Bitcoin Is a Steamroller… And Fiat Currencies Are in Its Way

Yesterday was a world first. El Salvador made bitcoin legal tender.

And according to Casey Research analyst Nick Giambruno, it’s an important milestone on the road to bitcoin becoming the world’s dominant currency.

Why is the government of El Salvador backing bitcoin? How will the plans work? And what will it mean for the world’s first and most famous cryptocurrency?

It’s all in your Weekly Pulse video above. It’s where I (Chris Lowe) and host Tom Beal break down the week’s most important market story.

Regards,

Chris Lowe
Editor, The Daily Cut and Legacy Inner Circle

P.S. If you prefer to read along, we’ve included a transcript of our conversation below.

Transcript

Tom Beal: El Salvador has announced that it’s going to make bitcoin its legal tender. This is huge news. We’re going to break that down for you today.

My name is Tom Beal, host of The Weekly Pulse, where we break down the biggest wealth-growth story of the week. I’m here today with the editor of Legacy Inner Circle, Chris Lowe.

Chris, where do we kick off today’s conversation?

Chris Lowe: Over the weekend, the president of El Salvador announced that he has plans to make bitcoin legal tender there. If this happens, it will be the first nation to adopt bitcoin as legal tender.

So today, I thought we’d go through three things. Why this is happening. How it will work. And what it means for bitcoin.

Tom: It sounds like huge news to me, which is exciting. I’ve heard this before, with our experts inside Legacy Research saying how this will progress. And this is that next ladder of progression.

So I’m excited to hear more about this exciting detail. This could be a big indicator leading to great things ahead.

Chris: Tom, you’re right to say that our experts have been predicting it. Nick Giambruno, who runs our Crisis Investing advisory, has been pounding the table on something he calls the “Bitcoin Supremacy.”

Nick basically predicted the news that we got over the weekend at the bitcoin conference in Miami – that’s where the president of El Salvador announced this huge news.

To fill you in, the Bitcoin Supremacy is simply a move from fiat currencies, which are government-issued currencies like the dollar, the euro, and the yen, toward hard currencies, such as bitcoin.

A hard currency is just a currency that’s hard to produce more of. It strikes a lot of people as very strange, but how new dollars get created is that Congress in the U.S. approves some spending budgets, and then it orders the Federal Reserve to type some numbers into bank accounts, and literally just create new dollars with that budget spending. New dollars are spent into existence, essentially.

And that can’t happen with bitcoin. We’ve been going on about this a lot here at The Weekly Pulse, but bitcoin is capped at 21 million bitcoins. That means there’s never going to be more than 21 million bitcoins. Its supply is governed by code. It goes on a pre-agreed schedule. There’s no central bank. There are no banks, no governments. So everybody knows where they stand with bitcoin.

That takes us to the heart of why this is happening. It’s really important to know that El Salvador currently doesn’t have its own currency. It went off a currency called the Salvadoran colón in 2001, because it was a very unstable currency. Since then, it’s been using the U.S. dollar.

So the question is, why is it moving now from the U.S. dollar as its national currency to bitcoin? I think bitcoin would probably circulate along with the U.S. dollar. But it’s adding bitcoin as a national currency.

The reason is something we’ve been discussing at The Weekly Pulse – fears of inflation.

I’m going to show a chart of the money supply (M2). We don’t have to get too far into the weeds about what M2 is. It’s a broad measure of how many U.S. dollars there are in circulation.

(Click image to enlarge)

If you go back to February 2020, which is right before the pandemic struck, there was $15 trillion in circulation around the world.

As of last month, that’s gone up to $20 trillion. That’s around a 32% increase. It’s the biggest increase in the amount of dollars in circulation, in percentage terms, since World War II. So it’s a big deal.

The president of El Salvador isn’t a stupid guy. He understands what’s happening. And he’s saying, “Wait a second. Why do we have this U.S. dollar as our legal tender, when it can be inflated away by the Fed and by Congress in the U.S.? Why don’t we move to bitcoin?”

Nick Giambruno has a very good way of explaining this. I’m going to read it out to you, Tom, because I thought it was an excellent summation of what’s going on.

So Nick says, “Think of bitcoin’s hardness as a black hole sucking in capital from weaker currencies. It’s eating the demand for monetary goods from inferior forms of money, such as government fiat confetti currencies.”

And he says, “That’s why I expect bitcoin to crack the list of the top 10 biggest currencies in the months ahead, and go higher from here.”

He’s talking about national currencies, Tom. He’s saying that bitcoin is going to be in the top 10 currencies in the world. And that includes all the big national currencies like the U.S. dollar, the Chinese yuan, the Japanese yen, and so on.

So it’s a huge explosion higher for bitcoin, if El Salvador becomes the first domino to fall in Nick’s Bitcoin Supremacy thesis.

Tom: Wow! So this is a story unfolding for the world to witness. And we’re going to see exactly how this plays out. But it’s interesting for me. Studying history, regime changes, and things like that, I pray for much health for this leader.

Chris: Currency systems evolve over time. I’m 45 years old. I’ve only lived through one currency system, and that’s the fiat currency system. Fiat currencies just means currencies that are decreed to be legal tender by governments, with no backing of something like gold.

But we had a gold standard. So countries backed their currencies with gold in the past. That ended in 1971. I don’t want to get too far into history here, Tom.

I talked to Nick yesterday about this. I’m going to have a whole deep dive in this Friday’s Legacy Inner Circle on this subject.

Nick is making the point that this is even better than a gold standard. Because in the gold standard, take the U.S. as an example, the U.S. government held bars of gold in Fort Knox and other vaults in the country. And then it issued dollars, which were backed by those gold bars.

But Nick says, “Look, I don’t trust the U.S. government to really back the currency with gold. And if I’m holding this dollar, do I really own gold?”

What he’s saying is that what’s going to happen in El Salvador is going to be much more like a gold coin standard. Because as you know, Tom, when you own bitcoin, you own them in a wallet, you have them in your possession.

What’s happening in El Salvador isn’t the country backing a fiat currency or backing its currency with bitcoin. It’s actually using bitcoin as a currency. It’s completely ahead of its time. And it’s interesting to note that the party in power currently in El Salvador is called the Nuevas Ideas Party, which is the New Ideas Party. And this really is a new idea.

Another reason why this is happening is that 22 million Salvadorians live abroad. That’s roughly the same amount that live in the country. And those émigrés from El Salvador send money back to families from places like the U.S. They actually send back about $6 billion a year. It’s one fifth of El Salvador’s GDP. It’s a huge part of the country’s economy.

And right now, those Salvadorians who are working in the U.S. and elsewhere, doing hard jobs, hard graft, earning money, and sending it back to their families, they’re getting ripped off by the likes of Western Union, MoneyGram, and these legacy remittances services. Fees can go from anywhere from 10% to 20%.

Remittances are 20% of El Salvador’s GDP. And these companies are skimming 10% to 20% off that. It’s absolutely scandalous.

I looked up the current average bitcoin fee per transaction. If I send bitcoin to you, that’s $5. That’s the average fee. So, a much different kettle of fish, really, for those Salvadorians abroad sending money back home.

It’s also important to note that 70% of Salvadorians don’t have a bank account. So the president is bootstrapping a whole financial system. All you need is a smartphone and a connection to the internet – and they’re actually looking at satellite internet coverage for folks living out in rural areas of El Salvador.

So you’re just watching this crypto financial system being proposed in El Salvador. Now, it remains to be seen what happens. It’s a little bit fuzzy at the moment as to how this is going to work out. But it’s really, really exciting news.

And it’s something our readers – through Nick Giambruno – have been way ahead of the curve on.

Tom: I’m interested to hear and watch how this unfolds. This literally is rebelling against the world banks. How hard will they push back? And to what extent will we witness this?

I don’t know the exact details of history, but it reminds me of when years ago, Libya’s Muammar Gaddafi was going to do something with the gold stocks he had, related to his own currency. He became enemy number one; they took him out.

So it’ll be interesting to see how this plays out. Just as history shows, if you fight against the world banks, they don’t just say, “Okay, have a fun time with that.” They like to show their strength and flex their muscles. So it’ll be interesting to see what occurs in that realm.

Chris: Nick actually said that to me in an email over the weekend. He was like, “Gee, this guy better watch his back.” Because he’s actually singled out central banks in a video announcement at that Miami bitcoin conference. He singled out central banks and said, “Central banks are setting out to destroy the value of the currency. I’m not going to stand around while that happens. I’m going to switch to bitcoin.”

So you’re absolutely right. Anything could happen, because this really is a shot across the bows of governments, which, of course, have a monopoly over currency. It’s something that isn’t always obvious to people, but currency is one of the things governments control completely. And of course, bitcoin is a challenge to that.

I said I’d tell you how this works. And it is important, Tom, because the beauty of bitcoin is it’s an open network that anyone with a smartphone can use. And as I said, there are plans to roll out satellite coverage. So this is going to be much more efficient than setting up a traditional banking system.

But there are some potential drawbacks. One of them that comes to mind is bitcoin’s famous volatility. Bitcoin was selling at over $60,000. I think it nearly touched $64,000 in April. It’s down roughly 50% from there.

So there is this problem with bitcoin volatility. In other words, if I’m a Salvadorian living abroad, and I want to send money back, I’m going to be a little bit worried that I could send it back at the wrong time and it crashes; I could send it back at the right time and it goes up.

When I put this question to Nick, he said, “This is true. When you’re monetizing a new asset, it’s going to be volatile.” It’s a violent process, Tom.

As you said, you’re taking on established interests. You’re threatening governments with the loss of that monopoly over the currency. And sure, it’s going to be volatile.

But Nick’s point is a good one. Most of that volatility is to the upside. We do get crashes in bitcoin, that’s for sure. But it’s up thousands and thousands of percent. It’s gone from $64,000 to $30,000. That is a big crash. But it’s gone from zero to $30,000, which is absolutely massive.

So I think that’s one thing to keep in mind. And it will be interesting to see how that pans out.

But the main point here is that this is going to crack a big hole in the status quo.

One thing that comes to mind that is important for American viewers is that, at the moment, the IRS treats bitcoin as a property for federal income tax purposes. It treats it like property, like a home.

That means every time you go to Starbucks, and you buy a cup of coffee, and you are changing bitcoin into U.S. dollars, that becomes a taxable event.

It’s really hard to keep track of all those transactions, as the IRS wants folks to do. And that makes it so that bitcoin in the U.S. is much more like a store of value. It’s something you hold onto. It’s not really very easy to transact with bitcoin because the IRS is constantly asking you to mark down each transaction, figure out if you bought bitcoin and then you bought the cup of coffee, how much was the capital gain on that? And you’re actually paying capital gains tax.

Here’s the interesting thing. If El Salvador goes ahead and declares bitcoin a national currency, then bitcoin becomes a foreign currency. It becomes much harder for the U.S. to say, “No, this is a property,” because you’re going to have countries using it. Essentially, it becomes a foreign exchange asset.

That could change the taxation issues around bitcoin, which would be absolutely huge. So that’s something to watch out for. Bitcoin could change status in the eyes of regulators and go from being a property, as it is designated now, to being just a foreign currency, which is much easier in terms of taxes.

Tom: That’s a whole ’nother game. It’s going to be interesting to see how it unfolds because it changes the playing field. So this is a huge, bold statement by this leader. And I hope he stays away from private jets and has people test his food for a while before he eats it. But we will see as this unfolds.

Was there a date chosen as to when this would be implemented?

Chris: The president announced this over the weekend, at the bitcoin conference in Miami. It was a video link-up. It has to pass through Congress.

But the interesting thing is he has a majority. His party, this Nuevas Ideas Party, has a majority in Congress. So it looks very likely that this is going to pass.

We got statements on Twitter from lawmakers in Panama saying they’re interested in doing the same thing.

When I talked to Nick, he was very excited about this. His Bitcoin Supremacy thesis goes like this: At the beginning of bitcoin, it was individuals, folks like you and me, Teeka Tiwari, and his readers. It was all ordinary folks buying bitcoin.

And then, U.S. corporations have been the second to start buying bitcoin. We saw MicroStrategy, the software maker, load up $1.5 billion in bitcoin last year. The CEO of that company is continuing to buy bitcoin.

We saw Tesla do the same thing. That’s been a bit controversial because Elon Musk, the Tesla CEO, is a little bit unpredictable. He’s kind of rolling back his views on bitcoin. But nevertheless, Tesla owns more than a billion worth of bitcoin on its balance sheets. Square and PayPal are all doing this.

The next step is governments. And that really does change the game entirely, because governments are big entities. Even the El Salvadorian government would have quite a lot of money at its disposal, if it’s going to put it in bitcoin. So we have another huge player, in terms of governments getting involved.

And that’s the adoption that Teeka talks about all the time with his readers. Remember Teeka says, “If you’re trying to figure out where bitcoin prices are going, look to adoption.”

Look at the internet. Back in 1996, very few people used the internet. There were very few trillion-dollar internet companies like there are now with Apple, Amazon, and Google.

But that didn’t happen back in 1996. That happened more recently, as billions of people around the world got online. And that’s the basic thing to keep an eye on.

The big takeaway for folks who are watching this is to look at bitcoin adoption. And right now, individuals have been getting involved. Corporations are starting to get involved. And the news from El Salvador shows that this third entity, or group of entities, governments, are going to get involved, too.

And that’s big, big news in terms of the adoption thesis that both Nick and Teeka have been laying out.

Tom: Fantastic. This is huge news. Thank you for bringing it to my attention. Pass my thanks along to Nick for sharing that.

Hopefully, that gives viewers an insight as to where this is going. So when everybody’s panicking, you know the future’s looking bright. Just sit tight and stay tuned for more updates here at The Weekly Pulse.

Anything else to add to today’s episode, Chris?

Chris: I’d just add that at the moment, we’ve had this crash in bitcoin. It is down about 50% from its high set in April. But Nick is convinced that this is a fantastic buying opportunity. He’s saying that now is the time to front-run governments with this monetization steamroller, if you like, of bitcoin.

When do you get a chance to front-run corporations, front-run governments, and get in ahead of those huge players?

Usually, it’s the other way around. Usually, the individual investor, the mom-and-pop, as the Wall Street folks call regular investors, they’re in last.

But with bitcoin, it’s totally turned on its head. So Nick is pounding the table, saying, “You now have a rare window to front-run governments.” It’s starting off small in El Salvador, but he believes it’ll keep on going.

So this is a very timely message, Tom. In the past, every time bitcoin crashed, it shot to new highs. The more it crashes, the more it advances up. That’s been the past for bitcoin.

Now, we can’t say that’s 100% going to happen in the future. But we counted eight or nine 60% corrections. That’s just a pattern in bitcoin. We’ve been telling folks volatility is the norm, it’s just bitcoin being bitcoin.

So this is a great time, if you haven’t already bought bitcoin, to go on Coinbase, even put a hundred bucks in bitcoin, get started. Start to work out how you buy them, how you can put them in your wallet.

Nick and Teeka don’t like when you leave your coins on the exchange. They prefer you having them in a private wallet – that’s an app on your smartphone – because it’s more secure.

So this is a great time to get involved. It’s a 50% discount from where you could get in in April. You’ve got this huge news coming out of El Salvador. It’s trickling down to other countries. So I would just say, now is a fantastic time to just take a little bite of bitcoin, if you haven’t already.

Tom: Thank you for bringing that to my and The Weekly Pulse viewers’ attention. I’m looking forward to seeing this story unfold in the near future. But thank you once again, Chris, for today’s episode.

Chris: Thanks, Tom.

Tom: If you’re still here, that means you’re not yet part of Legacy Inner Circle. Chris Lowe, as the editor, has a unique perspective of looking into the model portfolios of all the Legacy Research experts, like Nick, Teeka, and on and on, and bringing those insights to the Legacy Inner Circle members.

For the people who aren’t yet members of Legacy Inner Circle, Chris, how can you share with them that now is the perfect time to take a look and join us in the member’s area?

Chris: I think it’s important to just tell folks what Legacy Inner Circle is. Because I know a lot of folks watching this video are probably new subscribers. Likely, they’ve subscribed to one or more of the advisories that we publish at Legacy Research.

That’s the publishing alliance behind Teeka Tiwari, Jeff Brown, Dave Forest, Nick Giambruno, Bill Bonner, Doug Casey. It’s a team of unparalleled, contrarian, independent investment experts.

Typically, when you’re subscribed to a newsletter, you get the insights of one or another of these experts. Legacy Inner Circle is something completely different. We set it up five or six years ago. Bill Bonner, a serial financial publishing entrepreneur and my mentor, started the company that now is Legacy Research in the 1970s. He’s a pioneer in our business.

He was saying, “Look, when I want to find something out about commodities, I can call up Dave Forest. He’s a geologist. He works in that space. If I want to find out something about cryptocurrencies, I could go and talk with Teeka Tiwari or Nick Giambruno. If I wanted to learn about some aspects of the tech investing landscape, I can talk to Jeff Brown.”

What he wanted to do was create a service for a loyal group of readers that would replicate that level of knowledge and insight.

We don’t just track one megatrend or one sector of the market. We go where the news is, where the profits are, where the really big opportunities are.

And that’s why you hear us talking a lot about cryptocurrencies. It’s not necessarily because we’re crypto fans. It’s because they’re making readers a lot of money.

And that’s our goal – to help our readers really move the needle on their wealth, by getting in on these megatrends early on, ahead of the crowd. That’s how you can transform your wealth. It’s very hard to do that by just investing in the S&P 500.

For folks who don’t know, we were telling our readers about bitcoin all the way back in April 2016. Bitcoin was selling for around $650 at the time. I remember people thinking it was expensive. We’re talking thousands of percent gains, up to $64,000 per bitcoin.

So we’ve been very early on a lot of these trends. We were early on the legal cannabis megatrend. We’ve talked to folks a lot about psychedelic medicine, which is helping folks get over PTSD, depression, addictions.

We have this wide range of interests. We have access to a wide range of experts.

I think Legacy Inner Circle is a fantastic way to learn about different aspects of the market, figure out what areas excite you, what turns you on, what don’t you like.

If I were starting out as investor, I’d love to have a subscription, because it means I can find out what’s going on in the market. What are the big, hot trends? Learn about them with these deep dives with our experts.

And I know I’m not going to miss a big idea. I think that’s a really important point. Our mission is that folks who are signed up never miss a big idea from all of our experts. Because you and me and the team are there pouring through all that research, talking to them on the phone, making sure our members are up to speed on the really big ideas for making money in the markets.

Tom: Fantastic summary. In essence, it’s a helpful way for you to peek into all those model portfolios, the experts’ minds. Their teams are on your team, helping you maximize your wealth growth and protect that wealth along this journey.

And with this environment that we’re in, with change happening so rapidly, if you don’t have your finger on that pulse, if you don’t have those insights on a weekly basis, you may be riding that train that you should have got off a while ago. Or you didn’t get on the train. Is it too late to get on? Or can you still join and get those impressive gains?

And the gains that you’ve heard are not what normal investors receive. We don’t get excited here with the 10% and 20% returns. We’re talking hundreds, sometimes thousands, sometimes tens of thousands of percent returns for being on the inside of these experts’ brains. That’s what Chris brings to you.

So click the link below, learn more about Legacy Inner Circle, join us inside the member’s area. It’s a member’s-only area on the internet. 

We also have an iOS and Android app to keep you up to speed on your mobile phone, wherever you are throughout the world.

So we’re excited to see you inside the member’s area. Click the link, join us inside there.

And once again, thank you, Chris.

Chris: Thanks, Tom.

Not yet a Legacy Inner Circle member? Join here.