Tag Archives: Coins

Significant Day for Crypto

13 Mar

I haven’t posted in quite a while, but the news this morning seemed significant enough to stir me to start typing.

The first thing I saw on my phone this morning was that ether, the token (or crypto-currency) of the Ethereum Blockchain, was trading at $27. When I yelled this news to my wife, she responded with “twenty eight forty three”. Thus far the high on the Kraken exchange has been $29.98 but right now fallen back below $29.85. This is a 100 to 1 increase in valuation, from $.29 in August 2014.

This certainly got me excited, so as I sat in front of CBS Morning while reading Ethnews.com on my phone I saw this headline: New Gold Backed Cryptocurrency Introduced (https://www.ethnews.com/new-gold-backed-cryptocurrency-introduced).

The story reports that a new crypto-coin, OZcoinGold, is being launched on the Ethereum blockchain, but rather than a mined coin, it is a limited edition of tokens, 100 of which grant ownership in 1/3 oz. of 24 karat gold in a vault at the Perth, Australia mint, and 2/3 oz. of gold in certified reserves in a gold mine regulated by the Australian government. The issuer of the coin is backing it with 100,000 oz. of gold, at the mint and in reserves at the mine. After March 1st, 2022, holders of the tokens will be able to redeem them for certificates from the Perth mint, which are then exchangeable for gold at gold dealers throughout the world.

The coin was launched at SXSW on March 10.

This means that with only two more pieces of the puzzle in place, the unregulated free market in ideas will have provided the world with an unshakable gold standard. It will then be up to the market in currencies to use this mechanism to supplant the corrupt central bank/creeping world bank fiat money regime that siphons our wealth to fund the eternal war.

I plan to write further on what the two remaining pieces of the puzzle are, but I am also thinking about starting a new blog under a pseudonym. If you are reading this and would like to know where to find my future posts (if that change does come to pass), please email me at gmautry@gmail.com and I’ll reply with a link to the new blog. And please let me know if you found anything on this blog useful or interesting.

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Gresham’s Law and Bitcoin

14 Nov

“The course our city runs is the same towards men and money.
She has true and worthy sons.
She has fine new gold and ancient silver,
Coins untouched with alloys, gold or silver,
Each well minted, tested each and ringing clear.
Yet we never use them!
Others pass from hand to hand,
Sorry brass just struck last week and branded with a wretched brand.
So with men we know for upright, blameless lives and noble names.
These we spurn for men of brass…”

Aristophanes, “The Frogs”, circa 405 B.C.E.

Gresham’s Law states that “bad money drives out good”. When the price of a currency is artificially constrained, for example by a legal tender law, then the constrained price may be higher, the same, or lower, than what its price would be on a free market. If the currency’s constrained price is lower than it would be on a free market, it will tend to be exported to be resold where the constraint does not operate, and thus will disappear from circulation. If there are competing currencies in the constrained market, the currencies that are relatively undervalued will also disappear from circulation. This will be true, even if the constrained price of the most undervalued currency is still greater than or equal to its true free market price. If creditors are compelled under legal tender laws to accept one or more currencies at a fixed price, debtors will always tend to pay with the cheapest currency available, that is the currency whose constrained price has the greatest positive (or smallest negative) spread from the free market price. The currencies with a narrower spread, even if they cannot be resold on a foreign market at a profit, will tend to be retained as savings.

What does this have to do with Bitcoin? Bitcoin actually does trade on a truly free and global market. Thus its spread is, by definition, zero. No national fiat currency can make this claim, at least in its home country. Thus, by applying Gresham’s law, we can see that given a choice, debtors will tend to pay their debts with their national currency, and retain any Bitcoin that they acquire as savings. They will exchange their Bitcoins for other currencies only if they have no other means of paying a debt or purchasing a necessity.

This means that the adoption of Bitcoin for commerce directly will be slow, or in other words, even if Bitcoin becomes commonly used as a payment system by merchants, prices for consumer goods and interest rates on loans will continue to be denominated in the national currency, and will be quoted in Bitcoin at the prevailing free market exchange rate at the time of payment. During the current phase of Bitcoin’s adoption, as it becomes increasingly clear that demand continues to rise steadily, I would actually expect that Bitcoin prices will be quoted at a discount to the instantaneous exchange rate.

So, as a unit of account, Bitcoin will not become the standard anytime soon, although it probably will at some point in the future, when demand for Bitcoin reaches equilibrium with other currencies, and in particular, gold and silver bullion, which also trade globally on a fairly free market. However, as a store of value, I believe that it is already the standard.

In my next post I will explain at what price I expect that equilibrium to occur.