- Recent crashes in cryptocurrency markets (again) highlight that these digital tokens are much too unstable to ever be commercially viable for mass usage as currencies
- Insane leverage among many cryptocurrency gamblers ensures future volatility will remain extreme
- Near-infinite supply of housing units have transformed real estate markets into Ponzi schemes
“Inflation fears” remain the story-of-the-day in markets. The Federal Reserve (and other Western central banks) have caused an out-of-control spiral in
commodity prices,
producer prices and
retail prices.
However, investors (and gamblers) have broadly divergent views on how to cope with this inflation spiral, meaning
the crash of cash.
Many have chosen to simply gamble in cryptocurrency markets. Indeed, some deranged pundits have even made the claim that (somehow, some way) cryptocurrencies had
“replaced gold as the go-to inflation hedge”.
Then came a reality check.
Cryptocurrencies crash, volatility increases even further
Cryptocurrency markets are still experiencing aftershocks from last week’s 30% plunge in Bitcoin. Despite bouncing back close to $40,000, Bitcoin is still ~33% below its all-time high.
This follows Dogecoin crashing by over 30% in 24 hours – earlier this month.
Cryptocurrency gamblers will counter that these wild swings in prices were merely the result of talk.
Elon Musk Tweeting that Tesla would no longer take payment in Bitcoin, when it was unclear if the company had ever received any previous payments for Tesla EVs using Bitcoin. Then Bitcoin suffered an additional jolt when China threatened a “crackdown” on cryptocurrency mining.
Dogecoin’s crash was also attributed to Elon Musk’s loose lips – via his appearance on
Saturday Night Live.
Nothing “fundamental” has changed in these markets. But this is precisely the point.
These digital tokens have no fundamentals. Just their precious algorithms, which (in the minds of cryptocurrency fanatics) equates to some form of 21st century pseudo-alchemy: conjuring “wealth” into existence.
Alchemy has a long and dismal history.
Central bankers have been
pretending that they, too, can conjure wealth into existence. The result?
Their precious fiat currencies have commenced their
final hyperinflation death spiral. It is this death-spiral that has (ironically) sparked a herd of gamblers to stampede into cryptocurrencies.
Cryptocurrencies haven’t yet gained broad acceptance. But even with Cryptocurrency Mania at an all-time high, we’re already seeing spectacular crashes in these digital gambling tokens. What happens when confidence in this modern alchemy wavers?
Cryptocurrency leverage reaches new extremes
For cryptocurrency gamblers hoping that these digital tokens would stabilize in price as the markets increased in size, guess again.
Even as the total value(?) of these digital tokens exceeds $1 trillion, volatility has remained as extreme as in the early days of Bitcoin. And, if anything, the volatility could get worse.
Why? Because many of the gamblers in crytpocurrencies are literally leveraged to the hilt.
The legitimacy of a “futures” market for Bitcoin or any cryptocurrency is highly debatable. But if you
create digital gambling tokens, you should expect the most reckless gamblers of all – the Big Banks – to attempt to bolt on their own
leveraged version of such gambling.
The only thing that will reduce such extreme leverage in cryptocurrencies is stable prices. Where there is little momentum to chase, the gamblers quickly vacate and leverage recedes.
However, the Catch-22 is that with crypto fanatics aggressively buying all “dips” (i.e. crashes), there is nothing to stop this cycle of rising leverage and ever more-radical volatility.
Cryptocurrencies are not markets, they are casinos.
Cryptocurrencies could never become “safe havens”. They can never be anything more than what they are: gambling tokens.
Where can investors go for a real Safe Haven from all this central bank-created inflation?
Real estate becomes a Ponzi scheme too
Many people will bristle with the title of this article, that gold (and silver) is “the only Safe Haven”.
Real estate – land – has always been regarded as a Safe Haven asset. Indeed, historically, it has only been inferior to gold as a Safe Haven based on its reduced liquidity.
Gold is instantly liquid. Real estate is not.
But the entire premise of real estate being a Safe Haven is based upon
scarcity: the reality that there is only so much available space for humanity to expand –
laterally. As long as real estate markets represented an equation of
lateral expansion, that premise rested on solid ground.
Today, this premise is no more “solid” than the central bank-fueled real estate bubbles that permeate virtually every major market.
In the 21st century, real estate developers are building
up, and at a much faster rate than real estate markets have ever expanded laterally.
In a world of (predominantly) single-family/single-storey residences, real estate is a highly finite and thus highly valuable asset.
However, in a world where condominium towers routinely exceed 30 storeys in height,
the supply of real estate becomes effectively infinite. And, aided by the ultra-loose monetary policies of our central bankers, real estate developers and real estate gamblers are doing their best to
produce infinite supply.
Go to almost any major city in North America and you will see “a housing boom”. New construction – most of it straight up – all over the place.
Is there also a population boom in North America? No.
So who is actually living in all of these new real estate units? Good question.
Hopefully, the irony of that last headline won’t be lost on any investors reading this article.
The gambling-crazed speculators consistently bidding above the asking price for real estate today are all sitting with multiple titles, in many cases, dozens of properties.
Question: how much is a condominium worth
if there is no one to live in it?
Meanwhile, the Average Person cannot afford these bubble prices, hence the so-called “housing shortage”.
This brings us to the Golden Rule of real estate. Over the long term,
real estate prices must remain parallel to incomes.
Why? Because over the long term, it is
incomes that are required to make mortgage payments – not gambling profits.
This is why, throughout all of human history, every housing bubble pumped up by gambling profits has (eventually) crashed back down to income levels.
Today, we have the largest/worst real estate bubbles in all of history, at a time when incomes have been flat (if not falling) for decades. Look out below!
Effectively infinite supply. These are markets where prices have been (and can only be) sustained by
ever-increasing flows of central bank funny-money. A Ponzi scheme.
Gold: the ultimate inflation hedge and bubble insurance
Gold does not depend upon the fanaticism of manic gamblers for its value.
Its aesthetic beauty and powerful metallurgical properties ensure that it will always have substantial value for as long as human civilization continues to exist.
Gold cannot be transformed into a Ponzi scheme, as the bankers and speculators have done with real estate. Its supply is immutably finite.
Gold has
real scarcity (not the artificial “scarcity” of a computer algorithm). And it has real value.
These are the two properties that constitute any/every legitimate Safe Haven. For these reasons, silver is also a Safe Haven.
With real estate now having an effectively infinite supply, it has ceased to be a Safe Haven.
Having no intrinsic value, cryptocurrencies could never become a Safe Haven.
Cryptocurrency fanatics remain convinced that the digital gambling tokens that they cherish so dearly have genuine (and extraordinary) value.
Several hundred years ago, the Dutch believed the same thing about tulips. So much so, that at one point a house was purchased for the price of a single tulip bulb.
That mania didn’t end well. Manias never do.
For crypto fanatics who insist that “this time it’s different” because cryptocurrencies are
“the wave of the future”, contemplate this. Apparently,
quantum computers would/will make cryptocurrency “mining”
obsolete, because it could no longer be secured.
Sober investors don’t run away from inflation by attempting to outpace it with gambling profits.
They hedge against inflation, with history’s tried-and-true Safe Havens. This used to mean precious metals and real estate.
Today, with the
specter of hyperinflation hanging over us like the Sword of Damocles, it just means precious metals.
