Please don't write me off and by thinking: Well isn't everyone concerned? or
Doesn't everyone worry about having enough or wanting more?
After all they say money makes the world go around right?
Those that have lots of it say 'money doesn't buy happiness', while those that have very little say 'that’s easier for you to say because you have a lot while I struggle to survive!'.
My mind has been working overtime trying to rationalize what it all means and how it may all play out in the future. I say this for a reason, paper money is a perception. Its worth is only as strong as the behavioral
and psychological belief in its value.
Since the abandonment of the gold standard, or the pegging of currencies to a of store wealth like gold, the “concept” of central-bank printed money has drifted further and further from traditional normality and reality. The fallacy that has been perpetuated and accepted is that a piece of paper still has the same worth it once did when backed by gold. And even more so, that it can be trusted to stand the test of time.
The truth is that thousands of “fiat” currencies or money not backed by something like gold have failed over the years while gold and silver, used by the Egyptians thousands of years ago can still be used to purchase
and trade today.
The question and circumstances surrounding this concept of money still bothers me.
- Has the human psyche changed that much?
- Is our current generation dispatching tradition and is more willing to accept paper as being representative of the same store wealth as something like gold?
- Will the value of gold ever be held in the same esteem as it has been for thousands of years or has the paper illusion caused delusion?
In examining the questions above, I wish to point out the emergence of a new form of “digital currency” called “Bitcoin”. Taken from the Bitcoin website
“Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of Bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system”Bitcoin is, in basic terms, a digital currency or a new form of money. The price for a Bitcoin has fluctuated since its inception and the road has been rocky with huge volatility. One would expect that from a new form of money trying to break through the human perception and acceptance barriers. I guess my point is that a Bitcoin, just like a $US or Japanese $Yen is only worth what it is perceived and accepted to be worth. This
perception and acceptance drives human behavior which in turn drives the price.
Bitcoin, like other Fiat currencies is not backed by anything intrinsic and depends heavily on the willingness of people to both use it and accept it. It is for this reason that I have tracked the Bitcoin story and analysed
its performance since its launch. I have studied the spikes in Bitcoin prices and the set of economic conditions/circumstances that have prevailed or were prevailing at the time.
If you analyse price fluctuations during financial crisis news like Cyprus bank runs, it is difficult not to see the correlation between a potential currency crisis and an increase in the Bitcoin price. I have also noted that many bloggers and media outlets have reported that in moments of reflective economic crisis, a surge in consumer sentiment on Bitcoin is experienced.
Below is an article which supports this discussion and theory.
http://www.bloomberg.com/news/2013-03-20/fleeing-the-euro-for-bitcoins-.html
With all of this being said, the one obvious point to be taken is that the emergence of Bitcoin into the money arena cannot be ignored. The growth in the Bitcoin perception and acceptance has seen the price reach new highs in recent times. The growth is coming from an ever growing break down in trust in the existing monetary system. The growth could also be coming as the world embraces technology and the new generation of human beings are more accepting of a dynamic yet controlled change to the global monetary system.
After rationalising and pondering these thoughts. Twisting and turning the facts, turning it inside and out. Driving myself crazy.
- Is Bitcoin the answer?
- Or is it the canary in the coal mine?
- Is Bitcoin the way to measure the degree of the next big financial crisis and perhaps a tool to determine the timing?
The USA has a stock market volatility index called the VIX index. This index is used by market analysts as a guide for market risk and is often referred to as a “fear driven” guage. Perhaps Bitcoin could be used in a
similar fashion as a forward looking tool to be exploited on a vast array of upcoming and potential market and economic conditions.
And so I pass on to you, my thoughts and ramblings on the issue hoping you can solve the mystery I cannot, for the value of money is not just what I perceive it to be, but what everyone that reads this blog and the rest of the world perceives it to be. Perception and trust is everything. It gives money worth through the belief in its worth. Gold has stood the test of time, thousands of years and still worth something, still believed in, people still have faith and it is still perceived as being precious.
With all this in mind I ask, is Bitcoin the canary in the coal mine? Or is
it the canary in the GOLD MINE?
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