Friday, December 8, 2017

History may show that government manipulation of gold and money is the catalyst for what we are seeing in Bitcoin

Even the most ardent supporters of Bitcoin and cryptocurrencies have been shocked by the recent volatility in the Bitcoin price that has ranged in a single day from over $19,000 on a few exchanges, to back below $14,000 hours later.  Yet overall, the move towards $20,000 per coin and beyond has been expected, but perhaps just not in this chaotic fashion.

But there is an interesting thing to look at when it comes to money, currency, and any form or function that becomes accepted as a medium of exchange.  When governments become involved in manipulating the monetary status quo, individuals will in short order move their 'good money' out of that recognized standard and into something else that is beyond the touch of government control.

Ie.... Gresham's Law

In fact there is a great example of this during the time of the Roman Empire for what we are seeing today in people and businesses ditching fiat currencies for cryptocurrencies, while at the same time bypassing the most recognizable form of wealth protection in gold and silver.

In the year 301 AD, the Roman unit of barter was the denarius, which had originally been 95% pure silver when introduced by Augustus at the end of the first century BC but by the time of Diocletian’s rule, it had moved to 50,000 denarii to a pound of gold. Ten year later, it took 120,000 denarii to buy a pound of gold and by 337, that figure was 20,000,000. What had occurred in a mere 400 years was that a slow and agonizing erosion in the purchasing power of the Roman currency accelerated to full fiat disintegration and that complete and total disregard for the denarius was attributed as one of the underlying causes of the Fall of the Roman Empire. Nothing was more evident in the underlying rot permeating Roman society, economics and national security than the refusal by the Barbarian armies to accept anything but gold as payment for their leaving the Roman legions alone. Rejection of the currency of the Roman Empire was complete and irreversible. – Silver Doctors
And while today's governments do not 'clip' their bullion coins with other metals as was done in the past, they instead do this in a round about way by forcing the price down in the commodity through paper derivatives, and then 'clip' those derivatives by issuing billions of ounces more in paper than there is of actual physical metal.

Debasing a currency has been the foundation for numerous consequences throughout history, including a populace rejecting those currencies outright (hyperinflation), rebellion by the people (French Revolution), or opening the door for tyrannical despots to take over (Adolph Hitler).

Up until 2011, gold and silver were the go-to wealth protection for a devaluing monetary system, and a flight to sound money.  But since both fiat currencies, as well as gold and silver, have been manipulated to the point of lost confidence, the real winner in all of this have been the cryptocurrencies, and a big reason why Bitcoin is experiencing such meteoric growth, while at the same time incredible volatility.

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