Bitcoin: A Bet Against the Stupid Horse

July 17th, 2013   Submitted by Doug French

Stupid Horse

I’ve attended a number of FreedomFests.  This year’s edition had more energy than I remember. FF impresario Mark Skousen and coordinator deluxe Tami Holland were dealt a terrible hand with Caesars moving the conference location from the company’s signature property to Planet Hollywood at the last minute.  However, Tami and Mark are pros and all is well that ends well. Planet Hollywood is a hip property appealing to a younger clientele which provided the perfect atmosphere for liberty lovers.

Bally’s, which hosted the event in the past, can only be described as tired.  Its convention center was a long dreary walk from the action on the casino floor. Planet Hollywood is full of life and a quick ride up the escalator from the gaming action put attendees right in the heart of FreedomFest.

However, while the venue was young and hip, the investment advice at FreedomFest was old school. Yes, the dollar is doomed, just as the Roman deranius ultimately was. But as I made the point during the Bitcoin Panel (with Jeffrey Tucker, Amanda Billyrock and Jeff Berwick), when the dollar ultimately dies, we likely will not be digging out our gold and silver coins to trade with.

In the electronic age people carry libraries of books around with them in a single tablet. We constantly communicate in dozens of ways with a tiny handheld device that was inconceivable only a decade ago.  The same device holds our calendar, allows us to watch movies and even take pictures. So when the dollar goes poof! do we honestly think we will  return to pulling heavy coins out of our pocket to trade with: The trading equivalent to rubbing two sticks together? Not hardly.

In the digital age Bitcoin or one of its competitors is what will be traded. That same device we can’t live without will hold our money. Just as we carry our libraries, TVs, and secretaries around with us, we will be toting our banks around as well.

However, other than our Bitcoin panel there was virtually no mention of the crypto-currency at FreedomFest, despite being “The world’s largest gathering of free minds.”  At the close of the Austrian Economics for Investors panel, the five investing gurus offered up places to park one’s wealth.  Stephen Mauzy suggests agricultural land. Academic Harry Veryser said cash and coal stocks. Money manager Adrian Day likes gold. Ty Andros said to never store wealth in paper again and that the gold market is at the same place the stock market was in March of 2009. Mark Skousen isn’t wild about gold but is wild about regional banks.

Serial entrepreneur and budding politician Wayne Allyn Root, listed a number of ways to protect your wealth and happiness in the coming years, after first convincing the audience that Obama had used the IRS to come after him. First and foremost, buy precious metals he said. He’s also big on agriculture, medical stocks, energy stocks, and urges everyone to live in states with no income tax.

I’m all for gold, but while Jeffrey Tucker bought pizza somewhere in Planet Hollywood with bitcoin, I challenged our audience to try and make a deal on the casino floor with a gold coin. No chance. Plenty of speakers at the event said gold is money. At the moment it is not.  Bitcoin is more marketable than gold and silver. Neither is as good as the dollar at the moment, but that will change.

All the investment advisers said invest in things the government can’t print. But, gold is the only thing they can think of. However, bitcoin has with the added advantage of digital age transportability.  The difficulty of mining bitcoin matches that of producing gold. Just as gold is property that can’t be duplicated, each bitcoin is a non-reproducible piece of digital property. Gold is hard to counterfeit, bitcoin’s strict mathematical algorithm makes it equally hard to copy. Every bitcoin is specific property, fractionalized banking being impossible.

George Mason economics professor Peter Boettke made his first FreedomFest appearance and presented some harrowing statistics pointing to the demise of the United States. However he made the analogy that the economy is like three horses. The Adam Smith horse drives prosperity through gains from trade. The Joseph Schumpeter horse provides constant innovation from technology. The third horse, what Boettke calls the stupid horse, is government.  Boettke’s point is that as long as the Smith and Schumpeter horses are in the race they will outrun the stupid, government horse. For the moment prosperity is winning.

Both the Smith and Schumpeter horses created bitcoin and as much as the government tries to rein it in, those horses will stay ahead. The government horse is too slow and stupid.

Since the crypto currency is flying below everyone’s radar one wonders if it is a good investment. Saturday’s price was $94, just over a third of its high price versus the dollar made in the Spring, but many times the $14 it traded for a the beginning of the year.  While the Fed does its best to make dollars out of nowhere by the billions, bitcoin miners can only crank out 25 every ten minutes on the way to a total of 21 million in 2040.

I mentioned in my talk that the Winklevoss twins are the Hunt Brothers of the bitcoin world, owning one percent of all bitcoins. They have also sought approval for a bitcoin exchange traded fund (ETF) to allow investors to easily gain exposure to the crypto-currency. Approval may take months or years or may not happen at all. But, if it does, it may do for bitcoin, what the gold ETF (GLD) did for the gold market.  People could stuff their IRAs with bitcoin.

It’s possible the stupid horse will win and if it does, you better have gold. However, if you believe in markets and freedom, make a bet on the Smith and Schumpeter horses, bet on liberty and bitcoin.

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22 Responses to “Bitcoin: A Bet Against the Stupid Horse”

  1. Justus RanvierNo Gravatar says:

    The horse analogy is good. It can also be used to counter mindless proclamations that gold has a 6000 year history of being “the free market’s chosen money”.

    Of course, for most of those same 6000 years horses were the free market’s chosen form of transportation but nobody would seriously suggest that we should abandon cars and airplanes for horses now.

  2. I’d say the overall message here is diversification. A little gold, a little silver, a little BC, some other non-monetary items of practical use and/or appreciable value — and ZERO long-term faith in paper currencies or instruments.

  3. Seth KingNo Gravatar says:

    +1 for Liberty Forum where Bitcoin was on everybody’s tongue. More proof that free staters are quite a bit more ahead of the curve.

    • Barf BarfNo Gravatar says:

      Free state means the strong bossing the weak about, or does it mean employee rights? where does the alienation happen? we allow the strong to decide what to do with their money and subject all of society to their norms and through the principle of minimum differentiation this becomes consumerist shittown? and does this spiral further, do the strong then feel entranced with themselves enough to have little consumerist rugrats running about in the backyard, a new generation of strongerists ready to take on the town? imma confused behind all the demagogueryness

  4. Peter SimpleNo Gravatar says:

    What is to stop an Obama Executive Order outlawing Bit Coin? And how does one trade Bit Coin if the Order is accompanied with internet enforcement by the NSA?

    • Patrick Binder VoluntaryistNo Gravatar says:

      As of right now NSA isn’t an enforcement agency so it wouldn’t be them, though they could use the dragnet to see the transactions. The next crypto-currency needs more anonymity, work with Tor, or something like that.

      • Peter SimpleNo Gravatar says:

        The value of an alternative currency, like bit coin, is the perceived protection of a store of value from debasement by Government. Even anonymity is temporary. Illegitimate Government could never tolerate a modest presence of an alternative currency. It would act very effectively the way the IRS does when it prosecutes to publicize how it can destroy non-voluntary taxable entities.

    • Seth KingNo Gravatar says:

      There’s nothing to stop the feds from making Bitcoin as illegal as heroin. It doesn’t mean they’ll be able to stop Bitcoin, though, just like they cannot stop heroin. All it would do is push it to the underground and ostensibly further legitimize the underground. Everything the government does to increase the size of the underground only furthers our goals. I see Bitcoin as a lose-lose for the state, no matter what they do.

  5. Peter SimpleNo Gravatar says:

    Then it’s not about the prospect of survival of an alternative currency but about the strategy of guerrilla warfare in it’s most civilized form, by attacking or taking refuge from the debased currency. Why does Mugabe and the very real prospect of printing currency in Trillion unit denominations come to mind? Bit coin should prosper there. It may be unfair to use that as an extreme example. It will be interesting to see if there results any change whatsoever from the publications of the Obama scandals at the NSA, IRS, ATF, immigration, vote stealing…etc. If these are all buried and status quo prevails then what possible chance does bit coin have to prosper the underground in the short-term? No ones freedom and property has ever been won back by a substitute currency. Particularly by a currency that is run by a pair of twins that own 1%. They are the substitute Federal Reserve wannabees. Sorry, this has become a rant.

    • Seth KingNo Gravatar says:

      When you say things like “Particularly by a currency that is run by a pair of twins that own 1%.” it shows me that you don’t understand bitcoin at all. Bitcoin is not a company. It’s free software. Nobody “runs” bitcoin. Or perhaps you could say everybody who uses the software “runs” bitcoin. But bitcoin is definitely not “run” by the twins.

  6. Peter SimpleNo Gravatar says:

    You are correct. I really don’t know that much about bit coin. I read that on this site somewhere.

  7. Don DuncanNo Gravatar says:

    Seth: I was at the panel at FreedomFest. I want to convert from gold to BC but I think I should wait until gold goes up again. What do you think?

    Can we talk at Libertopia? Will you have a booth?

    • Seth KingNo Gravatar says:

      I won’t be going to Libertopia.

      I don’t believe that gold will be going up any faster than Bitcoin. That being said, if I had gold I probably wouldn’t sell any to buy Bitcoin. That’s not because I’m not bullish on Bitcoin. It’s just that I think the best way to get into Bitcoin is to start small. I don’t know if you’re retired or not, but if you’re still working, I would simply take the leftover Dollars you have left every month and use those to buy Bitcoin. Start putting your NEW savings into Bitcoin. Ideally, figure out a way to get paid in Bitcoin. But that’s much more difficult unless you own your own business or are on great terms with your boss.

      If you ARE retired and you’re living off of your gold stash, then yeah, you may want to sell a couple ounces of gold to buy Bitcoin. Then you will have something to play with and once you feel super comfortable with storing and spending Bitcoin, maybe go ahead and sell some more.

      But to address your statement, I think Bitcoin is going up a lot quicker than gold.

  8. Mark SkousenNo Gravatar says:

    May I remind Doug that I was the one who suggested to Jeffrey Tucker that he create a session/panel at FreedomFest on Bitcoin and that he bring together the best experts on the subject. FreedomFest is still by far the “greatest libertarian show on earth” to discuss “the best ideas and strategies” (to quote Steve Forbes). There are plenty of imitators, but only one FreedomFest.

    Since its inception, Bitcoin has been incredibly volatile, more than gold. I agree with Alex Knight and others that the best strategy is to have several ways of trading — gold, Bitcoin, foreign bank accounts, etc. But gold will remain the ultimate survival choice, especially if computers shutdown, or government outlaws Bitcoin.

    • Don DuncanNo Gravatar says:

      Gold “was” the ultimate survival choice, and maybe still is, but BC has the potential to trump it. First, the govt. can outlaw BC, but not enforce that law. I bought 40 oz. of gold illegally in the early ’70s and quadrupled my money. But I made much more on silver during the ’70s buying through my Swiss account. And I paid no tax on my profits. I have a healthy fear, but no respect for the law. The law has historically discredited itself. (See “Les Miserables”) Second, the main drawback to BC is general acceptance as money, not govt. action. This depends on communication and time. Unfortunately, time is running out for me. I retired 4 years ago, and have about 10 years left.

      Thank you very much Mark, for FreedomFest and especially the BC panel. It helped by giving me personal anecdotes from people I respect.

      • Patrick Binder VoluntaryistNo Gravatar says:

        What do you mean you have 10 years left? Until you sell your gold/silver? Or do you know the date of your death?

  9. thorax232No Gravatar says:

    My biggest problem with bitcoin is its boom/bust cycles and the fact that it can never be “real”. They make “physical bitcoins” but those again are based on 0’s and 1’s, much like our current currency. I don’t think it will ever be stable or realistic.

  10. The bitcoin market is under attack by these bitcoin miners, it’s going to render the market useless. No one is going to want to invest in bitcoin unless that fix patch the hole these miners are exploiting.