Have you built your financial storm shelter?

Friday, 21 December 2018
London, UK
By Sam Volkering

  • Getting nostalgic at the end of the year
  • Silk Road? What’s that asks the noobs
  • That’s why stick with this thing

Today I’m taking a trip down memory lane. Seeing as this is the last time you’ll hear from me in 2018, I decided to get a little nostalgic.

I tend to get that way at the end of a year anyway, albeit January is really no different to any other month. But because it’s a new year, as humans we do attach some gravitas to the event.

And geez, why not just go with the flow at least once a year, right? The end of the year is a good chance to reassess your plans, targets and strategy. It’s a chance to refocus yourself on your investment goals, set some new ones, and tweak those you’ve already got.

In doing that, you should also reflect a little on the last year. Compare your views to those you had this time last year, this time two years ago, maybe even three or four years ago.

We do that from time to time. We’ll go back through our archives, looking at the things we wrote in 2013, 2014, 2015 and so on…

We find this to be useful because sometimes it helps to refocus us on the long-game we’ve taken in certain opportunities. And it also helps to reinforce why we take certain views on some of the things we do.

Most notably, this year we’ve been revisiting the work we did relating to crypto over the last five-and-a-bit years. And we stumbled over a little gem on a piece that’s timestamped 4 October 2013. The title of the piece is ‘Why the Demise of Silk Road Means Bitcoin is Here to Stay’.

We’re not sure where this was published. Maybe it was in The Daily Reckoning back then, today called Markets & Money. Or is could have been The Pursuit of Happiness, spiritual ancestor to The Australian Tribune. Maybe it was Money Morning, or even Revolutionary Tech Investor. We could check, but it’s not that important.

Either way, we think it’s an important piece to republish as it’s now more than five years old. It also gives you an insight into the ‘troubles’ and ‘bubbles’ that Bitcoin has already had over its 10-year existence.

After reading this you should have a little more perspective on the journey we’ve taken to even get to this point with crypto. Even after the mania and boom and ‘bust’ of bitcoin in December 2017 and January 2018, we’re still way ahead of where we were just five short years ago.

We remember the hysteria around bitcoin when it jumped to parity with the US dollar. That’s when 1 BTC was equal to 1 USD. Bonkers, right? Well, then you can imagine the Fear of Missing Out (FOMO) when it became worth as much as an ounce of gold in 2013. And then 2017…well you get the idea.

However, first things first…

The Markets

Overnight the Dow Jones Industrial Average closed down 464.06 points, or 1.99%.

The S&P 500 lost 39.54 points, or 1.58%.

In Europe, the Euro Stoxx 50 index finished down 51.32 points, or 1.68%.

Meanwhile, the FTSE 100 fell 0.80%, and Germany’s DAX lost 155.11 points, or 1.44%.

In Asian markets, Japan’s Nikkei 225 is down 363.28 points, or 1.78%. China’s CSI 300 is down 1.38%.

In Australia, the S&P/ASX 200 is down 45.20 points, or 0.84%.

On the commodities markets, West Texas Intermediate crude oil is US$46.36 per barrel. Brent crude is US$55.04 per barrel.

Turning to gold, the yellow metal is trading for US$1,260.18 (AU$1,770.96) per troy ounce. Silver is US$14.77 (AU$20.75) per troy ounce.

One bitcoin is worth US$4,029.65.

The Aussie dollar is worth 71.18 US cents.

Why the Demise of Silk Road Means Bitcoin is Here to Stay

Here’s the (edited for clarity) piece from 4 October 2013:

The biggest issue with Bitcoin is it’s insane volatility and people using it not for its intended design. People see it as an investment. I wonder if they view physical cash in the same way? Because Bitcoin is so new, people are confused to what it is.

And that’s half the issue, people trying to pigeon hole it into a definition, “oh it’s like gold, oh it’s like cash, oh it’s like a stock.” In fact, it’s all of the above and more. It’s a whole new medium of economic exchange.

It’s most similar comparison is to gold, but it’s as flexible and liquid as cash, but with appreciation like some of the most outstanding stocks. You can’t define it as anything other than Bitcoins.

You need to also remember its history to appreciate its actual current resistance to turmoil.

You think $30 to $230 was good. Try 60,000% in the space of a Year.

Let me take you back to 2011. February 9th 2011, Bitcoin hit parity with the USD. $1 = 1 BTC. It was steadily growing and then climbed substantially around April/May to touch around the $6 – $7 dollar mark. Then the price of BTC exploded.

1st June 2011, a blogger/reporter, Adrian Chen wrote a piece on Gawker called “The Underground Website Where You Can Buy Any Drug Imaginable” his piece was solely based on the website Silk Road. Of course in writing about this, he made reference to Bitcoin, the anonymous digital currency. Until then Bitcoin was really only known to those in the know (so to speak)…now it hit mainstream publications. eCommerce had gone to a whole new level with this ‘drugs, guns and anything illegal’ website and this mysterious Bitcoin was all a part of it.

Add to that the mystery of how Bitcoin worked, or even who created it added to the allure of the digital mystery. Within days of Chen’s article the price of Bitcoin peaked at $31.91US. Literally within the space of 4 months Bitcoin had increased by 3,000%. And compared to the $0.05 it had been not that long before, gains were off the chart in the 60,000% range. Hence mass hysteria ensued.

And of course about another week later after some claims of Bitcoins being stolen, issues with the security of the BTC exchanges and the security of Bitcoin wallets, the price plummeted back down to around $3US by the end of the year. 

As you’d expect seeing that kind of boom and bust, many called it out as a fad. Nothing more than a bunch of hackers and geeks playing around with computer code on the Internet. The traditionalists passed it off as nothing more than a blip on the radar.

[Ed note: see any similarities five years on…?]

As such media coverage fell away, the general public fell away and it went back to being somewhat obscure. This was a good thing. Bitcoin continued on its merry way. But not back to the $0.05US or even the $1US it had been. It slowly crept forward just doing its thing. Then about Jan 2013 it was hovering around the $20 — $30US range. 

As we all know, earlier this year our Mediterranean counterparts lost their economic marbles. Thanks to this Bitcoin once again captured the public’s imagination as expectant economic doom spread around the world.

Subsequently Bitcoin smashed through $31 (previous peak) charging all the way to about $230. What’s worth noting is the recent peak and bust from $30 to $230 wasn’t even close to the 3,000% — 60,000% peak and bust from 2011. If it had replicated the Feb ’11 – June ’11 run, Bitcoin would have touched $900US. But it didn’t.

Suffice to say the price came off again, but hovered around the $140 range until the events of this week’s Silk Road shutdown. This time around though, mention Bitcoin and the world is an expert. But still ask the traditionalists what they think and they’ll pass it off as a fad and nothing of any serious concern. As far as the ignorant are concerned Bitcoin is only used, and good, for illegal activity.

‘Not even The Feds Can Take It Down Now

But here’s the thing. The price of Bitcoin has failed to fall below $100US even after the Silk Road operation. Today it’s at $133. And it will probably hover around this mark for some time. At least until the next big global economic event that scares the bejeezus out of everyone and sees them flood into the digital economy.

This is one resilient piece of technology. It’s going to stick around for some time.

And although 21 million will ever exist the decimal point moves 8 places to the left. And Bitcoins are infinitely divisible. That means there’s significant scope for this medium yet. You can actually buy 1 Satoshi if you want. A Satoshi (named after the pseudonym of its creator) is equal to 0.00000001 BTC

More merchants accept Bitcoin as payment now than ever before. It’s what’s necessary for Bitcoin to be widely accepted.

But what if merchants stop accepting Bitcoin? Well they’d become worthless. But what if merchants stopped accepting USD? Would the same happen? Of course it would. It’s just as likely the USD will be as worthless as BTC. 

The other thing is the ease in which you can get Bitcoins. For example, I just purchased 0.00324027BTC using my phone. It now sits in my Bitcoin wallet with my other Bitcoins. The cost is simply be added to my phone bill at the end of the month. Name any other currency, stock, precious metal in the world that’s so easy to purchase.

With dodgy practices like Silk Road out of the way, it paves a clearer path for Bitcoin to gain some credibility and wider acceptance by the community. It’s the beginning of change. It’s early on in the process but there’s no doubt in my mind Bitcoin is here to stay.

There will be competitors, and possibly even a better one. But at the end of the day someone’s got to be a first mover and Bitcoin is exactly that.

I’m not going to sell my Bitcoins. I will use them for their intended purpose.

What everyone needs to do now is take a deep breath. Accept the inevitable and take Bitcoins for what they are. It’s change. It’s new. It’s revolutionary and it’s exciting. It’s going to help change the entire global economic system and you need to appreciate that’s a good thing.

When I read this, I cast my mind back to that time. I remember why I got involved in all this, and why I continue to stick with it all today. It’s a tech revolution. It’s going to change the world. It already is changing the world.

This is an opportunity of gigantic proportions, which is really only just starting out. It’s incredibly exciting. It’s why the future for bitcoin and crypto is so fascinating. And it’s why we think it has the potential to generate wealth like no other opportunity in history.

See you in 2019,
Sam