Reading time: 5 – 8 minutes

Mr. Pento really should have read Murray Rothbard who, in The Death Wish of Anarcho-Communists, wrote:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

MICHAEL PENTO ON CNBC

Whenever I hear someone who is negative towards Bitcoin it makes me wonder if they have even made a single transaction.

Based on the sheer numbers of mistakes, logical fallacies and other foolish things in this interview I have to conclude it was an April Fools joke. Surely Michael Pento is smarter than that.

Really, appealing to the authority of his IT department? That is too funny. After all, if his IT department had any monetary sense then they would have been involved in Bitcoin a lot sooner and have plenty of resources where they would not need to be working for Mr. Pento.

In 1994 I had already been using the Internet for several years so I was ahead of the curve. One aspect of technology is that it takes intellectual capacity along with consistent and diligent effort to become competent. Those who have failed to engage in technological preparation are at a severe disadvantage to those who have.

Mastering Information Age tools, like Bitcoin, gives one a huge advantage over those merely using Industrial Age tools just like the Steel and Bronze Ages. And the longer one procrastinates adopting the new technology the further and further they fall behind those who do. Bitcoin merely monetizes the individual’s success or failure with adopting a new technology.

This morning I received an email from a friend who wrote:

Well, I kinda wish I had not gotten discouraged with the computer problem I had when we were looking at Bitcoin a few short months ago [NOTE: November 2012] when it was $10 [Current price around $108].  Where do you think this thing is going from here?

I responded:

Yes, it does have some learning curve to it. But I suppose that is why luck is when preparation meets opportunity.

THE INTERNET IN 1994

Do not laugh too hard at Bryant Gumbel and Katie Couric. It is easy to forget how relatively recent a phenomenon the Internet is for most persons who use it today!

Just like the @ symbol in email, based on the Simple Mail Transfer Protocol, SMTP, so likewise Bitcoin is a new phenomenon on the Internet and understanding what a bitcoin address is in the Money Over Internet Protocol, MOIP, as implemented in Bitcoin is going to become common knowledge.

After all, BitPay added 1,300 merchants in March and processed over $5.2m in transactions which is up significantly from their previously highest month of about $700k. Over 243,000 copies of the Bitcoin client were downloaded in March. And that does not count easier to use options like Blockchain.info.

Cyprus has been a wake-up call for people about their money, currency and banking relationships. With the Bank of Canada and Bank of England floating similar ‘bail-in’ schemes, which poses a grave threat to businesses, depositors should get increasingly cautious about where they keep their capital.

CONCLUSION

This new technology of Money Over Internet Protocol is going to continue getting easier to use and more widely spread. This is going to greatly increase transactional demand. And that means higher prices. So the wealth transfer continues from people like Michael Pento and his clients to holders of bitcoins. If you plan on protecting, preserving and growing your wealth then you need to get with the times and not listen to ignorant fools. So get a copy of the Free Bitcoin Guide to learn how to get started.

Reading time: 11 – 18 minutes

As a result, the price of bitcoins has melted up from $48 to $68 in a few days. But the meltup has just started and probably has a long ways to go.

Meanwhile, due to last minute changes and because I would already be in Europe and thanks to Chalie Shrem, CEO of BitInstant, I had the opportunity to give an hour long objective presentation on Bitcoin to a group of significant players in the payments space including members of the Federal Reserve, Bundesbank and major banks or other service providers from the US, Europe and other parts around the globe.

PREVIOUS BITCOIN PREDICTIONS

Let us put into perspective how the past performance of gold’s complete collapse relative to Bitcoin could affect your net worth.

17 January 2011 we recommend using Bitcoin to protect your privacy in Bitcoin – The Best Financial Privacy Is Probably Here … Probably. If you had traded one ounce of gold for bitcoins then today you could trade those bitcoins for 150 ounces of gold.

19 December 2011 in Solid Bitcoin Consolidation Finally Bears A Bitcoin Breakout I stated:

Taking the current price of $4.00, the 200 day moving average of about $8.50 and extrapolating this upleg with a 12x 200dma top we could see a price of around $80.00 per BitCoin. Is this speculative? Yes. Would I bet on seeing $80 per BitCoin by around June or July? Maybe if the odds are around 5%. But I would take a bet for BitCoins to hit $7.50 by June or July at around a 50-70% probability.

If you had traded one ounce of gold for bitcoins then today you could trade those bitcoins for 21.3 ounces of gold.

31 December 2012 in During 2012 Fiat Currencies And Gold Collapse Against Bitcoin I wrote:

Therefore, holders of bitcoins continue to be beneficiaries of a tremendous wealth transfer from holders of fiat currencies, gold, silver, real estate, stocks, bonds and pretty much every other asset. Bitcoins have already turned out to be the trade of the decade for many of our readers and may likely be THE trade of the 21st century before these massive worldwide currency wars and collapses play out.

If you had traded once ounce of gold for bitcoins then today you could trade those bitcoins for 5.32 ounces of gold.

FinCEN GUIDANCE

On 18 March 2013 FinCEN released guidance on how to treat virtual currencies. It should be kept in mind that this guidance is neither an administrative ruling nor determinative. In other words, it is not binding. But it does inspire confidence in VCs to make investments into the Bitcoin space because Bitcoin has undefined legal issues which cast a pall of potential litigation resulting in a chilling effect on investment.

Given the rule of lenity and this guidance therefore VCs can make investments with greater certainty that what they build will not be shut down, raided, seized or confiscated with the founders thrown in jail and prosecuted with no prior warning or due process. The guidance has distinguished groups, users, exchangers and administrators and outlined which rules, such as Money Service Business, applies to which groups and why.

All indicators of Bitcoin growth point to significant adoption. There are all time highs with (1) Google searches, (2) Wikipedia traffic, (3) Reddit activity, (4) new wallet accounts being created, (5) MtGox having 4,000+ potential customer accounts awaiting AML/KYC approval while processing about 400 per day and (6) the 200 day moving average of transaction fees paid in USD.

All of this has filtered through to the exchange rate. Bitcoins are trading around an all-time high of $68. But despite the rise in price the wise investor would focus more on value as asked in whether bitcoins are cheap or expensive?

What is happening right now is that the positive feedback loop is starting to gain massive energy and momentum. This is leading to Bitcoin being able to begin teleporting on its own energy.

For example, Bitpay raised about $500,000 in January in a seed round. Assuming these funds were allocated into Bitcoin and this startup started hiring new staff, moved offices, bought supplies, etc. then it would not be unreasonable to expect that despite spending funds to build out infrastructure, like the Bitpay Fulfillment By Amazon plugin (which was my idea by the way!), that Bitpay would actually have about $2m in the bank.

As the Bitcoin price rises it transfers wealth to holders of bitcoins and provides them with the capital needed to fund development which will provide more utility to Bitcoin and result in a greater value proposition for users.

BITCOIN PRICE MELT-UP

The price of bitcoins has risen extremely quickly over the past week from about $45 to nearly $70. Is this an unsustainable bubble, based on funds flow, or has Bitcoin been tremendously undervalued and the price is rising to a more fairly valued level?

In my opinion, on 1 Jan 2013 the fair value of bitcoins was around 30 bitcoins per ounce of gold based on the fundamentals and were undervalued because it took about 125 bitcoins to buy an ounce of gold. But that ratio closed to about 35 before Cyprus and the FinCEN guidance.

However, with the more predictable legal environment there will be a lot more capital allocated to this space. VCs will be buying more bitcoins and investing in more Bitcoin startups. These startups will build tools and infrastructure and products which will make Bitcoin more useable and a greater value proposition for consumers.

I am very grateful for the opportunity to attend the conference and mingle with the leaders of the payments space. They were all extremely friendly, professional and gracious. For example, there were no tables free at breakfast and the Federal Reserve’s legal counsel invited me to join him and we had an cordial discussion that followed up on his presentation about Cyber Security; issues actors in the Bitcoin space have had significant experience with.

And I even got to have about a four hour discussion with one of the Federal Reserve attorneys over dinner. It was so interesting that we grabbed some drinks afterwards at the hotel to continue it. Given how complicated the Bitcoin subject is and how it is outside the realm of his usual experience therefore I was quite surprised at how well he understood it along with many of the economic implications. Clearly he is doing his job better than his 33 counterparts at the SEC.

But I can tell you from my two days at the NACHA conference with senior bank executives and members of central banks that the payments space is completely stuck in the mud. If anything I come away having a little more sympathy for the bank manager when my expectations are not met. I suppose the conference helped me lower my expectations on what to expect from them.

They have all types of problems and Bitcoin solves nearly all of them but is nowhere close, from a technical standpoint, to being able to be adopted by them. If anything they should use the technology for intra-bank settlements but there is so much inertia that will probably not gain any traction.

For example, there were very heated round table discussions about cross-border payments and legal or compliance issues. One representative from a large bank in the US complained about how there are no rules for the EU to which one of the EU people said we have very defined rules (like when settlements must happen by, fees, taxes, etc.) just that they are different for all 32 countries and in some cases in languages different from English. So the issue was not that there were no rules but that they were hard to find. In contrast, with Bitcoin the open-source software is easily discoverable and the mathematical rules of the software are easily implemented by the software developers who want to use it.

Another significant issue raised by one participant is that Fedex can track a $5 package but we cannot track a $500,000 wire. They want to provide real-time status on currency flows like bank wires, international ACH or debit services, mobile payments, cross-border transactions, etc. But there is tons of regulation, some of which attacks fees, and the end result is that a 500 year old money substitute and value transfer system is hobbled by regulation resulting in a lack of financial innovation despite the possibilities the Internet enables.

And then there is Bitcoin. The gracious program director asked that I show them how Bitcoin works and not be too salesly. So I started out my objective presentation by explaining how public key and private key asymmetrical encryption works and had BrainWallet.org on the projector.

Bitcoin is very abstract so the easiest way to get it is to use it. So after about 90 seconds of encryption explanation then the next step was to do a transaction in front of them. So I brought up an address on the projector using Blockchain.info, scanned the QR code with my iPhone, signed the payment and sent it. Within about 3 seconds it popped up on the projector as an unconfirmed payment.

I explained how it (1) went from my iPhone out to the Bitcoin network, routed around any possible censorship due to running at a lower level in the Internet where its traffic is indistinguishable from their encrypted traffic, (2) anyone could track the payment via the blockchain (3) it was non-revocable and (4) cost no fees to send.

Other parts of the presentation focused on backwards compatibility with ACH via Coinbase and with cash via Local Bitcoins or BitInstant. They found it fairly humorous when I said I would have to reevaluate my position on fulfilling orders in light of the FinCEN guidance. They were greatly surprised that in the last two weeks I had about ten orders from people who wanted to meet at Starbucks and buy $40,000 worth of bitcoins.

I showed them this chart of new wallet openings.

I explained the reason for the change in growth rate. Paypal started blocking legal file sharing websites so they started accepting bitcoins. I let them know that since Bitcoin is open-source that no users can be blocked and consequently Bitcoin would gladly accept with welcome arms any merchants they did not want to serve.

Then I showed them the 200 day moving average of Bitcoin’s USD market cap.

This chart sure got their attention. One person questioned about the crash. So I explained how Senator Schumer brought attention to Bitcoin by explaining how it can be used to anonymously buy drugs online and called for a ban of the site Silk Road and an investigation.

Then I quipped, “We sure saw how that turned out. And since Bitcoin cannot block any particular users, like Paypal or Visa, that I did not appreciate Sen. Schumer’s free advertising, despite bringing in plenty of users, because it made my job harder when dealing with people like yourselves and discussing how to use Bitcoin legitimately in the financial world.”

Overall, I think they had a favorable sentiment towards the Bitcoin technology with a deer in the headlights type of impression. I do not really have any expectations for any of them adopting it anytime soon and I told them that it was not really in a position for that anyway. Bitcoin is still beta software after all and needs more work done before it can be ready for these types of organizations, institutions and enterprises. But the potential is there and the Bitcoin tsunami, while still far from shore, is racing with increasing speed and size.

CONCLUSION

So there is a lot going on in Bitcoinlandia. Based on current growth rates, resulting in increased speculative and transactional demand, the price needs to rise by about $3 per week compounded. How the inadvertent hard fork was resolved lends great confidence to the Bitcoin community. With the Cyprus and FinCEN news I think the general environment for the space has significantly changed in a way to provide greater confidence for VCs.

And greater confidence for VCs means higher Bitcoin prices. So where should the next target be? Well, given the fundamental state of the space as it currently is along with current growth rates therefore I think a fair value price for bitcoins is around 3-7 bitcoins per ounce of gold. It will be fun to watch the price melt-up to that over the short to medium term so get out the popcorn to watch this rocket. And if you still have not gotten familiar with Bitcoin then perhaps you should checkout the Free Bitcoin Guide which has had some significant updates lately.

NOTE: Due to time constraints and a meeting to attend I have published this quickly without the usual proofreading. So if you see any errors then please help me out by leaving a comment so I can fix it. Thanks!

Reading time: 5 – 8 minutes

Editor’s Note: James Cox has written three good articles for GoldMoney. For some reason they rejected this well written and balanced article not on its merits but because it is too sensitive. Here are RunToGold the things we are most sensitive about are (1) our net worths in terms of gold ounces and (2) our freedom of speech; not whether seashells, metallic atoms or organized cryptographic hash are the best forms of money or currency.

Since gold has collapsed relative to Bitcoin for four consecutive years therefore we feel it not only important to discuss this new crypto-currency but vital to the financial safety and sensitivity of our readers. Bitcoin will not be ignored; the balance sheet demands it be paid attention to. Enjoy!

Bitcoin Versus Gold By James Cox

If you are reading this article you are almost certainly familiar with the fact that the life expectancy of any fiat currency is 27 years. Any given monetary system has a lifespan of 30-40 years. This current one started in 1971. So the gold and silver bugs, of which I count myself, happily point out that gold and silver are money and have been so for 5,000 years.

However, you may or may not be so familiar with Bitcoins. A decentralized censorship-resistant digital peer to peer currency created by Satoshi Nakamoto in 2009. Users of this currency can buy goods and services over the Internet, without having to pay bank fees or governmental tax. The transactions are anonymous other than a very long piece of code.

CENSORSHIP-RESISTANCE

This has given to the rise of the ‘Silk Road’, which is the Internet’s black market. Whilst it is largely believed that Nakamoto is a pseudonym, the theme of anonymity is crucial to its success. In terms of music sharing, Napster failed because it had a centralized location where the authorities could address their response; whereas subsequent decentralized censorship-resistant file sharing systems like BitTorrent have succeeded. The same has accounted for previous digital currencies.

This above logic brings with it a difficult conundrum with regards to gold and money. Over the eons, bullion warehouses would keep gold and silver for their clients for a storage fee and provide a warehouse receipt for their customer’s wealth. This was abused by the Medici family in the 14th century and later mutated into the massive fraud of fiat currency and fractional reserve banking of today.

ALLOCATED GOLD STORAGE AND DIGITAL GOLD

Apologists for this debt based fractional reserve monetary and financial system point out that gold cannot be forced down a wire. But given the birth of the Internet this is no longer relevant as it can be digitally allocated within a vault like in GoldMoney. Which brings us back to the subject of trust.

For a sound money banking system to succeed then every ounce of gold must be accounted for and be physically held somewhere secure and the service must be honest, transparent and offer the chance of physical redemption at anytime. Currently, the best and most trustworthy institution that offers this service is GoldMoney.

ECONOMIC CENSORSHIP

However, given that the financial and political elites have a fanatical dislike of gold and a fixed physical address for such a service then it becomes apparent that they also have the ability to hinder the institution with infinite restrictions and rules. These rules, constituting economic censorship, are usually not applied to the state favoured fractional reserve banks. Even in the cases of serious misconduct such as the LIBOR scandal the rules of fair conduct are simply overlooked by regulators. Consequently, this regulatory capture along with tax policy and legal tender laws puts sound money institutions at a huge disadvantage.

MARKET SOLUTIONS

As a result, the current monetary system is so inefficient, expensive and egregiously unfair that the market craves an alternative. Bitcoins provide a creative and sophisticated solution that satisfies capitalism’s most desperate need – free money. Bitcoin allows the movement of any amount of money to anyone at anytime from anywhere and cannot be impeded, frozen, seized or confiscated.

This new monetary system is set to effectively stop supply at 21 million Bitcoins. This should happily dispel the belief that a currency needs to be constantly inflated to allow for market growth. Bitcoin is only 4 years old and gains people’s confidence with every passing day and some suppose that it may meet meet massive opposition from the governmental and financial elites should it manage to gain any additional traction.

A fascinating similarity between gold and bitcoins is that they both must be mined. With gold individuals mine through dirt and stone seeking particular atoms that are distributed based on an financial algorithm (ore grade) determined mainly by energy input costs and has resulted in a largely consistant annual increase in supply. With Bitcoin a software algorithm means that no matter how many people attempt to mine for the ‘blocks’ and receive the 25 bitcoin reward and results in a predictable increase in Bitcoin supply.

CONCLUSION

The moral of this story is that the free markets crave a solution to the pricing mechanism of economic calculation. Sound money, such as gold, remains a caged lion lashed about with regulation resulting in economic censorship. Even if censorship-resistant Bitcoins fail, and they could, they will still have played a part in this great saga of power versus market.

Bitcoin has demonstrated that the free markets demand a fixed and free currency supply. Bitcoin is forcing the elites to reconsider gold as a monetary system component in which they are still included in the narrative and not completely routed around.

They may see their frightening alternative as alluded to by the European Central Bank’s report on Bitcoin. If they do not comply with this market demand then their power base, derived from their ability to issue fiat currency, may be completely eroded and therefore their entire existence could be replaced at the click of a button by billions of individuals.

After all, who wants to buy a buggy whip, telegraph, 8-track tape, Tower Records or newspaper?

Reading time: 8 – 13 minutes

Bitcoin, a censorship-resistant crypto-currency, will absorb any regulatory interference and only grow stronger as a result. Blowback baby! The cost of using credit cards is being dragged out of the shadows. Germany has demanded their physical gold be moved back to the Homeland in anticipation of a currency crisis and capital controls. And the Bitcoin juggernaut continues to gain mass and momentum having reached $21.43 today.

Jon Matonis recently wrote how a government ban on Bitcoin would fail miserably. Sebastian Shaw is a mutant villain in X-Men: First Class and leader of the Hellfire Club. Shaw has the mutant ability to absorb energy or force and then focus it in a counter-attack.

Thus, the idle threat of force from regulators at 0:17 ‘Put that man down or we will open fire.’

If there were proposed regulation I can already see Bitcoin’s smirk coupled with the satirical response, ‘Promise?’

I would go into more depth about why this is the case but I should give you some reason to attend on May 17-19th, with about 1,500 others, the Bitcoin Conference 2013 in San Jose, California. Plus, Jon Matonis has graciously invited me to give a presentation on Bitcoin: Regulation, privacy and taxes. It should be fun and interesting!

Gold, a physical element, is the same today as it was 500,000 year ago. But Bitcoin is so much more than it was a mere four years ago when first released to the public!

By analogy, the blockchain is like DNA and the market participants of the open-source Bitcoin community are like ribosomes that read the DNA in order to craft proteins necessary to adapt to and function within whatever environment or circumstance are encountered. This organic proliferation of software code by crypto-warriors who are changing the world is a beautiful thing and a simple time function with exponential effects.

Crypto-Ancapistan is already here. It seems most do not recognize it though because it is neither across an ocean nor does it have borders. Its citizens neither secede nor declare independence plus there are no permanent residence visas or passports required. They build this new virtual nation line of code by line of code. There are even some publicly traded companies with $10m+ market capitalizations; two which earned 5k and 17k bitcoins in Jan. Cipherspace is a place where heroes live and where people who want to be heroes live.

THE COST OF USING CREDIT CARDS

Yesterday I flew around a volcano in southern Chile. I even saw magma! Then it came time to settle the bill so I got out a credit card. The proprietor stated, ‘Using a credit card will be an extra 5%.’ For a 200,000 peso flight that comes out to about $21.33!

Tonight I enjoyed a delicious congrio dinner. The waiter brought the handwritten bill. So I got out the credit card. He responded fairly vehemently, ‘No tarjeta. Pesos or dollares.’ So I scraped together a few pesos.

Well, get used to it. Many credit card merchant agreements included a clause that prevented merchants from charging a fee to use credit cards for payment. But as part of a $7.3B class action settlement starting 27 JAN 2013 merchants can begin adding a surcharge for using credit cards.

The IRS and gas stations have done it for year. Now it will likely be coming in force to merchants near you. And if your favorite merchants do not then ask for a discount if you pay with cash. After all, there is a sweet sound of cash and a reason why we offer products at about a 40% discount if paid with Bitcoin. So encourage your local merchants to talk with BitPay about accepting bitcoins.

On 16 JAN 2013 Telegraph reported that Germany would repatriate 674 tons of physical gold to the Homeland because ‘A growing chorus of lawmakers in the Bundestag has demanded a return of all Germany’s gold in case the financial crisis escalates.’ Germany can sense that the capital controls are going to intensify.

Argentina has already shown by example why one should look for ways to avoid credit cards. Jon Matonis wrote about how ‘A 15 percent tax surcharge will close some of the gap between the regulated official rate and the black market rate’. So, if you have an Argentinian bank issued credit card and use it outside Argentina then the Argentine government has a 15% tax tacked onto your bill.

As the currency wars escalate the currency controls will get increasingly onerous. If a currency or payment method is censorship-prone, like Argentinian bank issued credit cards denominated in Argentine pesos, then it will be subject to such controls. This means you could take a large financial loss.

Historians really have it pretty easy since they read about what has already happened. But to be a monetary visionary requires so much more.

James Turk, founder of GoldMoney, is one of the more prominent monetary historians. In this interview on 17 JAN 2013 Mr. Turk referenced my work on the tangibility of Bitcoin but oddly did note give proper credit. Why a monetary historian would not give proper credit to a monetary visionary baffles me. But James is just one of many I have directly influenced since I began publicly recommend Bitcoin in its infancy.

For examples from articles, interviews and etc., Robert Wenzel of Economic Policy Journal, Chris Powell of GATA, Lew Rockwell, Anti-War.com, Jeff Berwick of The Dollar Vigilante,The Silver Vigilante, John Rubino of Dollar Collapse, Jason Burack of Wall Street For Main Street, BrotherJohnF, Michael of The Daily Paul, Max Keiser, James Turk of GoldMoney, Kerry Lutz of the Financial Survival Network, Daniel Ameduri of Future Money Trends and many others off record have all been influenced early on by myself and persuaded to use and accept bitcoins.

But the point is that four years (someone may want to tell Mr. Turk who stated two years in the interview … maybe that was the first time he heard about it) after Bitcoin was released to the public GoldMoney has finally started to mull Bitcoin integration. Sure, a true monetary visionary would already have the gold vaulting service integrated with Bitcoin. But historians are good at stating facts from the past and not creating the future.

Because what customers need is to have their bullion integrated with a censorship-resistant currency that will be much more malleable as currency controls are ratcheted up. You can bet that more restrictive currency controls and capital controls will be placed on gold if a real monetary crisis appears. A crisis Germany is preparing for by taking physical possession of the gold.

CONCLUSION

Bitcoin, with a pitbull like grip, has attached itself to Leviathan’s carotid artery. Bitcoin, a sophisticated cryptographic protocol and the largest distributed computing network in the world, is immune to force. Threats of regulation, which are really just threats of force, are idle because of these Sebastian Shaw-like characteristics.

Germany is preparing for a major currency crisis by repatriating 674 tons of physical gold. Currency controls will only raise the cost of using credit cards which are currently far more expensive than Bitcoin in terms of time, money and privacy. And when currency controls are ratcheted up it will be Bitcoin that allows holders of capital to have monetary sovereignty and portability.

Sure, gold is collapsing against Bitcoin but the real question is why are Bitcoins trading at a mere $21. Perhaps the monetary visionaries need to do more work teaching, training and influencing the monetary historians and others? To start, check out pages 72-78 of the February edition of Open Skies, the Emirates Airlines magazine. You will get to read it before millions of wealthy businessmen stuck on transoceanic flights who are used to being economically censored.

Get a copy of the Free Bitcoin Guide (recently updated), see you in San Jose and bring quesitons!