bitcoin

Cryptocurrency Design – Green or Gold?

OWNx Team Global Finance and Economics, News & Commentary

Within the FinTech world, there is a great deal of activity in the cryptocurrency space and there will be for the foreseeable future. Incubator labs around the world are designing new types of currencies. The last thing any of them want is to discover that they missed a variable that could kill the viability of their currency.

It turns out that the leader of the cryptocurrency world – Bitcoin – may have a significant problem in this regard. It is one that could have easily been overlooked. That is – energy consumption.

According to a recent article, in June 2015 the Bitcoin network was consuming enough electricity to power over 170,000 American homes. Less than two years later, that number has grown to over 1 million homes. The Bitcoin system is designed in such a way, that it takes ever increasing amounts of computing power to mine a new coin.

That means, unless there is a significant reduction in the cost of energy, new coins are going to be very expensive to mine.

The author of the article makes the following observation:

“ …if no changes are made to the system, the viability of the currency itself might be challenged because the seigniorage (defined as the difference between the face value of money and what it cost to make it) could be minimal or negative. In other words, the marginal electricity costs could outstrip the value of the newly minted Bitcoin.”

This places Bitcoin in a very interesting position by introducing several free market variables that may or may not be appropriate for a currency.

  • Adoption of Bitcoin in the currency market must increase such that the value of the coin increases enough to support the energy required to create new coins.
  • Alternatively, mining may decrease due to costs that are higher than the cost of production. This creates scarcity of the coins themselves, which would drive up the value (assuming it has enough market acceptance) and draw miners back into production. This is similar to gold and silver production.
  • Will the pace of energy efficiency in computing power overcome the demands of the mining network and make this all a moot point?

These factors introduce questions that must be answered in order to determine whether Bitcoin can emerge as a stable medium of exchange or a long-term store of value.

  • Will excessive energy consumption cause Bitcoin to become just another speculative investment and not a viable currency?
  • Are energy related and other non-monetary free market components appropriate inputs to determine the value of a currency?

Some of these questions can also be applied to gold and silver. They too require energy consumption. The value of energy inputs has a direct impact on the willingness of companies to mine them.

However, there are significant differences as well.

  • Gold and silver are tangible, physical assets.
  • The infrastructure and energy costs to mine gold and silver are well established.
  • They have a 5000 year history as being a central component to most monetary systems.
  • The energy required to purchase, trade, and sell gold and silver is minimal due to their using an already existing financial infrastructure.

One thing is certain. What money is and what it should be is being reconsidered around the world. While these important questions get sorted out, we can be confident that the enduring track record of gold and silver will ensure that they will maintain a place in whatever new monetary paradigm emerges.

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GoldIRA

Gold and Silver Market Update 3/24/17

OWNx Team Blog, Gold & Silver Market

Gold and silver appear to be taking a pause after a strong two week run. During that time, the price of gold rose from $1,200 to about $1,250 at the close of this week. The price of silver had fallen to $17 but has risen to $17.83 at the time of this writing.

Both have posted solid gains and it is no surprise that they are now taking a breather.  The broader stock markets are also digesting recent gains. There is a great deal of geopolitical and economic activity, which introduces enough uncertainty to cause strong movements in either direction to take a pause while trends are re-evaluated.

We continue to see wisdom in an appropriate gold and silver accumulation strategy. As mentioned last week, there are plenty of reasons to see a strong gold and silver market in the months and years ahead.

In case you missed our article earlier this week, we drew a link between large retailers closing their doors and the price of gold. The massive changes to our economy due to an antiquated monetary system and the introduction of new technology touches all markets and industries, including gold and silver.

Enjoy our weekend,

The OWNx Team

 

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windowclosed

14 Large Retailers Closing Stores and Its Link to Gold

OWNx Team Global Finance and Economics, News & Commentary

It was announced today that fourteen large retailers besides J.C. Penney are closing many of their brick-and-mortar stores. What does that have to do with the future spot price of gold and silver? A lot. It comes down to one word.

Technology.

The world is undergoing nothing short of a major wave of technological innovation. Online retailing is literally eating up the traditional retail experience. Browsing online has replaced browsing the store aisle for everything from motor oil to designer jeans. The overhead associated with maintaining a physical infrastructure has reached a tipping point.

This phenomenon was foreseen in a book written in late 2013 called “Too Different for Comfort” (free PDF download). In it, Louis-Vincent Gave told of a coming “Robolution” that would transform the world economy and vastly disrupt the traditional employment structure. Following are some of the more interesting chapters in the book.  

Chapter 2 The Rise of the Robots – Or Pricing ‘Cheap Labor’ Out of the Market
Chapter 4 Will the Robolution End Up Eating Its Own Children?
Chapter 6 The asset-price centric monetary system
Chapter 11 The Dollar-Debt Standard
Chapter 17 Adapting

These are provocative to say the least. The one that will be our focus is, “The asset-price centric monetary system.”  A few excerpts from that chapter are very interesting:

“We have now moved from a world where money was at the center of the system and asset prices at the periphery, to a world where some specific asset prices are at the core of the system, while money has moved to its borders.”

“Economic thought has thus moved from the horizon of the labor theory of value, to the theory of subjective value, to the theory of never falling prices.”

“And this is where the next problem for investors may find its source as, if anything, the various central bank interventionist policies have probably had their biggest impact not on prices, but on the volatility of almost all assets.”

Gave’s contention is that price discovery of assets was due to money finding its way through the economy into those assets that the market valued.  Now, the monetary system is managed in a way to prop up certain asset classes so that they may never fall in price.

It seems logical then that the asset classes that are in most need of protection are those that are highly leveraged by debt, including global sovereign bond markets. After all, when push comes to shove, governments and their central banks will ultimately move to protect their assets from default over all others.

The question is, “Is this strategy sustainable?”

The role technology is playing in hastening the coming reform of the global monetary system cannot be underestimated. It is not only disrupting retail industries and the entire banking industry (via FinTech). Technology is also enabling (perhaps requiring) that we rethink how a future monetary system should be designed in order to accommodate massive changes to the very structure of the economy and labor markets.

Debt based and central government managed money on its own simply will not be able to support or adapt to the emerging economy. A value based currency system will. Such a system would naturally include gold and silver. The question is whether or not we will have the political will to consider, let alone implement, such a system. It’s a question we all need to be aware of, because if we do not adapt, our future may indeed be too different for comfort.

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Interest_Rates

Real Interest Rates and the Gold Price

OWNx Team Blog, Global Finance and Economics, Gold & Silver Market, News & Commentary

An interesting development has occurred in the markets that would suggest a sustained, multi-year rise in gold and silver prices is indeed around the corner. This week Fed chair Janet Yellen signaled what the FOMC’s intentions are on future interest rates

Prior to the meeting, some analysts were looking for a more hawkish stance due to recent strength in economic data. This left the markets fixed on rising nominal rates (the stated rate charged on loans). However, a more dovish tone combined with a simultaneous uptick in inflation caused the focus to shift to “real” interest rates (stated rate minus the inflation rate). The price of gold and silver jumped this week on this shift in focus.

After languishing in March, the price of gold and silver jumped on this shift in focus. This increased volatility is to be expected. Many markets, including interest rates and gold, are undergoing a long term transition phase. Supporting this view is the February producer price index, which rose .3% after posting a surprising .6% gain in January.

Increasing inflationary pressures along with the Fed’s promise to keep monetary policy “accommodative” sets up a real possibility of sustained negative real interest rates for the foreseeable future. All of this has positive implications for gold according to UBS’s Wayne Gordon.

“That means real interest rates go deeper into negative territory in the U.S., that means a weaker U.S. dollar and it means a better gold price.”

  • Rising inflation expectations.
  • Negative interest rates.
  • Rising commodity prices.

All of these provide a backdrop that would support a sustained, multi-year rise in gold and silver prices. Transition periods are the best time to dollar cost average into the asset class that is preparing to make a turn.

The evidence continues to mount that gold and silver prices today are in an attractive range for long term investors. You may want to consider setting some aside in an IRA. It’s not too late to make your annual contribution, and the technology behind our OWNx IRA makes it a cost effective alternative.

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BIS

DLT/Blockchain, the BIS and the Link to Gold as Money

OWNx Team Global Finance and Economics, News & Commentary

Some of the largest global institutions are beginning to catch on that DLT (distributed ledger technology) is going to have an enormous impact on banking and payment systems. DLT has been around for years, primarily in the form of the Bitcoin blockchain. It’s stated benefits have been around nearly as long.

In one important development, the Bank for International Settlements (BIS) is officially acknowledging that those benefits are more than just potential. We find the following interesting admission disclosed in a paper released by the BIS last week entitled: Distributed ledger technology in payment, clearing and settlement: an analytical framework:

DLT may radically change how assets are maintained and stored, obligations are discharged, contracts are enforced, and risks are managed. Proponents of the technology highlight its ability to transform financial services and markets by: (i) reducing complexity; (ii) improving end-to-end processing speed and thus availability of assets and funds; (iii) decreasing the need for reconciliation across multiple record-keeping infrastructures; (iv) increasing transparency and immutability in transaction record keeping; (v) improving network resilience through distributed data management; and (vi) reducing operational and financial risks.1 DLT may also enhance market transparency if information contained on the ledger is shared broadly with participants, authorities and other stakeholders.”

Yes, DLT can provide those benefits, and more. Not only does it have the capacity to  change how banking and payments are conducted by you and me, it also enables us to re-imagine what a monetary system should be, who should be in charge of it, and what type of money is used within the system.

The BIS undoubtedly understands this. However, for them to discuss the use of DLT as a means to change the actual money we use is a bridge too far – at least for now. Bitcoin let that proverbial cat-out-of-the-bag. But what is not well known is that little labs of innovative financial thinking have popped up all around the world. They are not just focused on how to make the existing banking system better. They are thinking about how to make money itself better.

That’s a big deal.

Many people think there is no better money in the world than gold and silver. This belief makes it likely that at some point, organizations like the BIS are going to have to deal with the impact that distributed ledger technology will have on the very money we use.

We’ll keep an eye out for a white paper from the BIS on the the role silver and gold bullion may have in such a future monetary system. Although it is likely to come at some point in the future, we won’t hold our breath waiting for it. In the meantime, we will work to keep you ahead of the BIS in understanding just how DLT might change the world for all of us in the years to come.

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gold-financial-inclusion

FinTech “Financial Inclusion” Also Means Gold and Silver

OWNx Team Blog, Money & Finance

One of the primary goals of financial technology is “financial inclusion.” This goal seeks to provide access to financial services to billions of people who are considered “unbanked.” This is a noble goal indeed, because access to money is the foundation for participating in the economy.

FinTech Trends 2017 – FinTech to Drive Financial Inclusion

This brings up a very important question: What type of money should they have access to?

In a free and open world, everyone should have a choice of what type of money they use to meet their personal financial goals. This means access to national currencies, cryptocurrencies, complementary currencies, and of course – gold and silver bullion.

Gold and silver as money have been an important part of the global economy throughout recorded history. Unfortunately, over the last one hundred years, access to these precious metals has been restricted. At times this restriction has been by government decree as was the case in the United States between 1933 and 1974.

More recently it has been restricted by other types of “friction.” This includes people’s general lack of understanding of the importance that gold and silver have played in the global monetary system throughout history. It also includes the difficulty in sorting through a complex and obscure retail market.

At OWNx, we have designed our Automatic, Now, Employee Benefit, and IRA products to remove this friction. Using technology to provide safe, smart, simple access to gold and silver is our contribution to FinTech’s goal of financial “inclusion.” More people now have access to an important form of money, and that’s a win for everyone.

 

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Greenspan

An Unlikely Champion in a Return to the Gold Standard

OWNx Team Gold & Silver Market, News & Commentary

It is interesting that recently there are increasing numbers of articles written discussing the merits of returning our monetary system to some form of the gold standard. One of the most unlikely people to be warming to the idea is, none other than, former Federal Reserve Chairman, Alan Greenspan.

Alan Greenspan has a very interesting history when it comes to his view on gold and the gold standard. In 1966, Greenspan made the following statement. “This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

Yet in his reign as Fed Chairman between 1987 and January 2006, he oversaw some of the greatest expansions of Fed power over the economy. It was accomplished leveraging a monetary system that is about as far removed from the gold standard as one can get.

Now, consider Greenspan’s latest public address. In an interview given to the World Gold Council’s Gold Investor February issue, Greenspan warned of the likely onset of stagflation, which would send the price of gold higher. He said, “The risk of inflation is beginning to rise… Significant increases in inflation will ultimately increase the price of gold.” As such, “investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.”

However, he didn’t stop there. Regarding the gold standard, his observation was very clear, “We would never have reached this position of extreme indebtedness were we on the gold standard because the gold standard is a way of ensuring that fiscal policy never gets out of line.”

Sounds a lot like Greenspan is returning to his views of the 1960s. Should we return to the gold standard? There are admittedly many good reasons for it, and some valid concerns with it. The good news is that with today’s FinTech capabilities, gold and silver are certain to play a role in any monetary reform.  Whether due to monetary reform, or stagflation, accumulating gold and silver is a smart thing to do.

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Street

DOW 21,000 – Gold Takes a Pause

OWNx Team Blog, Global Finance and Economics, Gold & Silver Market, Money & Finance, News & Commentary

Since the beginning of the year, both the DOW and gold have had impressive runs. The DOW now sits near 21,000 and gold has risen above the $1,260 level. It appears as though both may be ready for a pause.

No market goes straight up, and the DOW has risen nearly uninterrupted since Nov 5th where it opened near 18,000. Gold has taken a different path. It fell after the elections, only to turn sharply at the beginning of the year to recover nearly all of its losses.

The sharp movements of both the DOW and gold are indicators that the markets are seeking equilibrium after the surprise election of Donald Trump. Expectations will soon meet reality. It is still difficult to know how far apart they are, however by mid-summer we should have a much better idea.

Transition periods in markets can last months, even years at times. This is especially true when multiple variables are involved, such as geopolitical trends. Long term investors are quite happy to see this sideways movement because it gives them an opportunity to accumulate more of their preferred assets prior to the beginning of a major move.

With all that is happening in the world today, it is unlikely that the DOW will rest at 21,000 one year from now. The same holds true for gold at $1,230.

While it might be a bit of an up and down ride for the next several months, the conditions are favorable for gold and silver to rise in the years ahead. If the economy takes off and inflation begins to rear its head again, that is positive for gold (inflation hedge) and silver (industrial demand). If uncertainty enters the financial system or geopolitical world, they then become a safe haven.

It is unlikely the status quo will remain. Because of the unique characteristics of precious metals in the minds of investors, they seem well positioned for the years ahead.

 

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Can Gold and Silver Help Solve the Identity Crisis in a Cashless Society

OWNx Team Global Finance and Economics, News & Commentary

As we move closer to the cashless society that many governments would like to see implemented, the drawbacks of the plan become more pronounced. And while the benefits of a cashless society accrue almost exclusively to the government side of the ledger, it is becoming evident that the ordinary citizens are left to deal with the drawbacks.

A Billion Identities at Risk as India Goes Cashless

Certainly there are privacy issues in a world where 100% of currency is digital. Those warrant a great deal of discussion. As payment systems and the creation of money itself becomes more reliant on technology, the problems with safely linking you to your money also increase.

  • What happens when your bank becomes exclusively tied to your smart phone?
  • How do you secure access to that phone?
  • How are data breaches prevented?
  • What happens when there is an error in the system?
  • How easy will it be for identity thieves to cover their trail?
  • Will there be sufficient redundancy built into the system?

Certainly, application of blockchain technology and smart contracts can significantly mitigate or eliminate risk. However, nothing can completely eliminate all areas of risk.

FinTech is set to make major strides in bringing more people into the financial services industry and compete with monopoly monetary systems. However, it too will need a system of healthy checks and balances. Something that will tie it back to the principles of sound monetary management.

Might we suggest gold and silver? Throughout history, gold and silver have been revered as the ultimate check and balance on monetary systems that rely too much on man’s ingenuity. The coming era of major FinTech innovation will be no different.

 

 

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whitehouse

Are The New Money Changers in the White House?

OWNx Team Blog, Money & Finance

The new director of the Office of Management and Budget, Mick Mulvaney, supports blockchain technology. Mark Calabria, chief economist to Vice President Mike Pence has expressed his support for alternative currencies, stating, “While I’m an economist, not a tech guy, I’m very excited about Bitcoin, as I am about alternative currencies in general, and perhaps even more interested in the blockchain.”

Silicon Valley billionaire, Trump supporter, and member of the Trump administration transition team Peter Thiel has his own views on money and banking and they are not mainstream. Thiel started PayPal as an online currency before it became an alternative payment system to the big banks.

New Presidency Supports Blockchain & Cryptocurrencies

This all adds up to something that is quite interesting in the world of money, monetary policy, and monetary systems. The administration that is driving the agenda for the world’s lone superpower and issuer of the world’s reserve currency is keenly interested in the emerging financial and monetary world known as FinTech. It is a world that is driven by technology and knows few boundaries when it comes to payment systems and alternative currencies.

We have never experienced this before. The United States has embraced a single national currency monetary system for over one hundred years. Prior to that, state banks were allowed to issue currency backed by gold and silver.

This however, is very different.

The Future of Money

How exciting would it be to unleash a multiple currency system that contains both public and private currencies? There is a persistent view among many economists (mainly those who foresaw the 2008 financial crisis) that we still face major problems with a debt laden global economy that is built on monopoly protected national currencies. If we enter into a new financial crisis, could it be the catalyst for this type of major and much needed reform?

It is not out of the realm of possibility that money may be changing in the not too distant future. And because gold and silver have been viewed as money in nearly every culture for the past 5000 years, it would be safe to assume that they will play an important role in any new system that should arise.

We do live in interesting times indeed.

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