- “The bid for precious metals is accelerating. Gold just broke above its October 2015 highs to 8-month highs. Silver is also bursting higher, soaring above its 200-day moving-average.”
To understand the potential Return on Investment in Bitcoin, it’s important to take a close look at the fundamentals and market cap of all other major asset classes, that are a potential source for capital flows into Bitcoin.
My video takes a look at the potential of the bitcoin price in the long term, based on a 5% wealth transfer from the world major asset classes, that would take Bitcoin to a $10-$12 trillion market capitalisation.
It also highlights the risks that Bitcoin still faces, if this scenario was to become a reality.
As well as proposals for an ‘Australian tax on bank deposits’ set to start on January 1st 2016 (A tax on your money you have already paid tax on!); and plans for increased capital controls in France in September 2015, which includes increasingly draconian legislation such as the following (1):
It appears that counterparty risk to the existing financial system is set to ratchet up across the entire world in Q3 and Q4, culminating with the EU’s Bank Recovery and Resolution Directive set to go into effect on the 1st Jan 2016.
Just to give you an idea of where capital controls are heading, especially in the EU. Included in the EU Bank Recovery and Resolution Directive legislation is the following clause:
68) “In order to ensure that resolution authorities have the necessary flexibility to allocate losses to creditors in a range of circumstances, it is appropriate that those authorities be able to apply the bail-in tool both where the objective is to resolve the failing institution as a going concern if there is a realistic prospect that the institution’s viability may be restored,”
To summarise, when banks and other financial institutions start to fail in the EU, your deposits will be directly on the line to temporarily sure up their balance sheets.
Due to the extreme amount of leverage, derivatives and potential contagion between sovereign states and financial institutions worldwide, I would argue that it is almost impossible to restore the ‘viability’ of highly leveraged financial institutions at this time. This could lead us into incremental never ending bail-ins that gradually erode the hard earned savings citizens have made over generations.
Greece could potentially see the first use of this directive as Zerohedge identifies (2). Whilst the third bailout package for European Banks/Greece is currently being finalised and stands no realistic chance of spurring enough economic growth to reduce Greece’s debt to GDP ratio. It is possible that any shortcoming in shoring up Greek bank balance sheets, could end up on the shoulders of depositors following the implementation of the EU Bank Recovery and Resolution Directive legislation on January 1st 2016.
However, comparing the current debt to GDP ratio of Greece to other countries within the EU and we can see that the risk of Bail-ins and capital controls is not just limited to the relatively fringe country of Greece. Several other heavily indebted EU countries below could be next in line to use these bail-in tools when potential economic crises strikes.
Source : McKinsey, Zerohedge
One of my main arguments for owning alternate currencies such as precious metals and Bitcoins has always been to reduce counterparty risk to the existing financial system; and we can see that this risk clearly seems to be in a up-trend as we go into the fall of 2015.
With 2015 world GDP growth estimates dropping and the continued rout in commodity & high yield credit markets indicating real weakness in global demand. We could soon see economic hotspots spreading around the world that could lead us to the very real implementation of capital controls & bail-ins on a global scale.
Looking at the effect the Cyprus bank bail-in of 2013 and the recent capital controls in Greece had on the price increase of Bitcoin, it could potentially be a opportune time to take advantage of the current price weakness we are seeing in the alternative currency markets.
It could be argued the only reason there has been any strength and investment in the emerging markets and the reason most of the developed world have not posted double digit negative GDP figures since 2008, has been the unprecedented market interventions by the Central banks worldwide. They have essentially acted as a backstop for the global economy with policies such as the ongoing Quantitative Easing (QE).
In the process, trillions have been added to sovereign, corporate and private debt worldwide and the expected growth from all of this intervention has not materialised. This was again recently highlighted by the massive ISM manufacturing index miss in the US.
As central banks and government intervene in the free markets, with unprecedented sovereign bond purchases and distressed asset purchases such as Retail Mortgage Backed Securities (RMBS).
They have created a Ponzi like scheme where only continued purchases of these assets in greater numbers, will continue to support the mark to market pricing of these assets on the balance sheet of the central banks and major financial institutions worldwide.
In the US especially, sovereign debt has accelerated since 2008 up to $17.3 trillion. It has now hit levels that require even greater issuance of treasury bonds annually, in order to roll over maturing debt, interest on the existing debt and to keep interest rates low to prevent default.
The fed has provided the artificial demand for these bonds and now owns 30-40% of the Treasury bond market.
However, the danger of this has now been exposed, with the recent move by the Federal Reserve to taper back on QE from $85 billion to $65 billion on monthly purchases.
Just a 23% reduction in monthly QE purchases has led to capital flight from emerging markets. On top of this it has led to capital rotation in domestic markets as the DOW, S&P 500, NASDAQ and Russell 2000 as well as global indices begin to accelerate losses, as investors begin to see the backstop for the economy and these markets as a whole taken away.
With major indices slipping under their 200 day MA’s, there is now concern of even bigger losses and the emergence of a bear market in equities.
All of this from a 23% taper is further showing how the Fed’s actions now in large determine the future outcome of the global economy and this is the biggest danger of the attempted taper.
If the Federal Reserve reverses the taper in the near future in an attempt to appease global market selloff’s and contagion, it will highlight more than ever that they simply cannot stop the monetisation of debt to support the global economy and the inevitability of the demise of the dollar and other fiat currencies in their current state, will be further exposed.
This could well and truly lead to the expected fiat currency collapses as people lose all faith in this global fiat Ponzi system and will potentially move us closer to the long expected capital rotation into finite asset’s such as precious metal’s crypto currencies and other commodities.