Insurance against an exponentially growing risk of currency devaluation

Here at Creekside, we are firm believers in the importance of recognizing and avoiding our recency biases, to find investment opportunities based on the data. The facts show that history tends to rhyme and the history of monetary policy is no exception. Throughout history, it is a fact, that during the rise of great nations, using gold as a unit of account has often been a part of that tale. From the ancient egyptians to the rise of the roman empire, to the backing of the british pound sterling, gold has been widely accepted as a unit of account. Let’s explore why that is the case.

Austrian economists would argue gold exhibits three of five properties of a strong currency.

  1. Gold is fungible, meaning every unit of gold functions the same, unlike non-fungible units of account like art pieces.
  2. Gold is durable and cannot be easily destroyed. It can out last the test of time as we’ve stated above.
  3. Gold is scarce and cannot be easily created. Mining gold is expensive, and thus, demands a higher price than more utilized metals such as copper or uranium.

Gold appears to be the wisest choice for a nation to adopt as a unit of account. So why is it that nations continue to break down their currencies well before their eventual collapse?

Why do nations prefer to use weaker currencies, instead of gold, as they grow larger?

The short winded laymen answer, gold is just a hard dumb rock. It is slow, and archaic.

As nations grow, so does the population and demand complexity. And although gold serves as a strong store of value due to its fungibility, durability, and scarcity, it misses two key, fundamental principles that Modern Monetary theorists would argue will forever prevent it from being a sustainable choice as a medium of exchange.

  1. Gold is NOT easily transferable. Compared to a paper money system like we have today, a gold standard is miles behind in the amount of money velocity we would need to sustain modern global commerce.
  2. Gold is NOT easily divisble. The process to melt gold down and issue coins is lengthy, inflexible, and always leads to other currencies coming into circulation, to act as a medium of exchange. Modern internet banking rids us of that need.

It appears that society is stuck at a cross roads, to either readopt a gold standard, the slow archaic rock that will bring global trade to a screeching hault, or we continue our current iteration of a paper money standard, a system that, we know from history, has been correlated with a collapse of nations.

Here enters Gold 2.0.

Simply put, the bitcoin protocol may be the answer the world needs to establish a strong currency system. Here is why:

  1. Bitcoin is fungible. Every unit of bitcoin is the same, the first necessity for a circulating currency.
  2. Bitcoin is durable. Having an intangible currency native to the internet is revolutionary. So long as the internet exists, so too will the bitcoin network.
  3. Bitcoin is scarce, which may be difficult to wrap our heads around. How can it be scarce if you can’t even touch it? Just like any system, it’s based off of trust with a catch. The first thing to understand, is there is a fixed supply and a fixed inflation rate for bitcoin issuance. Second, the network is maintained by volunteers, who’s sole purpose is to verify and secure transactions to earn a very large reward incentive. This ensures no single bad actor could manipulate the amount that has been predefined. This ensurance only grows as more people exponentially maintain the network.
  4. Bitcoin is transferable. Global instant settlement is now possible through this new technology. No longer will money have to be routed through several clearing houses. It’s as transferable as a direct cash payment.
  5. Bitcoin is divisible. We now have a money, with a fixed inflation rate up to 21 million units, that’s able to be divided up ONE HUNDRED MILLION times each, and is flexible to be divided up even further if required…

With those five principles laid out, it’s important to state that a deep technical understanding is not the goal here. At the end of the day, we are investors, and although it is useful knowledge, it is unnecessary to understand the thermal dynamics of internal combustion engines to understand the value proposition of the motor vehicle. In the same vein, it is unnecessary to understand the technical details of modern cryptography, and proof of work based blockchains, to understand the value proposition of a having a global unit of account that holds the five properties listed above.

Here at Creekside, we are firm believers in the importance of recognizing and avoiding our recency biases, to find investment opportunities based on the data. If history tends to rhyme, it is likely that the global economy will be in search for a reinstated hard money standard sooner or later. We believe that time is sooner, and the incumbent for said monetary standard is going to have a bit of a challenge as we move further into the digital age.

With that said, we’re long bitcoin.