Bitcoin needs a catalyst that will propel it into the stratosphere. It is an extreme event that will cause people to question everything they know is true about money and finance, and force them to the conclusion that Bitcoin is the only solution. Balaji Srinivasan made that crazy bet numerous weeks ago that Bitcoin would reach $1 million by July based on the belief that massive currency debasement would cause a spiral in inflation which would firstly force people to buy gold, but when they saw that gold was not responding as expected, they would flock to Bitcoin. This was a great thesis and gained a great deal of traction because it coincided with the collapse of Silicon Valley Bank which vaulted Bitcoin to $30,000. But since then, Bitcoin has pulled back as the Fed and US Treasury rushed in to support banks by backstopping their bond portfolios and ensuring that no one lost money. At the same time, it became clear that certain politicians, headed by Elizabeth Warren, were waging a war on crypto in general. Then federal regulators closed Signature Bank, which was technically not insolvent. The official reason for the bank closure, according to a report from the FDIC, was “poor management”. If regulators are going to close banks down for poor management, they might as well close down half the banks in the United States. Many in the crypto industry believe the real reason why Signature was targeted was on account of their large crypto exposure. So, the US banks were saved by the Fed, the Treasury, and the regulators. As for the hyperinflation caused by money printing and debasement, we are already seeing a slowdown in inflation in the US. The all-items index increased 4.9 percent for the 12 months ending April; this was the smallest 12-month increase since the period ending April 2021. Many are predicting that the Fed will take a pause on its rate hikes and may even start to cut later in the year. It may therefore be that Balaji’s catalyst event will not materialize although you cannot fault the logic. Maybe the catalyst will have something to do with gold, and this continues to build on the money debasement argument.
Modern currency debasement started in 1971 when the United States moved off the gold standard in an event that became known as the Nixon Shock. Before the Nixon Shock, you could present your dollar bills to the Federal Reserve in exchange for gold. In the face of unprecedented currency debasement (half of all the dollar bills currently in circulation were printed since the COVID pandemic), there has been a strong call to return to the gold standard.
There are numerous reasons why this would make sense in the current financial environment:
Intrinsic Value: Gold has been valued for thousands of years due to its scarcity, durability, and aesthetic appeal. Proponents of the gold standard argue that by backing currency with a tangible asset like gold, the currency itself has intrinsic value. This contrasts with fiat currencies that rely solely on government decree and trust.
Stability and Confidence: The gold standard is believed to provide stability and confidence in a currency's value. Since the supply of gold is relatively limited and its value is generally stable over time, supporters argue that backing a currency with gold can help prevent excessive inflation or deflation. This stability can promote trust and confidence in the currency, facilitating economic growth and international trade.
Limited Government Intervention: Some proponents of the gold standard argue that it limits the ability of governments to manipulate the money supply and engage in excessive spending. With a fixed amount of gold, the money supply would be constrained, making it more difficult for governments to engage in deficit spending and generate large amounts of debt.
Discipline and Price Stability: By linking a currency to gold, proponents argue that it imposes discipline on governments and central banks to maintain price stability. They believe that the gold standard helps to prevent excessive credit expansion and encourages responsible fiscal and monetary policies.
Protection against Currency Manipulation: Advocates argue that backing a currency with gold reduces the risk of currency manipulation by governments. By tying a currency's value to gold, it becomes more difficult for governments to devalue their currency for competitive advantage in international trade.
So what could be the catalyst that would propel Bitcoin into the stratosphere? It could be a “crazy” event linked to gold, such as a deciscion by governments to confiscate gold. This would not be the first time this has happened. In the past 100 years, governments around the world have confiscated gold in various forms. The reasons for these confiscations have ranged from economic crises to political upheavals, but they all share a common thread: the government’s desire to control and manipulate the economy and its citizens.
One of the most famous examples of government gold confiscation occurred in the United States in 1933. During the Great Depression, President Franklin D. Roosevelt issued an executive order that made it illegal for Americans to own gold coins, bullion, or certificates. The government required all citizens to turn in their gold to the Federal Reserve in exchange for paper currency at the rate of $20.67 per ounce. Failure to comply with this order was punishable by a $10,000 fine or up to ten years in prison.
The government’s official justification for the confiscation was to stabilize the economy by preventing hoarding and speculation in gold. At the time, the United States was on the gold standard, which meant that the value of the dollar was tied to the price of gold. The government believed that hoarding and speculation in gold were contributing to deflation and economic instability. By confiscating gold, the government hoped to increase the money supply and stimulate economic growth.
While the gold confiscation did help to stabilize the economy in the short term, it also had long-lasting effects on the country’s monetary policy. The United States went off the gold standard in 1971, and today, the dollar is a fiat currency that is not backed by gold or any other commodity. Many people believe that the 1933 gold confiscation was a key step in this transition away from the gold standard.
Another example of government gold confiscation occurred in Germany during World War II. In 1939, the German government issued a decree that required all Jews to turn in their gold, silver, and other valuables to the state. This confiscation was part of a broader campaign of persecution and extermination of Jews that culminated in the Holocaust.
The German government used the confiscated gold to fund its war efforts, and the gold was melted down and used to make weapons and other military equipment. After the war, much of the gold was recovered by the Allies, and some of it was returned to the families of Holocaust victims.
In 1965, the government of India confiscated gold in an effort to control inflation and stabilize the economy. At the time, India was experiencing high levels of inflation, and the government believed that hoarding and speculation in gold were contributing to the problem. The government required all citizens to turn in their gold to the state in exchange for paper currency at the rate of Rs. 125 per 10 grams.
This gold confiscation had a significant impact on the Indian economy and society. Many people in India, particularly in rural areas, had traditionally held their wealth in the form of gold jewelry and other ornaments. The government’s confiscation of this gold caused widespread resentment and anger, and it led to a thriving black market for gold.
More recently, in 2015, the Venezuelan government confiscated gold held by its citizens and central bank. The government of President Nicolás Maduro took this step as a desperate measure to try to stave off economic collapse and pay off its debts. The government’s confiscation of gold led to protests and international condemnation, and it did little to improve the country’s economic situation.
In all of these cases, government gold confiscation has been a controversial and divisive issue. While some people believe that such confiscation is necessary to control inflation and stabilize the economy, others see it as a violation of individual property rights and an abuse of government power. The long-term effects of government gold confiscation are also a matter of debate, with some arguing that it can lead to economic instability and currency devaluation.
If governments confiscate gold, it might create a sense of unease among gold investors and individuals seeking alternative stores of value. Some people may turn to Bitcoin as a digital asset that is not subject to physical confiscation. This could potentially lead to increased demand for Bitcoin and drive its price up.
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