The r0ach report 20: Everything you ever wanted to know about precious metals vs bitcoin fundamentals and the future of the financial system in one post
Some of this information will be a recap of what I've written before. Some of this information is derived from things I've discussed with Steve @ Srsrocco, but I wanted to compile a metals vs bitcoin vs fiat role in the future of finance post with everything in it:
Let's start with metals:
The ESF naked shorts metals down capping them to around 5-10% above cost of production in order to try and contain them. The vast majority of their cost of production is based on the oil price, so metals in this rigged market are almost like oil futures in practice. Over the last 100 years we were arbing excess and cheap (basically free) energy into the extraction of these metals pulling out enormous amounts of them, far more than were mined in the Roman days.
The time has now come where we've used up most the low hanging fruit in energy and EROI is collapsing (energy return on investment) so this arb game is ending. At the same time where EROI is collapsing, we are also reaching peak gold and peak silver at the same time. For instance, you need to move something like twice as much earth on average in the year 2017 as in the year 2000 in order to get 1 oz of silver (not to mention they printed an enormous amount of money at the same time).
The holy trinity that will catapult metals to the moon is the combination of collapsing EROI, crashing metals content per ton of earth mined, and probable revaluation of metals by the CBs in the near future (gold to $10k+ and silver even higher percentage gains). Cost of production to mine anything in space will be astronomical so it's ridiculous seeing people claim space mining would have any effect. You might as well claim we will mine gold inside a black hole or alternate dimension. We would probably attempt to mine metals two miles under the ocean long before space, but that is of course no threat to anyone buying at current prices.
Debt based fiat currencies:
The fourth piece of the puzzle is that debt based usury currencies require infinite growth to not collapse since the interest due is always higher than the principal. Demographics have peaked in every nation that matters (the horn of Africa does not matter), and net energy production is flatlined with the cost of that production rapidly rising due to collapsing EROI. Since every action in an economy requires someone either doing something by hand or a machine doing it for them and burning fuel in the process, this means growth is over and all debt based currencies are 100% doomed to collapse.
Since the debt based currencies are doomed to collapse, they will be forced to either issue a non-debt based paper currency issued by the treasury like the greenback, or go back to a metals standard. Either route will see the USD and all other fiats collapse in the process with metals skyrocketing, so metals win regardless. There has likely never in all of human history been a more bullish time for metals (silver in particular) than this point right now.
Cryptocurrency:
Bitcoin doesn't have good fundamentals to compete with gold and silver as a settlement layer (aka money or the base of Exter's pyramid) because it has built in rent seeking middlemen (transaction validators) and doesn't remove counter party risk. It also doesn't have good fundamentals as a currency due to horrible scalability from a high redundancy, triple entry accounting design, so it's currently designed to perform poorly at both tasks. Someone would need to bring it back to the drawing board and completely redesign it as a high throughput currency and forget it ever competing with metals as a settlement layer to have some type of relevency.
Cryptocurrency is not fungible no matter what you do to it, and thus not possible to be money, only currency like dollars or airline miles:
Fungibility, power vacuums, and decentralization:
Cryptocurrency is NOT fungible. If anything about the protocol at all can be altered via a strongman or banana republic voting to take over it's exposed power vacuum it's not fungible.
Money = has objective, static traits
Currency = random arbitrary bullshit some guy makes up and constantly fiddles with like fiat or bitcoin. If it's possible for your money to "hard fork", or randomly morph from one thing to another, it's not fungible, and hence not money.
It doesn't matter if said forks are orchestrated by a banana republic of miners in a voting process. There is no Nash equilibrium in cryptocurrency, only a power vacuum to be filled by a top down hierarchy or strongman. To escape this master and servant hierarchy you have to use real money that cannot be altered or tampered with by third parties.
(image source: Wikipedia)
Metals will always have value to an extent when compared with Rothschild money. But crypto will continue to excel and inflate.
Let's assume you worked for 30-40 years straight in a coal mine or whatever and are forced to choose between investing all of your money in metals or in bitcoin. Assuming both market caps have already topped out, which do you choose? The answer is pretty obvious, and this is the winner of the base of Exter's pyramid in the end, or what constitutes money to a civilization.
When you put any real human into this scenario of forcing them to differentiate between money and currency, without even knowing what the definition of money or currency is, they're going to get the answer right. This means bitcoin's value is entirely derived from being a currency, not money, meaning transaction flow (scalability), not stock.
This is why cryptocurrencies will never compete as money and most also perform poorly as currency due overhead of triple entry accounting redundancy killing scalability. You generally have to get rid of the blockchain itself, it's key characteristic, just to have any hope of scaling. Then you're left with an even more unsound monetary instrument with no/poor state recovery.
In other words, many people hype the fundamentals of cryptocurrency as "amazing" or "can't lose", when in fact their fundamentals as money are poor, while fundamentals as currency are also pretty questionable.
I would invest 90% of everything I had into crypto.
The catch in your proposition is "topped out". Cryptocurrency markets have not topped out by a long shot.
Cryptocurrencies are not exactly penny stocks anymore either. If you go by the estimate of 2.5 billion ounces of above ground, investment grade silver, then the silver market is only around $41 billion...around the same as bitcoin.
Silver is essentially "too big to fail". It requires a black hole or something hitting the earth to get rid of it. Bitcoin is not too big to fail. It can die from bad fundamentals, rough consensus attack, cryptography problem, etc.
The correlation between the US debt and gold is 92%. This means gold should make a run to at least $2200 in the somewhat near future, which would cause the GSR to shrink from 80:1 to 30:1 in the process and take silver to $73-ish.
That would be a 4.4x return just from a normal market correction that doesn't require any type of banking disaster, mad max event, or govt revaluation of metals. Nevermind how big of a move metals would make with one.
It's kind of already known gold and silver have the fundamentals to make big moves like this, so your only real problem is finding the timing. With cryptocurrecy people are currently pretending the fundamentals are the same as metals, but as I've talked about on this page, I think that's a horrible mistake to assume they are.
The invisible hand of the market will likely demand "cryptocurrency" (it has currency in it's name for a reason) be able to actually exhibit traits required of "currencies" such as high transaction flow (scalability) instead of pretending to be a valid settlement network (money) when things like metals function far better at that task.
The purpose of a settlement unit aka money is to be able to do things like transfer generational wealth. Can you imagine someone writing a will for their relatives leaving them bitcoins? There's no guarantee the network won't break down and cease existing two minutes after they write the will, which is why nobody is ever going to use bitcoin for such a task.
The only reason they do so with fiat paper is because the legal system that enforces the will is the same entity that issues the paper, so if one stopped existing the other would also be dead by default. If you divorce money from government where they aren't connected, they would be utilizing the unit of account most likely to survive into the future.