008 – What Makes Bitcoin So Special?

LIVE Bitcoin Q&A on Saturday, May 9th, 2020 at 11:00am Eastern Daylight Time:
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Bitcoin is an open, borderless, decentralized, immutable system of creating, tracking, and sending wealth from person to person without reliance on a third party for permission.

Bitcoin is the first type of democratic money (and payment network) ever invented, and it will likely transform the global economy in staggering ways.

At this point in time, I believe that Bitcoin Education is one of the best investments you can make in your own personal future.

If you educate yourself, you can protect yourself.


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007 – License to Kill

James Bond has a license to kill, and modern banks have a license to steal.

Yes, even that kind, friendly, well-dressed loan advisor at the bank who's helping you qualify for your first home loan (or car loan, or student loan) is actually an unwitting participant in a global ring of organized crime.

You new loan will not only put you into debt - which means you'll pay for your home, car, or schooling several times over (instead of just once) - but it will also cause the price of houses, cars, and schooling to rise for everyone else in society, which effectively makes everyone poorer.

Since these items are less affordable, people take out loans to buy them, and the cycle of "more debt -> rising asset prices -> getting poorer" feeds itself.

Who gets the prosperity?

The banks of course! They create currency from thin air, lend it to you (at interest!), and then they get to keep the money (if you pay back the loan) or they get your house (if you don't)!

This system of theft - i.e. our modern fiat banking system - is the reason for wealth inequality in America and around the world.

If you educate yourself, you can protect yourself.


Don't forget to Subscribe to the channel and let me know your thoughts in the Comments! What are your thoughts, feelings, and actions in response to this?

Somewhat Scholarly Podcast is on iTunes, Spotify, Google, and Stitcher.
www.SomewhatScholarly.com
SomewhatScholarly@gmail.com

006 – Can You Print Prosperity?

It's a simple question, really: Can you print prosperity?

If yes, then let's print copious amounts of prosperity for everyone!!!

If no, then what are the consequences of the massive "economic stimulus" that the government and central bank are unleashing upon the economy?

Someone has to pay the cost. And it's going to be the people who don't understand what's happening.

If you educate yourself, you can protect yourself.


Don't forget to Subscribe to the channel and let me know your thoughts in the Comments! What are your thoughts, feelings, and actions in response to this?

Somewhat Scholarly Podcast is on iTunes, Spotify, Google, and Stitcher.
www.SomewhatScholarly.com
SomewhatScholarly@gmail.com

005 – The End of Fractional Reserve Banking

On March 15, 2020, the Federal Reserve Board of Governors announced that the policy of ‘fractional reserve’ banking would no longer continue as of March 26, 2020 (a day that will live in infamy); as of that date, the reserve requirement would be zero percent for all types of deposits. This will have profound consequences on the financial future of every man, woman, and child in America.

You can read the short, simple, quiet press release here: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm

You can monitor the bi-weekly changes in reserve balances here: https://www.federalreserve.gov/releases/h3/20200409/

You can view the FDIC changes in the DIF Reserve Ratio here: https://www.fdic.gov/bank/analytical/qbp/2017mar/p13ch1.html
[*Note the last update was December 2018, and the last data point was March 2017. There must be more recent numbers somewhere…].

You can view the FDIC video assuring people that “your money is safe at the banks” here: https://www.youtube.com/watch?v=jdjzIaEDTnw


Don’t forget to Subscribe to the channel and let me know your thoughts in the Comments! What are your thoughts, feelings, and actions in response to this?

Somewhat Scholarly Podcast is on iTunes, Spotify, Google, and Stitcher.
www.SomewhatScholarly.com
SomewhatScholarly@gmail.com

“Bitcoin is not a Safe Haven.”

Premise 1. If an asset’s price goes down during a crisis, then that asset is not a “safe haven.”

Premise 2. Bitcoin’s price went down during a crisis.

Therefore:

Conclusion 3. Bitcoin is not a safe haven.

Evaluation:

Premise 1. “If an asset’s price goes down during a crisis, then that asset is not a ‘safe haven.’” Dubious. By this definition, every asset has the potential to lose its “safe haven” status (if its price goes down – even “temporarily” – during a crisis), which should strike the reader as “obviously flawed” and most definitely not a useful label.

In fact, the claims that an asset “is or is not a safe haven because of its price movements [in the short term]” are all subject to the “no true Scotsman fallacy,” also known as an “appeal to purity.” If, with each new economic “crisis,” a pundit can change the timeline, the loss or gain threshold, or some other criteria to classify an asset as either “safe haven” or not, then such an argument is invalid and such a definition is unusable.

A much stronger approach would be to define a “safe haven” by the overall nature of how money flows into and out of the asset throughout its entire lifetime, and NOT update the definition of a “safe haven” with each new “crisis.” See below.

Premise 2. “Bitcoin’s price went down during a crisis.” Agree, lol.

Therefore:

Conclusion 3. “Bitcoin is not a safe haven.” Disagree. This Argument, because of Premise 1, is not sufficient to establish the conclusion that “Bitcoin is not a safe haven asset,” but it’s possible that other Arguments would be sufficient to establish this claim.

Risk Assets vs. Safe Haven Assets

The beauty of “the markets” is that they capture the size and strength of everyone’s opinions, all over the world, at all points in time: all the lovers and haters of an asset, all of the PhD economists and the high school dropouts, all of the professional hedge fund managers and the amateurs with a hunch – everyone’s opinions are constantly and consistently captured in the price of an asset.

The price of an asset, therefore, signals the “revealed preferences of the aggregate” over time, and if we look at a long-enough time horizon, we can see how generations of individuals (and institutions!) around the world view a particular asset.

So what types of price movements do we see?

As you might expect, we see two broad types of price movements:

Risk Assets vs. Safe Haven Assets simplified
  1. One type of asset “inches” upward most of the time, experiences a rounded top, and a quick downward spike during its “corrections.” Then the pattern repeats, and it does so relatively quickly and frequently. This type of asset enjoys long bull markets and short bear markets. Notably, the absolute largest single-day movements of all time are actually downward.
  2. The other type of asset typically moves downward or sideways most of the time, experiences a rounded bottom, and a quick upward spike during its “corrections.” This pattern repeats very slowly and infrequently, but the magnitude of the movements is much greater. This type of asset endures long bear markets and short bull markets. Notably, the absolute largest single-day movements of all time are upward.

The two types of assets described above are risk assets and safe haven assets, respectively.

Here is a chart illustrating the prime example of each asset type – stocks and gold:

Risk vs. Safe - Stocks vs. Gold 1900 - 2020

Notice that Stocks exhibit a repeating pattern of steady uphill climb, rounded top, and quick spike down. Then the pattern repeats. Gold, on the other hand, exhibits a pattern of flat movement, then a rounded bottom, and a quick spike up.

Interestingly, there's another important pattern that emerges, but it's only apparent when we analyze the numbers more deeply: in a risk asset, the biggest single-day moves (up and down) tend to occur during a bear market, whereas in a safe haven asset, the biggest single-day moves (up and down) tend to occur during a bull market:

Stocks since 1900 with 20 Biggest Up and Down Days, joined
Gold since 1900 with 20 Biggest Up and Down Days, joined

In other words, big record-breaking single-day volatility is typically a sign of a bear market for risk assets, and a bull market for safe haven assets.

For those curious of the magnitudes of each single-day move, here’s the same information with the magnitude of the daily change (%) plotted on the left axis:

Stocks since 1900 with 20 Biggest Up and Down Days, split
Gold since 1900 with 20 Biggest Up and Down Days, split

What about Bitcoin?

Of course, we don’t have the luxury of a 120-year price history, so we’ll have to suffice with just 10 years.

Here’s Bitcoin’s price history with the 10 largest one-day price moves up and down. [Note that I’ve highlighted only the 10 biggest days, not 20, since the price history is so much shorter]:

Bitcoin since 2010 with 10 Biggest Up and Down Days, joined
Bitcoin since 2010 with 10 Biggest Up and Down Days, split

As you can see, the biggest one-day moves tend to occur during a bull market, just like a safe haven.

While the timing of big moves is interesting, it’s not our primary criterion for establishing an asset as a safe haven.

Instead, let’s look at the shape of Bitcoin’s overall price trajectory, and compare it to Gold’s price trajectory since it became “freely traded” in April 1968 (after the collapse of the London Gold Pool):

Bitcoin and Gold have similar Safe Haven trajectories

You’ll notice that I’ve slightly adjusted the horizontal time scales to highlight the staggering similarity in the shape of their price trajectories over time.

Here’s the same time comparison between Bitcoin and Stocks:

Bitcoin and Stocks have dissimilar trajectories

As you can see, Bitcoin and Stocks are not even close to moving in a similar way.

Key Takeaway

Remember, we’re defining a “safe haven” based on the overall behavior of every person in the world – including those who bet for an asset, against an asset, and those who sit on the sidelines.

We’re not interested in what people say about an asset – only in how people actually act.

The collective behavior of the market reveals that people largely ignore Bitcoin and Gold on a day-to-day basis (while instead focusing on Stocks or other “risk assets”), and then, occasionally, they flip their focus – rushing out of Stocks and into Bitcoin and Gold.

For these reasons, Bitcoin is a safe haven asset, just like gold.

 

Have I missed something? I welcome your constructive criticism and your evaluation of my Arguments.

Gold vs. Dollar (Market Cap since 1800)

The long-term (220-year) average ratio of market capitalizations is 21.7% Dollars to 78.3% Gold.

The average pre-Fed (pre-1914) ratio is 18.2% to 81.8%.
The average post-Fed (post-1914) ratio is 25.3% to 74.7%.

The all-time-maximum dollar ratio was 39.1% in 1970, immediately before a 10-year bull market in the dollar price of gold (25x), which lowered the dollar ratio to 7.2% in 1980; incidentally, this is the dollar's all-time-minimum ratio.

The second-highest dollar ratio was 38.6% in 2015. If the ratio reverts to the historical low (7.2%), concurrent with a 1970's-like increase in the gold supply (1.2x) and dollar supply (2.4x), then the following values are implied for the year 2025:

  • Monetary base: $9.17 trillion
  • Gold supply: 6.19 billion ounces
  • Gold market capitalization: $118.6 trillion
  • Gold price per ounce: $19,100.00

Worth considering.

“Gold is not a hedge against price deflation.”

Premise 1. If the price of an asset goes down while the overall price level in an economy goes down (i.e. during “price deflation”), then such an asset is not a hedge against price deflation.

Premise 2. The price of gold often goes down during price deflations.

Therefore:

Conclusion 3. Gold is not a hedge against price deflation.

Definitions:

1. “Deflation,” in this post, means “falling prices,” NOT “a contraction of the money supply.”

2. “Hedge” means "a vehicle to preserve purchasing power.”
[By this definition, we could establish an asset as a hedge if its price does not fall as quickly as other prices fall, since its purchasing power would be intact under such circumstances.]

Assumptions:

3. Although the label of “hedge” is often used in a binary sense (i.e. an asset either (1) is or (2) is not a hedge), we’re choosing to establish the quality of a hedge along a spectrum. In other words, we want to answer the question, “how good of a hedge against deflation is gold?”

4. Since the average investor is not a day-trader or swing-trader, we will not use days, weeks, or months for our analysis. Instead, we will use annual data points from 1800 to 2020, reflecting a 220-year period in the United States. [If you want to hedge your purchasing power for one year or less, then this analysis is not for you.]

Evaluation:

Premise 1. "If the price of an asset goes down while the overall price level in an economy goes down (i.e. during “price deflation”), then such an asset is not a hedge against price deflation." Dubious. Generally speaking, I agree, but as we mentioned in Definition 2, one could make the case that a successful hedge simply needs to fall less than other prices fall. But since this distinction is not central to our analysis, let’s assume we agree with Premise 1 as it’s written.

Premise 2. "The price of gold often goes down during price deflations." Disagree. This claim, for some reason, seems to circulate widely. As you can see below (on an annual time scale), it is simply not true:

Gold is Not a Hedge against Price Deflation

In the chart above, the vertical gray bars indicate the 3 major deflationary periods in the United States; the green and yellow circles highlight the changes in the Consumer Price Index (CPI) and the price of Gold during those periods, respectively. The dotted yellow line (and arrow) represent the price of gold if the United States had not fought the Civil War (1861-1865).

You can see that prices dropped 60% in the early-to-mid-1800’s, and gold’s price rose 3%. Following the Civil War, prices dropped 47% and gold’s price dropped 51%. During the boom-bust of the Roaring Twenties and Great Depression (1920-1934), prices dropped 32% and gold’s price rose 69%.

With the exception of the Civil War, the price of gold tends to go up during price deflations.

Obviously, the Civil War was not a typical event, and the doubling of the gold price in 3 years (which was also a doubling of its all-time-high) was a serious clue of the rarity of the situation. Indeed, the year 1864 – at the height of the war and the height of the price boom – was the only bad year to buy gold in the 19th century. [But of course, if you buy anything at its all-time-high, you’ve chosen the wrong time to buy].

If you had bought gold before the war, you could sell any time thereafter and NOT lose money – you’d either break even or turn a profit, regardless if prices in the economy were rising or falling.

And of course, if the price of gold remains steady while the CPI is falling, your purchasing power is constantly increasing while you hold gold.

Therefore:

Conclusion 3. “Gold is not a hedge against price deflation.” Disagree. This is clearly false. Gold is an excellent hedge against price deflation, especially if you don’t buy when it’s at its all-time-high.

Remember, this assumes that you’re looking to hedge your purchasing power for several years, not several days, and it’s also not a claim about monetary deflation (i.e. a reduction in the money supply). That’s a topic for a separate post.

Have I missed something? Please share in the Comments.

You may also like:
"In a healthy economy, prices go up."

004 – w/Emily Truesdell

Emily Truesdell is a horse trainer, equine massage therapist, and freelance copyrighter. You can follow her equine journey on Instagram @buddy_gets_a_makeover

If you’d like to send Emily an email, please ask for her email at SomewhatScholarly@gmail.com

003 – w/Ryan Fay

Ryan Fay is the #1 funniest standup comic in Buffalo (and #837,191 worldwide). You can find him on Instagram @RyanFayComedy

World-Wide Organization of Organic Farmers (WWOOF):
https://wwoof.net/

002 – Measuring Health, Wealth, and Wisdom

Additional examples of Goodhart’s Law (“When a measure becomes a target, it ceases to be a good measure.”):

  1. You want to be healthy, so you decide to “go to the gym 3 times per week.” For a while, you’re excited and engaged at the gym, and your workouts are effective. But over time, you start to get lazy… maybe you spend a little more time in the locker room, or you spend more time waiting for equipment and not actually using it, but in your mind, you’re ‘healthy’ because you still “go to the gym 3 times per week.” Ironically, this is “unhealthy” behavior pursued it an attempt to be “healthy.”
  2. You want to be wealthy, so you decide to “sell 100 products each month.” At first, you’re excited and engaged with your clients, and you’re creating mutually-beneficial business with terms favorable to both you and the client. But over time, you start to compromise on price so that you can make a few of your sales more easily. You’re still hitting your goal of “selling 100 products each month,” but you’ve lowered the price (or some other features) to make those 100 sales easier, and that means you’re making less money. Ironically, this is “unwealthy” behavior pursued in an attempt to be “wealthy.”
  3. You want to be wise, so you decide to “read 1 book each week.” The first few books are exciting, and you approach them with an open and active mind, but over time, you start to let your attention suffer. You still read a book each week, but you’re distracted while reading (you might even fall asleep), and you hurry through each book just to check it off your list. Ironically, this is “unwise” behavior pursued in an attempt to be “wise.”