Bitcoin.
With Microstrategy (Nasdaq: MSTR) and various exchange-traded crypto funds that are blind buyers of Bitcoin, it serves to ramp up the price on a fixed float. You can even do this through Paypal, and some brokerage platforms.
In regular stock trading, you buy a stock. You hand somebody cash. The net transaction does not involve any new shares, nor does it involve any new money. The price is instead a reflection of the relative value of the stock. We generally do not think about the relative value of cash when conducting this transaction. Circumstances are changing this.
Right now, when central banks are QE’ing their currencies and governments running fiscal deficits, institutions are trying to get ahead of the curve by finding alternative forms of collateral under the presumption that the value of cash is dropping at a rate that requires a consideration to its depreciating ability to purchase other assets.
Historically, forms of collateral included salt (Roman era), spices, precious metals, and today, the backing of nothing other than the sovereign state. The fundamental value of the Canadian dollar is to pay taxes to the Crown. Every other usage of the currency is a derivative (beyond attempting to burn the plastic polymer notes for their heat content!).
Instead of holding CAD/USD, the rationale is to hold Bitcoin. There is going to be a speculative frenzy and it is going to be insane. I have no idea when it will end. Just 45 days ago, Bitcoin was trading at around $10k, and today it is touching on $18k. There is no arbitrary number this will go to simply because it is akin to a zero-sum casino where timing the exit will be everything.
The scheme ends when the last dollar has been sucked into the demand side of Bitcoin, just like a good old fashioned Ponzi scheme.
Maybe the trigger comes in the form of confidence restoring in the US currency. Perhaps this comes in the form of the Bitcoin transaction network collapsing or being manipulated to an extent that limits its usefulness. Perhaps Bitcoin transactions become completely prohibited by sovereign governments (and indeed, Bitcoin transactions that post on the blockchain are open for everybody to see – it is the least anonymous mechanism possible).
I’ll let other people play this game, but the speculation fury is going to be intense. The narrative (that US currency is doomed) is a great story and easy to understand. My suspicion is that it is early in the process. What happens if Bitcoins head up to $100,000? $1,000,000? The people invested in Bitcoins will have some price they will want to liquidate.
I’ve been very wrong on Bitcoin for a considerable period of time, so please do not give me much credibility when I talk about this cryptocurrency. Perhaps I am too old fashioned and behind the times.
The good news is that alternative forms of collateral come in the form of assets that produce goods and services that will clearly be in demand in the future. They have less speculative fury and much less visibility, but unlike Bitcoin, I won’t be worried about when they crash when everybody runs for the exits.
As long as this QEed cash fuels instruments no one really needs, I’m fine.
The situation could be much worse, if this happens to real assets like real estate, land, commodity, which harms both new entrants (cutting their demand) and existing participants (stimulating sales and “reinvestment”, which effectively pushes inflation to the next level).
You haven’t been wrong, just not proven correct yet. A dramatic reckoning is coming for crypto investors.