumours that some exchanges were using new deposits to cover withdrawals.

Exchanges are allowing margin trading. Even if your personally eschew margin, keeping  your funds in an exchange that is allowing margin trading may see your balance being de-facto rehypothecated. If any meaningful portion of the participants move toward the exits at a given time that can be a huge problem.

The structural design of the exchanges and the overall governance systems of the coins themselves will need to step up to the next level in order for the space to ascend that “Slope of Enlightenment” and attain the “Plateau of Productivity”.

All of these bullsh*t ICO’s, sh*tcoins and ponzis need to be cleared out, the exact same way pets.com, boo.com and all those other dot bombs had to be cleared out as well. That sets the stage for…

What happens next:

(a.k.a “what a secular bear market in crypto-currencies might look like)

We’re constrained by the minuscule time crypto-currencies have been in existence, so my thoughts are drawn via inferences from history outside the space.

My working theory right now is that a secular bull market in crypto-currencies from 2008 to 2018 has completed. That’s a 10 year bull market and probably the highest yielding bull run of any asset in history. Even if Bitcoin drops 80% from here (call it from ~ $9,500 USD/BTC down to ~ $1,900 USD/BTC) then Bitcoin would still be up 90% from a year ago. That still just boggles my mind. By comparison, the S&P500, in the same year went to all-time highs with a gain of 18%.

If Bitcoin et al are, to quote Vitalik Buterin “are a fundamentally new class of cryptoeconomic organisms” – in other words, a new asset class, then I would expect them to display the characteristics that all other assets display:

Cycles:

Secular ones, counter-cyclical ones. In stocks and commodities, a secular bull market can last 8 to 20 years. Secular bears are typically shorter, they can last 3 to 8 years but there have been some that lasted 20 years and even more (Japanese equities, nearly 30 years in…).

Keep in mind that secular bear markets don’t just fall downward for their entire length, they go sideways and whipsaw everybody until capitulation or some other form of maximum pessimism occurs. And to be absolutely clear here: I don’t think we are anywhere close to capitulation or maximum pessimism in the Bitcoin space.

If you want to know what a “bottom” looks like, take a look at, say… gold, which has been going up for two years, is universally despised, and even most goldbugs still think it’s going to “crash”.

From experience: bear cycles go deeper and last longer than anybody, especially me, suspects. I have personally and notoriously been “too early” calling bottoms of gold bears since 2003. Possibly profitable advice would be: wait until I call for a bottom in Bitcoin and then wait another year (buy a truck, and then after a year, back up that truck).

Mean Reversion:

Anybody who thought Bitcoin was just going to keep going, straight-up, forever was doing themselves and their readers a disservice. I am not looking forward to seeing John McAfee “eat his own dick” come 2020 when Bitcoin isn’t $1,000,000/per.

It’s tough to gauge what a rational mean would be for Bitcoin since it’s only been around for 10 years. There is also the observed phenomenon that the counter-cyclical trends in Bitcoin seem to be compressed, and occur at a faster pace. How can anybody know for sure what to expect in terms of a counter-cycle bear in terms of length and duration?

The other problem with something that has gone up this much, this fast for so long is the corollary of mean reversion which is

Mean Overshoot:

It’s not that some asset gets ahead of itself and spikes away from the mean, then blows off the top and comes off back to the mean. No sir, it overshoots the mean, many say to the same degree the spike got ahead of the mean is the degree to which the counter-move will overshoot below the mean.

If this is the case here I would be looking for lower lows than what we are experiencing here, so low to bring about capitulation and maximum pessimism. Remember when Businessweek magazine ran that famous “Death of Equities” cover in 1979? (Three years ahead of the 1982-2000 bull market?), we’d need to see a “Death of Bitcoin” cover  story on Bitcoin Magazine. (No, not the Economist or NYT or some publication that wants to see this stuff die, it has to be from something within the space. That’s maximum pessimism.)

Remember, we could lose another 80% from where we are today and still be roughly double over last year. In my mind that leaves an enormous amount of downside.

On the upside, there’s a lot of overhead resistance, and that will be there for a long time. I think what differentiates this spike high from the previous ones over the years was the overall lack of public participation in Bitcoin. It was still a curiosity for outsiders, so the people taking the losses were the ideologically committed HODLers. That isn’t the case now.

Finally, when all this turns around (price wise), if this really is a new asset class (like stocks, or bonds or commodities) then in the next bull cycle what often happens is

Change of leadership

That means next time up it may not be Bitcoin leading the way. It could be Ethereum, it could be some other Bitcoin derivation, or possibly something that doesn’t even exist yet. (/me *ducks*)

If I’ve learned one thing from Mike Swanson in my years of following him, it’s that successive bull markets are led by different components than the previous one. In days gone by it was the “Nifty 50”, during the the Nasdaq Bubble was the .COMs’, today most of the companies that led the .COM boom don’t even exist anymore and it’s all about the FANGs. When the stock market cycles again there will be different leadership.

If cryptos are indeed an asset class unto themselves, then I would expect a similar phenomenon to play out.

What to do about it

If you listen to Lets Talk Bitcoin (which easyDNS sponsors), they frequently say to invest in the skills and the technology not the price. Don’t spend your money on “investing” in crypto-coins, spend it on learning how to work within this still emerging technology (programming, business, law, whatever) and either develop income streams that earn crypto-currency, or figure out a way to add these streams to your existing business. This has always been my preferred way of accumulating crypto-currency (and before that DGCs) and we’ve never regretted it.

Remember the tech wreck – easyDNS enjoyed it’s fastest growth rate in the years immediately following the dotcom bust. If I’m right about any of this, and if you are serious about this space, then believe it or not you’re actually in the sweet spot.

Now is the time to hone your skills, now is the time to adapt your business to this new technology if you haven’t already. No you don’t have to regret “missing out”, if I’m right then nobody is going to experience FOMO for a very long time – and that’s the quiet period you can turn to your advantage.

Lastly, get and read Nick Gogarty’s “The Nature of Value”, it does a masterful job examining the distinct phases technology transitions go through and why the first couple phases usually end in disaster for asset allocators anyway and why the best thing you can do is take a step back and wait for an emerging space to finish going through the mania phase.

This is the Trough of Disillusionment, where the “get rich quick” people throw in the towel and move on while the serious builders and innovators get down to business.