Bitcoin / USD Finishes 2011 Up 1,473 Percent

January 2, 2012 · Posted in Monetary Economics · Comment

Bitcoin Money writes BTC/USD Finishes 2011 Up 1,473%:

The last trade for 2011 at the leading Bitcoin exchange was at the rate of $4.72 USD. For the year, Bitcoin’s exchange rate rose from $0.30 — a 1,473% increase. For the fourth quarter, the exchange rate dropped from $5.14 — an 8% decrease. For the month of December, the exchange rate rose from $3.06 — up 54% for the month.

The number of transactions where Bitcoins are used for both the transfer of funds and for commerce has not risen for the past quarter. The explanation for the exchange rate rise would seem then to be mostly attributed to a combination of short term speculation and the use of the currency as a store of value rather than it being due to organic demand from use as a trading currency. World financial events that have motivated investors towards previous metals such as gold might be having the same effect in driving investor interest in Bitcoin.

Because there is so little definitive information that can be learned from observing the transaction data of a pseudonymous digital currency, speculative theories are plenty in explaining the price rise. Whether or not this is simply greed being stronger than fear at this point is hard to tell. What is known is that rallies of this current magnitude have already occurred for Bitcoin more than a dozen times over the past year-and-a-half.

I may add that today Bitcoin is already at $5.33.

I myself am currently mining at around 800 MH/s and planning on adding another Radeon some time this year.

Happy 2012! =)

Tags: bitcoin

ICAP Testing Trades In Greek Drachma Against Dollar

The WSJ reports ICAP Testing Trades In Greek Drachma Against Dollar:

NEW YORK (Dow Jones)–ICAP Plc is preparing its electronic trading platforms for Greece’s potential exit from the euro and a return to the drachma, senior executives at the inter-dealer broker said Sunday.

ICAP is the latest firm to disclose such preparations, joining the growing ranks of banks, governments and other key players in the global financial system whose officials are worried enough about the stability of the common currency to be making contingency plans for a possible break-up.

The firm has been testing systems that would allow dealer banks to trade the drachma against both the dollar and the euro, the ICAP executives said, cautioning that the measures taken in recent weeks were precautionary. They said the currency pairs would not be accessible for trading unless required by market events, and may never be used.

“What precipitated this were customer concerns about what would happen if a country pulled out of the common currency,” said Edward Brown, executive vice president in business development and research at ICAP.

The U.K. Chancellor of the Exchequer George Osborne said Sunday that the government has stepped up its own planning measures in recent months to be prepared for a possible collapse of the euro zone. The U.K. isn’t a member of the euro zone, but it is home to Europe’s financial hub and is the world’s biggest currency-dealing center.

It’s good to be prepared for the likely …

Tags: drachma, euro, euro breakup, eurozone

Fiat Money, Governments, Banks, and Corporations

September 29, 2011 · Posted in Monetary Economics · Comment

Tags: fiat money

Mish: Expect Continued Rally in US Dollar

September 22, 2011 · Posted in Monetary Economics · Comment

I second everything Mish says in his latest post:

Those who think the Australian dollar or the Canadian dollar are some sort of safe haven will find out otherwise.

China is in a credit bubble and when it pops it will take commodities and commodity producing currencies down with it.
Australia’s property bubble has already popped, and a commercial real estate implosion will follow with a lag, just as happened in the US. Canada will join the implosion party as well.
The Canadian and Australian central banks will respond with liquidity measures or interest rate cuts, sending the currencies lower.

There is no reason to like the Euro, the Yen, the Australian dollar, or the Canadian dollar.

For that matter there is no reason to like the US dollar except things are about to get worse than expected everywhere else. That coupled with a messy default setup in Europe and a Fed that did “less than expected” on Wednesday are sufficient reasons to expect a rising US dollar.

… along with the Dollar I think gold will continue to do well also.

Tags: dollar, dollar rally

Rush to Gold Intensifies

August 8, 2011 · Posted in Monetary Economics · Comment

China Business News writes Central Banks Join Rush to Gold:

Central banks are ramping up their gold buying as they seek to diversify their reserves away from the dollar and other beleaguered currencies.

South Korea became the latest government to disclose a big bullion purchase, saying Tuesday that it recently bought 25 metric tons – more than doubling its holdings to 39 metric tons. Mexico, Russia and Thailand have also been major buyers in 2011.

This year, governments have almost tripled their net gold purchases, increasing their holdings by 203.5 metric tons this year, up from a 76-metric ton rise last year, according to the World Gold Council, an industry group backed by miners.

The demand marks a major shift in central banks’ thinking about gold. Increasingly, they see bullion as protection against risks posed by declining paper currencies and global economic upheaval, and their vast resources and conservative bent make them a powerful force in the gold market.

While gold is an asset that does not generate income, that shortcoming is less glaring among historically low interest rates.

Before 2010, governments had on balance been shedding their bullion for two decades, during which gold was seen by some as a relic. According to data from GFMS Ltd., a metals consultancy, 1988 was the last year that official holdings increased.

“We definitely have seen a sea change” in central bank attitudes toward gold, said David Greely, chief commodities strategist at Goldman Sachs Group. Central bank buying provides “longer-term support for gold prices,” he said.

I have said it before and I will say it again.

In a world of debt laden governments, great depressions left and right, and the monetary disfigurement called fiat currencies, gold provides a safe haven for all those who get it.

This will all the more be the case as global bond ratings are finally being cut.

As these lines are written gold has just hit $1,711.30.

Tags: central banks buying gold, gold

Bitcoin! – The Freedomain Radio Interview

June 14, 2011 · Posted in Monetary Economics · Comment

Tags: bitcoin

Bitcoin – A Formidable Challenge to the Powers That Be?

June 13, 2011 · Posted in Monetary Economics · Comment

I have bean reading and coding a lot for the past day about stuff related to Bitcoin.

I am absolutely fascinated by the concept and I think that in the long run it’ll be a successful currency.

Economically, in my opinion, it fulfills all the requirements that exist for a quality medium of exchange (limited in supply, predictable in growth, divisible, homogeneous, fungible, and sustainable)

Here is a short clip about it:

Bitcoin Triples Again; Thoughts on Money and Freedom

June 9, 2011 · Posted in Monetary Economics · Comment

Much is being written and talked about when it comes to Bitcoin these days. Smartmoney writes The Bitcoin Triples Again:

The world’s fastest-gaining currency has tripled in price again. Last week, SmartMoney.com reported that the Bitcoin had exploded from an exchange rate near zero to more than $10 in about a year, making it one of the top-returning assets of any kind. On Wednesday the currency topped $30.

I myself don’t know much about Bitcoin yet, but what I do know that most people who write about it have little to no clue about the concept and the history of money.

A money is a medium of exchange. Under free competition in the realm of media of exchange, those goods that are most desired by consumers to fulfill this role will outstrip others in this process, just as they do in any other field where demands are to be fulfilled.

It is only through government fiat and intervention that the money market has been turned into a centrally controlled and directed monopoly. As I’ve explained before:

Fiat currency is demanded by individuals in exchange transactions because its acceptance in payments of debts is enforced by the state, because it is required in tax payments, and because reproducing the same currency without state approval is prevented via the threat or use of aggression. This ensures that there will always be some kind of demand for it.

The internet, arguably the freest economy in the world today ( ironically originally created by government bureaucrats :) ) has changed and is changing the world in ways that many still cannot fathom and are slow to catch up with.

While free competition on the internet has already decentralized the market for media and communication, and has allowed to bring to bear the benefits of the free market upon an enormously large segment of today’s population, in particular the younger generation, bitcoin appears to be the internet’s first serious attempt to challenge the government’s currently global oligopoly on the production of money, and so far it seems to be a medium that is gaining in popularity. Who knows where exactly it will go?

The other day I read a criticism from a guy as to why bitcoin won’t work and why its decentralized mechanism of producing currency is flawed etc. etc. But all those who criticize the concept of a decentralized, non government controlled, currency are either paid off or missing the point:

Us libertarians do not proclaim to know which single commodity out there in the world will be the best medium to facilitate exchange for all time to come! We are not in love with gold, silver, or bytes streaming through cyberspace. All we say is this: “The initiation of the use of force is immoral.” And as I explained above, unfortunately every single pillar that fiat currency rests upon is rooted in just that. We say: Let free and peaceful people decide for themselves what they prefer as currencies, and let them produce currencies where they think they can fill the need for a stable medium of exchange better than others.

(It is precisely this that the governments of the world fear: to have to actually be subject to the mundane and annoying checks and balances called consumer demands, complaints, and competition from superior service providers. Thus, just as in the case of Net Neutrality and the FCC, you can be sure that they will use every trick in the book to curb bitcoin’s emergence as much as possible. They will say that it’s used by crazy people who sell drugs and prostitution and who eat puppies and babies etc. etc., just to get moral sanction from the public to crack down. Of course they will have to pass in silence the fact that cash fiat money, purely and 100% created by the state, is still organized crime’s prime medium of exchange.

But in the case of bitcoin a crackdown will have to be well planned and orchestrated because if its decentralized nature does indeed prove to be safe from government meddling, then its popularity will only rise exponentially!)

So, to go back to my prior point, even if bitcoin turned out to be a gigantic failure, it absolutely doesn’t matter! This is precisely the point of having free competition in the realm of money: To allow the better producers to stay in business and let the irresponsible ones fail. So long as irregularities and problems are addressed on a smaller level, the repercussions for the affected customers are far less of a drain upon society than continuous and ongoing nationwide or even global boom and bust cycles, financial crises, and fiat money and credit financed wars.

We are not wed to conclusions. We do not say that gold or platinum or bits are the one best currency forever and ever. We are only wed to a process: that of logic and evidence. Market competition and the respect for individual’s body and property leaves little room for arbitrariness and whim and forces suppliers to test their hypotheses about what is and what is not demanded by the majority. Where their decisions were wrong they will be negatively affected and try and improve, where they were right, they will be rewarded.

So to the critics of bitcoin who intend use it as an example of how decentralized currencies won’t work, impatiently awaiting its apparently oh so predictable collapse, I would say this: Why don’t you calm down and let the chips (or coins) fall where they may? :)

Tags: bitcoin, currency, money

Utah’s Gold & Legal Tender Laws

May 28, 2011 · Posted in Monetary Economics · Comment

Fiat currency is demanded by individuals in exchange transactions because its acceptance in payments of debts is enforced by the state, because it is required in tax payments, and because reproducing the same currency without state approval is prevented via the threat or use of aggression. This ensures that there will always be some kind of demand for it.

(You can find some more information on the specific history of fiat money in the US in my post Government Power, Gold, Fiat Money, and the U.S. Constitution.)

The government also discourages the use of alternate media of exchange, e.g. in the case of gold in the US, through the imposition of capital gains taxes, but even without such additional hurdles there would be little to no threat to the enforceability of the fiat money system.

In fact, the US Treasury itself still mints gold and silver coins that it officially recognizes as legal tender for all debts public and private. For example, a 1 Oz American Eagle gold coin, is recognized as a $50 legal tender.

Mind you, the current value of 1Oz of gold on the open market is priced at around $1,500. So in other words you’d have to be a complete idiot were you to use that coin to buy, say, a concert ticket worth $50 or pay your taxes by supplying a commensurate number of such coins to the IRS, when you could just as well use paper money that you ascribe a much lower value to.

Recently there have been some developments in Utah toward recognizing gold and silver as legal tender for the metal value and NOT the amount minted on the coins:

The Utah Legislature on Thursday passed a bill allowing gold and silver coins to be used as legal tender in the state — and for the value of their precious metal, not just the face value of the coins.

State backers said they hope the move will help insulate Utah from a potential monetary slide as countries question the value of the dollar. Others, casting their eye nationwide, said it could spur a broader move by Congress or states to readopt a gold standard.

“Utah, if the governor signs this particularly, they’re going to change the national debate on monetary policy and get us back to basics,” said Jeffrey Bell, policy director for Washington-based American Principles in Action. Mr. Bell has been in Utah to help shepherd the legislation through.

Utah’s bill allows stores to accept gold and silver coins as legal tender. It also exempts gold and silver transactions from the state’s capital gains tax, though that does not shield exchanges from federal taxes.

It is true that merchants in Utah can now also accept a smaller amount of gold in payments, reflecting the open market price of gold, rather than its legal tender amount. But they would still be required by federal law to accept fiat currency. Individuals would also still be required to pay federal capital gains taxes on their realized gold gains.

I would say that, by and large, Gresham’s Law applies here as much as anywhere else. So long as the government aggressively enforces the use of its fiat currency and in fact requires its use in the settlement of tax debts, people will be inclined to push those paper dollars back into circulation, while hoarding the “better” money: gold and silver coins.

Thus I view the recent laws passed in the US state of Utah as a mere recognition of what already is. The exemption of gold from capital gains taxation on the state level may make it lucrative to sell gold in Utah, but that’s about the extent of the impact of this law as far as I can tell.

Tags: Amercian Gold Eagle, fiat money, gold, gold money, legal tender, utah

Belarus Currency Devaluation & Inflation Spreads Panic

May 27, 2011 · Posted in Global Economics, Monetary Economics · Comment

Business week writes Belarus devaluation spreads panic:

A sharp devaluation of the Belarusian ruble has spread panic throughout the country, with people sweeping store shelves and queuing up at currency exchange offices on Wednesday in a desperate attempt to protect their savings.

President Alexander Lukashenko promised that the national currency will remain stable following the devaluation enacted a day earlier, but experts warned the Belarusian ruble will continue its nosedive if Russia doesn’t provide a quick bailout.

The ruble lost nearly half of its official value against the dollar Tuesday, when the National Bank ordered a devaluation. The new official rate is 4,930 rubles per dollar, up from the previous 3,155 but the perceived value of the local currency is much lower — on the black market it takes 6,000 rubles to buy a dollar.

To make matters worse, there is a physical shortage in the country of dollars and euros, which companies and households desperately want to own to protect themselves from a worse devaluation in the future.

The government has tightly regulated sales of hard foreign currency and its own reserves are badly depleted. Exchange offices have run out of foreign currency because they are allowed only to sell what they buy from clients.

Andrei Krylevich, 42, has spent a week in lines outside an exchange booth in downtown Minsk without a chance to buy a single dollar. The computer company he works at has sent its employees on an unpaid leave, and he urgently needs to pay back a $9,000 loan to a bank.

“In just one month, I have virtually turned bankrupt, the entire country has gone bankrupt,” Krylevich said.

Most Belarusian industries are state-owned, and the government has tried to keep its scarce currency reserves for vital imports. On Tuesday, it set tight limits on interbank currency trading, effectively stifling the market.

The flamboyant Lukashenko, in power for nearly 17 years, has kept an unusually low profile in recent weeks as his government has been pleading Moscow for a vital loan. Russia has been reluctant to provide it, pushing Belarus to sell its industrial assets.

Russia’s Finance Minister Alexei Kudrin said Tuesday that Belarus can get the total of $3 billion in loans from an economic alliance of several ex-Soviet nations over the next three years, including the first $800 million disbursement that could be delivered next month. Kudrin added that Belarus could earn another $7.5 billion by privatizing its industries, most of which remain in state hands.

Events like these are likely to occur more and more in Europe, in particular Eastern Europe, but also in many other emerging markets.

Note how the dollar is still well accepted as a stable flight to safety when other currencies fail. That’s why I marked that one part in bold: This is a perfect example for what happens when credit crunches hit emerging market economies.

Global deleveraging is always rather likely to exert an upward pressure on the Dollar and on gold as well as the chickens of cheap global credit come home to roost.

By the way: It’s comical, but absolutely typical, for any actions taken by government officials, that “Lukashenko promised that the national currency will remain stable”! As if the affected people had any choice in the matter to begin with!! =)

Tags: belarus, devaluation, inflation, ruble, russia