Welcome to the weekly mailbag edition of The Daily Cut.
Coming up… Jeff Brown answers a question about the War on Cash and the coming digital-only dollar.
And Tom Dyson addresses whether the government would ever ban gold again like it did in the 1930s.
First, a question on bitcoin (BTC) for colleague and world-renowned crypto investor Teeka Tiwari…
Reader question: Teeka, could you please comment on the four-year bitcoin cycle I’ve been hearing a lot about lately? Its proponents think we will see a market top in late 2021… then a crash like in 2018. Your thoughts?
– Mark W.
Teeka’s response: I’ve been a bitcoin bull since 2016. And I’ve gotten this question a lot over the years.
These cycles are around the halving of bitcoin’s new supply, which happens roughly every four years. [Learn more about what the halving is here.] The halving triggers a bull run because there are fewer new bitcoins to buy. Then bitcoin crashes… and the cycle begins again.
The last halving took place on May 11, 2020. Bitcoin is up 520% since then. So folks naturally want to know if we’re going to get another bear market.
Michael Saylor has an interesting view on this. He’s the CEO of Nasdaq-listed software maker MicroStrategy (MSTR). And he’s converted $2.2 billion of the company’s cash reserves into bitcoin.
Saylor says the old model of how you time bitcoin − getting in and getting out based on these cycles – is no longer relevant. I’ve been thinking about it, writing about it, and doing a lot of research. And I think he’s right. Here’s why…
Right now, there are 900 new bitcoins mined a day. [Mining involves providing computing power to the network in return for newly issued bitcoins.] And miners have to sell their newly mined bitcoin. That’s how they fund their day-to-day operations.
But we’re entering a world in which they can fund their operations by raising fiat currency in traditional capital markets.
As more bitcoin mining companies go public − or have an easier time accessing capital – they will no longer need to sell the new bitcoins they mine. If they do, their shareholders will get mad at them and punish them by selling their stocks. Because those bitcoins will be worth more down the road.
At today’s price, there’s about $54 million worth of new bitcoin coming into the market – every day. What happens if every major bitcoin mining company goes public… raises a couple of billion dollars… and says, “We’re never selling our bitcoin. We’re just going to mine it for the lowest cost we can achieve. And then we’re going to keep it on our balance sheet”?
You want to talk about the greatest carry trade in the world? Get access to low-cost fiat currency, such as the U.S. dollar. Then use it to pay for your mining operation to buy bitcoin. And then just hold on as it increases in value. Forget the trade of the decade – that’s got to be the trade of the century.
Now, what’s more important than the halving is the demand. Saylor said you’ve really got to look at the new money coming into bitcoin that could potentially have much more of an effect than the cycles of the halving.
I think if you put the two together… and look at the absolute acceleration in demand combined with the fact that you might have miners stop selling bitcoin − which is like the ultimate halving… it’s an “infinity” halving. That sets the stage for $1 million, $2 million, even $3 million bitcoin.
As you can see, Teeka sees even bigger things ahead for bitcoin… which has already become crypto’s first trillion-dollar coin by market cap and brought mainstream legitimacy to the entire space. But bitcoin isn’t even the crypto he’s most excited about right now.
Instead, he has his eye on what he believes will be crypto’s next trillion-dollar coin… And he’ll reveal all the details – including the name of the coin – in a special event next Wednesday at 8 p.m. ET. You can sign up for free right here.
Next up… a question about another of the big ideas I (Chris Lowe) write to you about – the global War on Cash.
As I’ve been showing you, banknotes and coins are on their way out. In their place will be central bank digital currencies (CBDCs) – a new type of digital-only cash.
CBDCs will work along the lines of bitcoin. But instead of being decentralized and outside of government control, the Fed and other central banks will issue and control them.
This brave new world of money has some readers concerned…
Reader question: What are your thoughts on central banks having total control of our finances? My understanding of this new “convenient currency” is it will make it easy for them to TAKE from us because the digital currency won’t be physically in our hands.
– Sue W.
Standing by with an answer is our tech expert, Jeff Brown. Jeff’s best known for his tech stock recommendations.
But he’s also been advising lawmakers on Capitol Hill about digital currencies as part of his work with the Chamber of Digital Commerce. That gives him a unique perspective on what’s going on with CBDCs.
Jeff’s response: Hi, Sue, and thanks for sending in your question. We’re definitely moving in the direction of CBDCs, so this is a good topic to address.
I wrote about this in my prediction series at the end of 2020 in my free daily e-letter, The Bleeding Edge. As I said then, we’ve seen a lot of new developments, especially from China.
Last October, we got word that the Chinese central bank would begin testing its CBDC in the city of Shenzhen. About 50,000 citizens each received roughly $30 worth of China’s new CBDC for the field test.
So China is on the verge of a widespread launch of its CBDC. But what about the U.S.?
Last February, we learned that the Fed – America’s central bank – is investigating how it would roll out its own CBDC. And an early draft of the first COVID-19 stimulus bill even included a proposal for a U.S. CBDC. It was scrapped from the final bill, but it shows this idea is gaining traction.
That said, I don’t think a U.S. CBDC is coming in 2021. I have a difficult time seeing the U.S. move that quickly. But even if a CBDC isn’t launched this year, it will launch soon after. It’s inevitable.
Right now, the U.S. dollar is the world’s reserve currency. But what we’re seeing here is a radically new financial system taking shape.
China has launched its digital currency in a limited fashion. Russia also has plans to release a digital version of its currency, the ruble. If the U.S. doesn’t find a way to launch a CBDC, it risks being uncompetitive in this new world.
Incentives for governments are too high for them to pass up this opportunity…
A digital-only dollar would have made it easier for Washington to distribute stimulus funds during the pandemic. We’d simply wake up one day and see that these digital dollars had been “air-dropped” into our digital wallets.
A digital dollar would give the federal government even tighter control over the money we use.
Once it issues its CBDC, the government will start removing paper bills and coins from the system. It will say there’s no need for them anymore. It will also tell us that CBDCs will keep us safe because paper money spreads viruses and germs.
I predict the feds will wait a while after they launch a CBDC. Then they’ll announce that coins and paper dollars will no longer be legal tender.
Having a CBDC alone would also allow the government to track and tax every transaction we make. The IRS would have a field day. What government wouldn’t want that sort of control?
A CBDC also makes negative interest rates possible. The Fed could deduct interest from our digital wallets each month. The idea would be to encourage spending to stimulate the economy.
This is the most likely scenario for the government taking our money using a CBDC. And it’s a real concern. The press of a button could set higher tax rates for all CBDC distributions.
An even bigger risk is that a CBDC makes it easier for a government to digitally “print” new currency on its whim.
I don’t say all this to worry people, but I share your concerns. And given that CBDCs are inevitable, it’s important we’re aware of the potential downsides.
Gold and silver may have a bright future after all in that kind of environment. High-quality cryptocurrencies may also have a bright future in a world of CBDCs.
We’ll wrap up with a question on gold. As I wrote to you about this week, opinions differ on the yellow metal here at Legacy Research.
Teeka recently recommended his readers lighten up on gold and buy more bitcoin.
But colleague Tom Dyson – who made a $1 million bet on gold in 2018 – still believes it’s going to be one of the best-performing investments of the next decade.
And one of Tom’s gold-owning readers wants to know if the government is likely to try to ban it again, like it did in the 1930s.
Reader question: I read something that said our new government is going to make it illegal to own gold soon. Ever hear that?
Tom’s response: It’s a common fear that the government will confiscate gold again. I get this question all the time. I’m not worried about it, though.
The government banned gold in the 1930s because it wanted to devalue the dollar, and it needed to first block the exits for capital.
Up until 1933, gold was money in circulation, so it would have been easy for capital to flee the dollar system. Today, gold is a pariah. It was exiled from the monetary system 50 years ago when President Nixon ended the gold standard.
I’ve written before that one way the U.S. could solve its debt problems would be to bring gold back into the system, albeit at a much higher price. (The U.S. has the world’s largest gold stockpile. It could use its gold to backstop its debts.)
Even if the feds don’t choose this path, they have no reason to outlaw gold anymore. By exiling it 50 years ago, they relegated it to “just another commodity”…
That’s all for this week’s mailbag.
Remember, if you have a question for anyone on the Legacy team, be sure to send it to feedback@legacyresearch.com.
Have a great weekend.
Regards,
Chris Lowe
March 26, 2021
Barcelona, Spain