Much has been said these days about 2016 for stock markets, financial assets, winners and losers in a certainly complicated year.
But if there should be an honourable mention, that should go to Bitcoin, the virtual currency that has surpassed all expectations of revaluation and reached $1000 on January 1st. Up more than 87% in 2016 supported by strong buying from Chinese and Indian citizens on expectations of huge devaluations of their local currencies.
The resurgence of the shelters against the destruction of currencies by governments is not a novelty of 2016, but was accelerated with the generalisation of financial repression policies -devalue and cut rates- that more than 25 central banks carried out since 2008.
The assault on the saver has been incessant with the disastrous monetary policy that seeks to extract from citizens their savings to maintain unsustainable government and debt imbalances.
The search for ways to preserve wealth in a society which owns most of it in deposits, makes citizens seek any way to avoid the assault on their savings from the massive printing of money through increase of money supply.
This monetary assault is the most antisocial policy that exists, it destroys the middle class and savers, and is justified by economists with completely fallacious, almost religious arguments, fake expectations of growth and science fiction improvement of the economy that are never achieve and then excused with the infamous “it would have been worse,” “it was not enough “and” we must repeat “.
For this reason, the search for a currency whose control is not in the hands of States has been a constant in preserving capital since Nero came up with the “brilliant” idea of creating money “for the people” by putting other metals in silver coins or the times of the terrifying Assignats in France… The race against the assault on the wealth of citizens by inflationists has always existed.
Whenever government’s imbalances soar, the “solution” almost inevitably comes from “dissolving” the wealth of citizens and appropriate it via inflation – the tax of the poor – and devaluation.
We have a surprising paradigm. And why not gold? Well, gold has appreciated 8.5% in 2016 as well. In history, it has almost always served as a means of payment in any country and transaction.
The difference between Bitcoin and gold in recent years is basically that, while one has been rising fast as a possible currency and as a store of value as doubts dissipated ( read “Bitcoin , free currency, bubbler or Ponzi scheme?” ) on the other hand, gold was not as strong because the monstrous monetary policy implemented worldwide generated disinflation due to the collapse of the velocity of money and perpetuation of overcapacity. In fact, gold lost part of its attractiveness as a reserve of value as hyperinflation risks were limited. This excess of inflation occurred aggressively in financial assets – bonds in particular – and Bitcoin replaced part of that value reserve.
Bitcoin is not yet a reality as a free currency for global use, its evolution depends on being able to implement it globally and clarify doubts about its value as a refuge.
Bitcoin is a currency startup. A means of payment where states cannot interfere in the amount and cost of money available, where it is not possible to create fake money not backed by savings, and where one can ‘escape’ and take refuge from the assault to the saver which is the growing financial repression imposed by governments and central banks. Doubts come because the ‘shelter’ is virtual, and therefore always subject to computer attacks. In addition, history makes me fear the confiscatory reaction of States when it reaches – if it does – a “dangerously high” level of implementation. Remember Roosevelt when he decided to confiscate the gold of his citizens in 1933. “For their own sake,” of course.
Bitcoin is proving to be a powerful exchange network and its revaluation shows that those who trust in that network maintain their positions in the medium term. As the increase in supply is limited, it is revalued in the face of increased demand. A financial asset where its scarcity, future demand and its quality are valued against the possibility of exchanging it for other currencies, goods or services in the future. The fact that you can liquidate that asset and pay debts and taxes with the profits generated is positive. But it is not a currency until it can be used as a generally accepted means of payment for goods, services, taxes and debts.
What Bitcoin and the revaluation of the gold in 2016 sow us is that a growing part of the population continues to look for ways to shelter their savings against the assault of a monetary policy that aims to use the deposits of the savers to pay the debts of the inefficient. We shall see.
The new administration of the United States is starting to openly speak of penalties to countries who manipulate currencies even its own Federal Reserve. If the US ends this monetary madness, we may see a drop in interest in independent currencies or reserves of value, that is why we said here that the dollar may be the new gold. But citizens will continue to seek alternatives to defend themselves from the temptation of some States to appropriate the wealth of the savers to cover the excesses of the wasteful.
Daniel Lacalle is PhD in Economics and author of “Life In The Financial Markets” and “The Energy World Is Flat” (Wiley)
Article published in elespanol.com in Spanish
Graph courtesy Bloomberg