Bitcoin represents a financial renaissance, which means that society still exists in a monetary medieval period dominated by the alchemy of fiat currency.
During the Middle Ages, a group of men attempted to turn base metals into gold. They were known as alchemists and were unsuccessful in their endeavours. We’re lucky they didn’t. why? Consider the alternative.
If alchemists had found a way to convert base metals like lead into the monetary unit at the time, the race would have begun. Race to find as many minerals as possible to turn them into gold.
The first users of this newly created gold were of immense wealth, but with it circulating throughout the economy – a much smaller field of opportunity in the Middle Ages – a disaster could have occurred.
Those with less personal or political association with chemists found themselves outside any market economy. They will no longer be able to bid on goods and services. The price in terms of gold will simply be too high.
It would have created the ultimate boom-and-bust cycle. Given where the economic development was at that time, this could have prolonged the Dark Ages by hundreds of years.
Although considered part of the medieval tradition, the work of alchemists experimenting and documenting their results paved the way toward the scientific method of discovery. In other words, they failed to achieve their primary goal, yet they found something that would be more valuable to humanity.
Where alchemists failed to try to create value from something less valuable, a group of people in the 20th century found success. These modern chemists are known as central bankers.
The present age of financial chemistry
The early 1970s saw high inflation and commodity prices, as they do today. Dollar printing continued for years, as it is today. With the end of having money Which Tie with relatively limited gold, any claim of responsibility flew the window. Price increases were the name of the game, and Americans, able to once again own the precious metals, did so in droves. They sent the price of gold from $268 an ounce to over $2,400. The easily accessible silver went from $9 to over $130.
Buying stock in the silver trading company, Bache, was discontinued in 1980 to curb the rise in silver prices. (Had the billionaire Hunt brothers not used leverage to purchase their subsequent silver holdings, there is no sign of the price going up.)
The era of financial alchemy reached its climax in the early 1990s. Inflation has been tamed by a sharp rise in interest rates and a necessary stagnation. Federal Reserve Chairman Alan Greenspan – a former aide to Ayn Rand and the Beg of Gold – has become the face of the managed economy.
On one of his many appearances before Congress, he once said, “I know you think you understand what you thought I said, but I’m not sure you realize that what you heard is not what I meant.”
Policymakers loved the Greenspan era. It was a time of relatively easy money, relatively little monetary turmoil, and made it easy to promise growing government programs without apparent long-term cost. All this was added to the easy re-election.
It wasn’t going to stay forever.
Greenspan created market risk in his first year as Fed chair. There was a big spike at the start of 1987, but there was a brutal correction in October. On October 22, 1987, the Dow Jones fell by 22% in one day.
Unsurprisingly, Greenspan announced that the Fed stands ready to ensure that capital markets flow smoothly. Markets interpreted this as a green light to assume that the Fed would intervene if the market drop was large enough.
With programs like 401k plans on the rise, it wasn’t surprising that such support was needed — even if it caused the mother of all bubbles to bubble over a number of decades in the process.
Greenspan kept interest rates low throughout the late 1990s. Technical stocks formed a huge bubble and exploded. Then the housing exploded. “Greenspan Mode” has been renamed as new Federal Reserve chairs enter the role. When Greenspan was retiring in 2006, the seeds were planted to start bursting a housing bubble, but it was also a time when a number of technologies emerged that could free the world from boom and bust. The cycle is exacerbated by central bankers.
Bitcoin and the emergence of the financial dark ages
The past 50 years of the global Fiat system have seen an impressive track record. Boom, bubble, bust. Boom, bubble, bust.
Armed with advanced degrees, central bankers have shown that they only know how to do two things: print money or print less money.
Attempts to rein in the Fed’s balance sheet slightly in 2019 had to be quickly reversed when financial markets began showing pressure — even a few months before the world heard about COVID-19.
The past 51 years have been a financial dark age of quantitative easing, currency depreciation and the financing of the economy at the expense of other sectors. Adding to the remnants of the gold standard before that, most of the human race was on the whim of an unelected few for power based on academic qualifications and theories, not market approval.
As a result, it became universally free for all.
Some countries, such as Argentina and Zimbabwe, experienced the collapse of hyperinflation. Others, like Japan, have tried stimulus programs to get their economy moving, only to discover that they are pulling the string. Other countries, such as El Salvador, are still pegged to the US dollar and have found relative stability, but without the freedom to control their financial destiny.
In late 2008, the Bitcoin White Paper was released. The timing of the paper was inspired by a plan to pump hundreds of billions of dollars to “stabilize” the bubble rather than let it collapse. These numbers now seem strange in the age of trillion-dollar stimulus programs…only 14 years later.
But bitcoin is hope.
It is hope for the unbanked globally. It is a hope for those whose fortunes have been confiscated by government officials, whether directly by force or through the indirect theft of inflation and hyperinflation.
The Bitcoin protocol ensures that only 21 million will be mined. The 19 million bitcoins were mined recently and several million may have already been lost due to a poor understanding of the value of the asset. Regardless of the “ultimate” number, the key is consistency.
We now live in a world where the printing press has given way to direct deposit stimulus checks, and where the potential for asteroid mining from robots could drive a collapse in precious metal prices within a few decades.
Clearly, there is no other asset class that can truly be said to have an extreme limit on its rarity.
Already, a thriving community has grown around Bitcoin, exploring its potential in areas such as art, philosophy, and human rights. Because what has been described simply as a “peer-to-peer electronic payment system” has a lot more to it than meets the eye.
Welcome to Financial Renaissance. The era of financial alchemy will not pass without a fight, but with Bitcoin there is an opportunity to build a new system while leaving the old to wither on its own.
This is a guest post by Andrew Packer. The opinions expressed are their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.