Issue link: http://resourceworld.uberflip.com/i/937377
24 www.resourceworld.com F E B R U A R Y / M A R C H 2 0 1 8 Speculations by Leonard Melman E very so often one comes across a figure that is so startling that it would appear to be an indicator of potentially ominous changes to come. One such figure released in early January by the Institute of International Finance contained the startling information that the total debt of the world had reached the astronomical figure of $233 trillion. This information, combined with huge increases in minimum wages, soaring raw material prices, worldwide government deficits and enormous ongoing so-called Quantitative Easing must raise serious questions regarding the future of fiat, unbacked currencies. During most of fiat monetary history, when the stability of 'paper' currencies was brought into question, investors would nat- urally turn to the precious metals. However, most recently, a new and dramatic entry onto the world's monetary stage has taken place in the form of cryptocurrencies, including the now famous Bitcoin. Bitcoin is a digital and global money system that enables people to send or receive money across the internet. Those using the bitcoin system must use a global database called the Blockchain, which is a record of all Bitcoin network transactions. It also keeps track of new bitcoins. The Blockchain is a public general ledger. One of the problems critics of crypto- currencies have cited is their vulnerability to over-creation. While Bitcoin has been around for about a decade, its success as an investment – rising literally from pen- nies nine years ago to as high as $20,000 in late 2017 – has spawned a number of new cryptocurrencies. A great difficulty for financial regula- tors is attempting to establish a reasonable value for cryptocurrencies which have fluctuated wildly (mostly higher) within short time spans. A recent poll of mar- ket economists by the Wall Street Journal found that an astonishing 51 out of 53 participants – or 96% – believe cryp- tocurrencies are now in the midst of an unsustainable bubble which some now compare to the famed tulip mania of the 1600s or the American stock markets just prior to the 1929 Depression. Sean Snaith of Central Florida's Institute for Economic Competitiveness described Bitcoins as, "… nothing more than crypto-tulip bulbs." Another problem is that the general public has virtually no understanding of exactly what cryptocurrencies are. My own comment would be that while the average person has a clear understanding of going into a store and buying merchan- dise by handing over cash or paying by debit or credit, many people don't have the foggiest idea how conduct a cryptocur- rency transaction. Two other problems can be identified. Given the complex nature of the crypto- currency business, their systems can be vulnerable to hacking either by expert individuals – or by foreign governments willing to disrupt systems of international commerce. Next, there is the matter of electricity consumption. An alarming fact, particularly to envi- ronmentalists, is the growing accumulation of information that cryptocurrency opera- tions consume vast amounts of electricity and much of that electricity, particularly in computer centres in China and Mongolia, is generated by coal-fired plants. The scope of the problem is illustrated by a Reuters' article which notes that the total amount of electricity presently consumed in Bitcoin- type operations is about 20% greater than the entire electricity consumption in the nation of Ireland! In fact, there are pres- ently, "…159 countries whose energy usage is eclipsed by Bitcoin." And, looking forward, it must be realized that crypto- currency usage is still in its infancy and I wonder how future electricity demands will be met if cryptocurrency usage expands as rapidly as many expect. In my view, if the world begins to turn away from unbacked, fiat currencies and toward lasting monetary values and the choice is between the precious metals or cryptocurrencies, the advantages lie with precious metals. They have a long history of being money, are readily and clearly understandable, uniform in quality, have limited supply and, given the enor- mous figure of $233 trillion worldwide debt noted above, the potential therefore appears to exist for a dramatic future pre- cious metals bull market. On January 11, 2018, the value of Bitcoins dropped $2,000, or 13.5%, after South Korea said it has planned to ban cryp- tocurrency trading. There are over a dozen cryptocurrency exchanges in South Korea. Although some dispute this, China has said that it has banned Bitcoin trading. The central bank, the People's Bank of China, said the unregulated market could pose major financial risks to the world's second largest economy. Warren Buffet doesn't like Bitcoins as well because "they have no intrinsic value." It would appear that gold will retain its safe haven status. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relat- ing to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@shaw.ca Gold vs Bitcoins