Riley: Bitcoin Mania Could Turn Into a Fiat Currency Crisis

Tuesday, December 05, 2017
Michael G. Riley, GoLocalProv MINDSETTERâ„¢

One week ago, I opined that as Bitcoin approached $10,000, it was still very early in the game for "Bitcoin Bears." This Bitcoin market is already substantial at $300+ billion dollars. And there is a growing unease around the world about fiat currencies and the hedging value of gold.     

I’ve never been a fan of gold, but it seems to me to be like the Bitcoin logic. Both fans believe there is only so much gold or so many Bitcoins.

Dollars, Euros, et cetera, are being printed like crazy and debts are ballooning in those currencies and yielding very little.

Sure, Bitcoin has no taxing power like Sovereigns do, but Bitcoin purchases and sales are private and anonymous and thus supports an entire industry -- marijuana -- tax-free in Colorado.

Profits are thus recycled through the economy without the taxing hand of governments. 

Check out these Bitcoin ATMs:

The Vested Naysay

Last week rumors in the UK that there would be a big “crackdown” on cryptocurrencies, such as Bitcoin, caused tremendous volatility in the price. 

A UK Treasury spokesman said: "We have clear tax rules for people who use crypto-currencies and like all tax rules, these are kept under review. We also intend to update regulation to bring virtual currency exchange platforms into anti-money laundering and counter-terrorist financing regulation."

Every sovereign treasurer in the world is worried because Bitcoin is a huge threat to Fiat Currencies manipulated by money printing and monetary policy. Even the Euro, Dollar and Renminbi are vulnerable to the emperor has no clothes moment. The rhetoric of  "we’ll do whatever it takes” will receive some instant thumbs down from a potential world currency like Bitcoin. Central bankers will almost certainly lose monetary powers. That’s why some big names in banking want to put a harness on it. Maybe its too late.

Behind the scenes, more regulators and efforts to stop Bitcoin are in full throttle panic.

Developed Markets

The Chicago Board Options Exchange, where I started my career, announced it will next week begin 24-hour trading in Bitcoin futures priced in US Dollars. Many more exchanges will follow and then the cat is out of the bag.

It is possible billions will trade in various instruments, futures, options, ETF’s, mutual funds etc, by the first quarter of 2018. Bitcoin owners will then have a way to transfer risk through derivatives, creating even more liquidity.

New players will establish positions possibly as a hedge against the Dollar. It has been estimated that if bitcoin replaces just 5% of the GOLD market, Bitcoins would be worth $425 billion. (All the gold in the world is currently worth $8.5 trillion) So couldn’t it be 10% -- or more?

Old Sages

When new ideas or products come along, the media turns to the old sage of the industry for perspective and predictions. I’ve witnessed this many times. In the financial industry, it was my father who was introducing innovative and disruptive financial products to the masses. Occasionally, my father would tell me stories, off the record, about his dealings on Wall Street. This included his competitors and the dreaded regulators, and he never would say a bad thing in public, but there were some stories I remember.

One was regarding his efforts to get equity puts listed on US option exchanges in 1977. Calls were listed in 1973 but there were no puts (the right to sell the underlying). He told me there were significant efforts made by congressional figures as well as SEC commissioners to BAN the listing of puts because they were “anti-American." They honestly believed that. He couldn’t believe these were the people in power making decisions.

His skepticism extended beyond regulators when later in 1993 upon approval of his “SPY” Exchange Traded Fund, Jack Bogle publicly predicted they would fail as there was no reason for their existence. The now multi-trillion dollar ETF Industry stands as a testament to how wrong Bogle was. My father said back in 1993, “Not only is Bogle wrong and not all that bright but he doesn’t even realize that he will become one of the biggest players in the Exchange Traded Funds business.” Vanguard is now the world's second largest ETF provider. 

So as innocent and smart as they may seem many pundits have hidden agendas and they can align with regulators to keep out the competition. Potential competition is what bitcoin most represents, and I believe it will survive in a big way because the debate is not about bitcoin versus gold but instead about investors and savers protecting themselves from the rapid devaluation of fiat currencies.

Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC. 

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