The Pursuit of Safety: Gold & Bitcoin
Americans are adopting Bitcoin at a feverish pace because, as in the 20s, 70s, and late 2000’s people are fearful and are losing faith in the granddaddy of all fiat currencies, the US Dollar.
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“I don’t have to tell you things are bad. Everybody knows things are bad. It’s a depression. Everybody’s out of work or scared of losing their job. The dollar buys a nickel’s worth, banks are going bust, shopkeepers keep a gun under the counter. Punks are running wild in the street and there’s nobody anywhere who seems to know what to do, and there’s no end to it. We know the air is unfit to breathe and our food is unfit to eat, and we sit watching our TVs while some local newscaster tells us that today we had fifteen homicides and sixty-three violent crimes, as if that’s the way it’s supposed to be. We know things are bad — worse than bad.” — Howard Beale, Network (1976)
Americans are in a fearful search of a safety net to hedge against inflation, government overreach, and apocalyptic musings of an unknown future. These issues have driven Bitcoin’s adoption and price to over fifty thousand dollars.
But have we been here before?
“What has been will be again, what has been done will be done again; there is nothing new under the sun.” Ecclesiastes 1:9
Yes, we have been here before during the Great Depression of the 1920s, the 1970s exit from the Gold Standard, known as the Nixon Shock, and the economic collapse of 2008.
Although the underlying technology Bitcoin is revolutionary, our need to secure safety in uncertain times is not, and that need for security explains why Bitcoin is having a moment.
Consumer Sentiment
On the chart below, the right column measures consumer confidence. Below sixty shows extreme fear. As you can see, after 2015, consumer confidence spikes and then takes a sharp downward trend, with consumers having little to no confidence in political leaders and possibly losing faith in the country as a whole. Riots, protests, and leaders stood up around this time but repeated the same political speak that Americans had heard before.
In the 1970s, after leaving the gold standard, inflation hit a high not seen since the Great Depression, and consumer confidence reached an all-time low. The same panic of confidence occurred as a result of the 2007–2008 financial crisis.
The Great Depression
During the Great Depression, people’s real disposable incomes dropped 28%. The number of unemployed Americans rose from 1.6 million in 1929 to 12.8 million in 1933. In A 2018 essay by the Foundation for Economic Education, it is stated that the Great Depression was not one event but happened in four phases. Phase one followed the stock market crash of 1929, and it was the government’s easy money policies that caused an “artificial economic boom” and the following crash. Phases two and three involve horrible interventions by Herbert Hoover and Franklin D Roosevelt. The last phase was madness stacked on madness in labor laws like the Wagner Act that delivered the final blow. As a result, US citizens began exchanging their fiat dollars for physical gold at such a high rate that the treasury thought it would run out of gold.
Nixon Shock: A march to the Bitcoin Standard
Also known in France as “America’s exorbitant privilege” the 1944 Bretton Wood system officially put America in the driver seat to completely move the world away from the gold standard. By 1971, the gold standard was no more and inflation ran rampant. What were Americans forced to do? They bought so much gold the price of gold went up 1000%.
Due to fears of inflation, social unrest, and economic instability, consumer confidence is low, trending towards extreme anxiety, and citizens have replaced the gold safety net with bitcoin.
As seen in the chart below, high rates of inflation encourage consumers to seek shelter.
https://tradingeconomics.com/united-states/consumer-confidence
Enter Bitcoin and Adoption
As, in just 12 years, Bitcoin has grown to 135M users worldwide with an adoption rate faster than that of the internet, mobile phones, and virtual banking tools (i.e. PayPal) over comparable time periods.
https://michael-levin.medium.com/part-1-the-dual-adoption-curves-of-bitcoin-2ffafbc5d5e7
What do you do when faced with all the challenges mentioned above? Throw a hail mary and bet on the future. In Bitcoin, Americans and security-seeking individuals worldwide have an asset that is better than gold, has a limited supply, is easily transferable, and will appreciate without a foreseeable end.
The reality is that we are in a period of fear as we have been in the past, so individuals and institutions are piling into bitcoin because they are scared for the future fiat currency.
In the pursuit of safety, Americans look for a captain amid the storm. For most, Bitcoin is at the helm providing a life vest.
Visit our partners at WhaleStats.com. WhaleStats is a free data analytics tool that tells you what the top 1000 richest Ethereum whales are buying, selling, and hodling. Visit whalestats.com or follow on Twitter @whalestats
Writing my thoughts about the future here on Medium and LinkedIn. If you would like more information on how blockchain technology will change the world, check out season three of the Dallas Business Podcast, please feel free to contact me at dallasbusinesspodcast@gmail.com
