Thursday, July 20, 2017

The gold versus Bitcoin debate is really about obsession rather than fundamentals

With Bitcoin and many other cryptocurrencies seemingly draining potential monies that would have in the past gone into gold and silver, there has been a raging debate among the alternative media sphere over which is better, and even over which is more relevant following the advent of the Blockchain.

In fact, there has been a very recent back and forth between silver advocate Chris Duane regarding his beliefs that Bitcoin as not a viable currency or store of wealth for the future, and Bix Weir, who claims in his refutation to this that Duane lost his clients and subscribers 'billions' by not giving them the 'facts' on the cryptocurrencies.

Yet with all the rhetoric, and the 'red lines' being drawn among both sides of the gold/silver vs. Bitcoin debate, what are the facts?  And more importantly, what do each separate asset provide savers and investors in their portfolios?

Gold and silver have been a proven and accepted store of wealth for thousands of years, and at certain times in history both have been used and accepted as money.  Bitcoin, Ethereum, and the myriad of cryptocurrencies on the other hand have a track record going back just eight years in human history, and according to how they are both seen and traded in the market place, do not at this time function as either a currency or as a store of wealth.

Now to be absolutely fair here, cryptocurrencies do act as a medium of exchange, but not in the same way currencies such as the dollar, euro, and yen do.  Instead they function as a medium of exchange similar to the way U.S. Treasuries do, which as AAA rated instruments, are as 'good as dollars' but must go through a third party conduit to function as a medium of exchange.

Ie... when XXX retailer in the U.S. buys manufactured goods from a company in China, they send over Treasuries rather than pallets of dollar bills.

It is the same way with Bitcoin for the most part.  When someone wants to use Bitcoin to pay for a product or service at Target for example, they cannot simply send an amount from their Bitcoin wallet to the cashier of the retailer, but instead must fund an exchange or card service that does the conversions for them from Bitcoin to dollars, and then use those conduits to pay for whatever item they want to purchase.

Additionally, when you go into a store like Target they do not have their items priced in both dollars and Bitcoin, so the reality is the business isn't really accepting Bitcoin as payment, but only dollars as payment with the third party conduit converting one's Bitcoin to dollars.
"Today, there are a number of billion dollar businesses that accept Bitcoin as a form of payment. These include Dell, Reddit, Expedia, PayPal, and most recently, Microsoft. So for the uninitiated who have not yet grasped what Bitcoin and other cryptocurrencies are, you ought to catch up." 
In other words, Hey haterslook at all these huge companies that are accepting bitcoin! How can you ignore that kind of support? 
Well, there's just one problem there: Almost none of the businesses mentioned above technically accept bitcoin. Instead, they partner with a middleman—generally either Coinbase or BitPay—who takes a customer's bitcoin, immediately converts it into cash, and then deposits the cash in the company's bank account. 
In other words, DellExpedia, Microsoft, and Time, Inc. don't actually "accept" bitcoins, per se. They accept U.S. dollars. It's their bitcoin processing partners who accept bitcoin. They, in turn, make money on transaction fees (in the case of Coinbase), or by selling their software and services as a subscription (in the case of BitPay). – Time Magazine
So what exactly does Bitcoin and other cryptocurrencies function as in the economy and in the market?  According to several Wall Street analysts who are now researching and monitoring the crypto sphere for their clients and brokerage houses, they have labelled Bitcoin as a speculative investment, but also something that has the power through the Blockchain to one day soon replace the entire financial structure of how businesses are financed, and how equities may be traded on Blockchain exchanges instead of in antiquated 'stock markets'.

In the end, Bitcoin and other cryptocurrencies have the potential to do many things in the financial system that gold and silver cannot do.  However, at this point in time these cryptos also do not perform in the same capacity that gold and silver do as wealth protection, and as a true representation of money.  So the bottom line is to treat each as they are rather than as we might want them to be, and invest accordingly in each in relation to the risks and attributes that are intrinsically tied to these individually unique asset classes.


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