If you had not invested in Bitcoins in 2009, Is there still time before the train leave?

Bitcoin surpassing a valuation of $1,000 is a real landmark, giving the currency a market capitalization of almost $12 billion and 75-fold growth in value this year.

However Bitcoin is not the only digital currency, simply the most prominent. As Bitcoin’s value has soared, partly driven by a positive response from Senate committees last week, participants have looked further afield to see whether there may be other alternatives that have not risen by so much already.

The second most prominent currency is Litecoin, with a market capitalization of over $1 billion. After that Peercoin and Namecoin currently have capitalizations of close to $80 million, followed by a number of others from $20 million and down in a long tail, with the 23rd ranked currency, Goldcoin, still valued at over $1 million.

Litecoin is over 10 times its value from just 10 days ago, with Peercoin growing 4-fold and Namecoin 12-fold in value over the same period.

Fred Wilson stressed that he doesn’t so much look at technologies but at the trends that are influencing society in general. This way, he can build a framework that helps him to “think about what are the big opportunities that will present themselves.”

The first macro trend, Wilson said, is the transition from slow bureaucratic hierarchies to technology-driven networks. In his view, the old top-down hierarchies worked, but in today’s post-industrial world, they are just not efficient enough.

The first place we saw this trend was media, but we are now also seeing it in other places, too, with Airbnb and hotels, for example, and in creative industries thanks to Kickstarter or learning through Codecademy and Duolingo.

The second trend, according to Wilson, is unbundling. Until now, it was more efficient to package a bunch of services or product up in bundles and deliver them together. Now, however, buying a la carte and getting the best possible service is how we expect to do business. Instead of getting our business news and world news from a single newspaper, for example, we can now go online and just get the best news in a specific category.

Other industries that are now ripe for disruption because of this, he said, are banking, including in lending and asset management, education, where online classes are disrupting the traditional models, and research, where technology makes collaboration much more efficient. Entertainment, too, he believes is already going through this stage of disruption thanks to Hulu, Netflix and similar services.

The last trend – and the most obvious, he believes – is that we are all now nodes on the network thanks to the smartphones we all carry around with us. Now that we are nodes on the network, we can all reach each other all the time with very little effort. This enables tools like Uber, but also payment and dating apps (Wilson used the example of Tinder here).

Every investment Wilson makes, gets evaluated based on these criteria right now. Wilson himself, of course, is known for making very few investments per year (one or two) and his firm, Union Square Ventures, makes about ten. To make these pay off, he has to be smart about finding these mega trends and the companies that fit into them.

Wilson was also very bullish on Bitcoin. To him, it is a layer of the Internet infrastructure – and a protocol – that entrepreneurs will use to build tremendous amounts of new technologies and services on top of in the coming years. To him, the fact that Bitcoin isn’t controlled by banks or governments makes it a very “investible” trend.

Health care, too, is something he is clearly interested in investing in. All the three megatrends he is focusing on, he believes, are coming together in health care right now. One of Union Square’s latest investments, Human Dx, for example, is tackling collaboration in health care by applying many of these trends.

Wilson also thinks fixing data leakage is something worth investing in. When the industrial revolution came along, he said, we started polluting, but we didn’t do anything about it for a century. In the information revolution, this pollution is data. It’s the data that eventually leaks out that lets governments and companies like Google spy on us.

While we allowed Google and others to become our identity providers, “what essentially we are doing is giving them access to everything we are doing.” Wilson believes that there will soon be a Bitcoin-like protocol that will emerge that allows us to do the same thing, but which will give us full control over identity, privacy and data.

Is Bitcoin part of the trend to kill the USD?
What is James Rickards predicting now in his latest book:

The Death of Money: The Coming Collapse of the International Monetary System

We are in for a time of either inflation or deflation, and that they are both equally dangerous. The thesis he repeats throughout the book is that central banks favor inflation for a number of reasons, but that they are having a hard time forcing inflation it to occur. There is simply too much slack in the economy in the form of unused labor, capital, and production capacity. Other authors argue that increases in productivity are inherently deflationary: if automation reduces the cost of manufacturing a car, competitive pressures will force manufacturers to sell them cheaper.

The federal government must have inflation for four reasons. Deflation causes an increase in the real value of the federal debt. It has an adverse impact on the debt to GDP ratio. Third, although banks may benefit initially by being repaid more than they lent, the risk of default increases dramatically in a deflationary environment. The fourth and final problem with deflation is that it reduces federal tax income. As nominal earnings decrease, the tax rate schedules, which are graduated, yield less revenue in real terms. Though asset value may rise in real terms, you cannot tax capital gains unless the nominal value rises.

Central banks throughout the world are fighting the tide as they work to promote inflation. The result of Quantitative Easing has been massive malinvestment by those to whom the newly coined money has been funneled.

  • overwhelming evidence of insider trading and market manipulation
  • financial warfare. Destroying the dollar would have a major impact on dollar holders such as China, but at the same time increase their relative strength in the world
  • increased involvement of central banks in the economies of their countries, and the general ill effects of central planning. It didn’t work for the communists, and it doesn’t work for Yellen.
  • the greatest cause of economic depression is regime uncertainty. People refuse to invest when the rules keep changing, favoring some groups over others. Fed policy of low interest rates is forcing people to take unusual risks in pursuit of a return. So investors have been stampeded into the only games in town – overinflated real estate (again) and a rigged stock market. Interest rates, and especially the price of gold, have been forced down in order to push money into these bubbles.
  • China swings rather regularly back and forth between centralization and decentralization, each in turn cleaning out the excesses of the other.  Though China, with $3 trillion in assets, could put its financial house in order, it will not. The powers that be make their money from the malinvestment. The growing wealth disparity represents a major threat to the regime.
  • the Euro should survive as a currency and cites optimistic statistics about the progress that the PIIGS, especially Greece, have made in cleaning up their economies.
  • The PIIGS did what the US has done – print money, in some cases devalue, and pretend the problem will go away.
  • The Russian economy is best understood as a natural-resource-extraction racket run by oligarchs and politicians who skim enormous amounts off the top and reinvest just enough to keep the game going.
  • Debt, deficits and the dollar. What is the meaning of money? The classical definition is (1) a store of value, (2) a medium of exchange, and (3) a unit of account. These meanings are important, and Rickards has a great dissertation on the various points of view. This is a matter of practical import. Is gold money? Is Bitcoin money?
  • today’s economic problems are primarily structural rather than cyclical. Don’t blame it on the business cycle. The changes in demography, technology and society are structural and will not reverse themselves. Neither Japan nor China will sprout a generation of new workers overnight. In the US, the number of people entitled to entitlements will not shrink; neither will the cost of “free” medicine.
  • IMF “currency” formed of a market basket of national currencies, could become a world currency. Moreover, it could, if his suggestions were followed, be pegged to gold as a deterrent to uncontrollable fiat currencies.
  • Gold is money. The purest money. It is not a commodity, despite where it may be traded, because unlike commodities it is rarely consumed, but used almost exclusively as a store of value.
  • Crossroads: There is massive malinvestment, from Chinese ghost cities to US student loans. While the problems could be fixed, the structure of our political systems will almost certainly not allow it. The vested interests are too strong.
  • Systems, especially those involving human beings, are simply too complex to be predicted. One never knows, by analogy, which snowflake will trigger the avalanche. All you can know is that an avalanche is likely.
  • Conclusion: how to embrace for the storm? Rickards would own gold, land, hedge funds invested in hard assets, fine art and cash.

 

 

Sources:
businessinsider.com
rossdawson.com

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