I’ll start today’s Rum Rebellion by imploring you to read yesterday’s edition if you haven’t already. Written by my mate Vern Gowdie, it’s a cracker. It’s a good reminder that money and wealth only accrues and remains with those people and families who work hard and smart, who operate with humility and have respect for their capital.
It’s also a reminder that family comes first. Always. So I’ll reiterate Vern’s message and wish you and your families a happy and peaceful Easter break.
It’s certainly a beautiful time of year where I am, on the south coast of NSW. The sun is warm, not hot, and the air is dry, not humid.
And of course, Easter is a time for reflection. In the past I have been cynical of the Easter tradition. You can thank going to a Catholic boy’s school for that. But at the heart of it, we are celebrating the death of a man who left a very, very big mark on this world.
Jesus taught us to be more human, and that love trumps all. It’s a solid message, and one that should rightly be celebrated. My beef is with organised religion.
I’m tipping Jesus would be with me on that one…
So happy Easter everyone!
Vern’s bitcoin bashing essay, published on Tuesday, was also a good one. I agree and disagree in equal parts. And that’s what I’m going to talk about today. I rarely mention bitcoin. But I’ve been working hard to understand it better since 2020, so I feel like I actually know what I’m talking about.
I agree with Vern regarding price. How do you value it? Is it worth $10k, $60k, or $500k? I don’t know. He also made some good points about the concentration of ownership. How can something be money when most of it is owned by relatively few players?
All good points that I don’t have answers to. It’s why I don’t own any. Which is kind of annoying…
But there is another side to bitcoin and cryptocurrencies in general, that you absolutely must understand before you even get to price. When you look at it through this lens, it becomes much more interesting.
Bitcoin isn’t just electronic money. It’s underpinned (and given value) by blockchain technology. Another word for this is distributed ledger technology. So what, you might ask?
Well, distributed ledger technology can do a few things.
It can facilitate transactions between two parties directly, no middleman required.
It can record those transactions (and the ownership trail) without the need for a central party to ‘keep the records’. The record is maintained on the blockchain. And no one can mess with it. It’s ‘immutable’.
To put it simply, this is a free-market system that has developed in response to a corrupt and broken monetary system. As I often say, that system broke in 2008. It no longer works. It needs constant stimulus to prop it up. It is simply a legacy financial system run by the elites, for the elites. Us plebs still have to use it, but all it gives us is zero interest rates and depreciating currencies.
The key thing to understand is that cryptocurrencies and the blockchain technology that underpins it is a genuine alternative financial system. It is decentralised, meaning there is no third party (like broker, clearinghouse, custodian, market maker, etc) to facilitate payments.
Transactions that occur on the blockchain are quicker and cheaper than those made through the traditional financial system. That’s because there are no third-party money leeches to pay.
So who owns and maintains the blockchain?
In the traditional financial system, it is the banks/central banks/governments that have a monopoly hold on the payments system. And they are the prime beneficiaries.
The beauty of the blockchain system is that it is open-source. Everyone and no one owns it. It is maintained via the age-old principle of self-interest. That is, the bitcoin ‘miners’ (or etherium miners, or whatever) need to devote significant computational power to ‘mine’ a bitcoin. And there is good competition for it. It is this competition that constantly strengthens the blockchain system.
In this way, the new money system is reinforced and strengthened by miners acting in their self-interest. This creates an almost frictionless system that is devoid of ticket clippers and parasites.
But you ask, how can bitcoin or other cryptocurrencies be money when its value is so volatile? It’s a good point. Cryptocurrencies are clearly in the price discovery phase. I honestly have no idea where the price will settle.
But ultimately, the price will represent the value of the underlying blockchain system. As the price is the means of incentivising the maintenance and strengthening of the system, the two are tied together.
But the market is coming up with solutions for this. ‘Stablecoins’ are proliferating as a means of payment through this new money system. A stablecoin is basically a cryptocurrency tied to the value of a fiat currency. (There are other types, but we’ll keep it simple for now.)
In order to buy stablecoins, you first must buy bitcoin or ethereum (the two main cryptocurrencies). They are like the gateway to get you onto the new money system.
So if you want to do business this way, you can have the features of a stable currency for payment/transaction purposes, but do so on the blockchain. This allows you to bypass the legacy financial system and all the parasites that clip your ticket for doing very little.
To say this is the ultimate disruption is an understatement. This technology strikes at the heart of power and influence in the world of banking and finance.
The empire will strike back at some point.
But short of shutting down the internet, there’s not a lot they can really do to stop it. Maybe they’ll try and tax it out of existence.
Who knows? I just know this is a great development for humanity. For the past 100 years, the sociopaths running the world have increasingly centralised power structures. Money, banking, media and information have all become far more concentrated.
Concentration of power leads to greater control. And the control of money is the ultimate goal. So make no mistake, this is massive. Don’t be fooled or put off by the soaring price of bitcoin, or the fact that many of its supporters have no idea what they’re supporting.
Look under the bonnet. It’s huge.
For today though, I’ll leave you with a chart of the bitcoin price. There is a concern that the strength of the price surge is beginning to wane. You can see that in the divergence between price and RSI, which is a momentum indicator.
Whether this means bitcoin is going into a deeper correction, time will tell. But it’s something to keep in mind…
Editor, The Rum Rebellion
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