Martin Armstrong's Thoughts on Crypto

Martin Armstrong, the economic advisor and professional (if reluctant) criminal, weighed in on Bitcoin and cryptocurrency as recently as January 19th, of 2018. Armstrong bases his advice on an economic model he built that is based on Pi. Nope, this isn't a Darren Aronofsky film, this is real life.

According to Armstrong, crypto is too volatile to be a solid investment.

He has this to say in response to a reader question about Bitcoin:

If you want to trade Bitcoin, use the futures. The futures market will bring stability to the price and open the door for hedging what is otherwise at times an illiquid market. Understand one thing. This is all part of the shift from Public to Private. Cryptocurrencies are marketed as some magic money that will be free of the fiat world of government. That is total nonsense for governments will by no means allow that to happen. Nevertheless, this is part of the same anti-government movement that brought Trump to the White House, BREXIT, Catalonia uprising, Ukraine revolution and so on. This is the rise in the stock market and the shift of capital from government bonds to equities. This will all end in a monetary crisis event perhaps as soon as 2021.

Keep in mind that Coinbase had to give up everyone’s name to the IRS and they sent out notices warning people they better claim their profits because the IRS will be looking to audit anyone trying to hide their gains from taxes. The technology of Bitcoin is inferior to other currencies. I believe in the end, we are moving toward electronic money but the governments will control it. This idea that somehow it is safer because it is outside the central banks is really nonsense. So is gold, commodities, real estate, and shares. There is a huge void with respect to counterparty risk in the cryptocurrency world and the fees to use this stuff are outrageous. I do not see this as a viable situation moving forward in time. It also requires a power grid. Take that out and you have nothing. The good old tangible things will always survive. If society collapsed, electronic money in all forms may not survive. Also remember that today only about 4% of all transactions take place in paper money. We already live in an electronic monetary system.

There are some inconsistencies in Armstrong's statements, however. For example, where he states that

"Cryptocurrencies are marketed as some magic money that will be free of the fiat world of government. That is total nonsense for governments will by no means allow that to happen."

He contradicts himself in his own blog, when writing about Two-Tier Money Systems and Local Alternative Currencies.

"One example of where a private currency has been created in the middle of a financial panic due to a shortage of official currency issued by the state was the events that gave birth to the concept of the need for an “elastic currency” during the 19th century. The Panic of 1873 saw the government make a small gesture to try to calm the panic. The U.S. Treasury did the same thing as Quantitative Easing post-2007 back then as well where it too failed.

"The banks got together to create their own “Elastic Money” using the New York Clearing House. Failing to increase the money supply meant that the value of money in purchasing power rises and all assets decline. This is the hallmark of EVERY recession or depression. During the Panic of 1873, the national banks of New York pooled their cash together and collateral into a common fund, and placed this in the hands of a trust committee at the New York Clearing House, which had been founded on October 4th, 1853. The New York Clearing House then issued loan certificates that were receivable at the Clearing-house against this collateral. These certificates were absorbed like cash and could be used to pay off debt balances among members. Ten million dollars’ worth of these certificates were issued at first, but the sum subsequently doubled. This Clearinghouse paper served its purpose admirably functioning as “Elastic Money”."

In the above quote, Armstrong gives us a number of examples where financial institutions, independent of the government, and in fact, because of the government's failures in monetary policy created and backed their own notes for their patronage.

Is there a fundamental difference between the action of these banks (which survive into the modern age, but are called fancier names like 'Quantitative Easing') and the actions of the crypto-community? One of the primary factors, as Armstrong points out, driving people to invest in and commit to cryptocurrency is a fundamental mistrust of how the governments, like, pretty much all of them, are handling monetary policy today. While I'm not a libertarian and feel that governments do serve a purpose, like promoting and enforcing social justice, it is clear that we are on the cusp of having to nudge the system back with the our own crypto-elastic-money. The fundamental difference today, and what Armstrong is really missing, is that crypto will follow the path of those second tier currencies of the past that became the primary coin of the land when the establishment ultimately fails.

Welcome to the second Fall of Rome, hold on to your assets!