E The Slide Begins

Adrian Ash, Head of Research at London gold-trading site BullionVault, writes:

“One key requirement of money is that it doesn’t drop 27% of its value inside 4 days, only to regain half that drop in the next 36 hours. Hyper-volatility signaled the death of the German Reichmark following World War I. (Ed: actually in was the printing press which doesn’t mean that huge upward and downward moves don’t hurt the appeal of the crypto-currency.)

“Bitcoin: Money of the future? asks this neat little video which just won a competition run by the European Central Bank. “Nope,” comes the video’s answer, [given] Bitcoin’s huge volatility to date. While failing to find monetary use outside the trade in illicit stuff online (for which they are perfect), they will no doubt play some role in our legal monetary future. Coins began replacing unwritten debts in the 7th Century BC. Paper notes acted as a receipt for a gold coin from the Middle Ages. Today’s contact-less cards make both coins and paper redundant [for] the vast majority of shoppers… Whatever the social, economic, and political risks of choosing to abolish cash like this, money is a tool which humanity has constantly changed and re-invented. Indeed, the blockchain technology underpinning today’s crypto-currencies… with separate systems all processing and recording each transaction rather than a licensed bank getting in the middle with its fees is showing strong appeal to central banks like the ECB.

BullionVault seeks to help people get out of currency, into gold or silver or platinum, as a secure cost-effective store of value. Liquidity on the way out is paramount, back into cash that’s ready for spending or converting into other assets elsewhere as you choose. Building new payment mechanisms, or enabling customers to store the value in currencies different from the four funding and trading currencies we offer is not what we do. If you want to sell your gold to buy shares or a new house, BullionVault will enable the first leg of that trade at the very lowest costs. For the second part, you will want to find the best value process for yourself. That’s why we don’t offer Swiss Francs as a funding or trading currency, despite frequent requests over the years. We don’t accept equities, bonds, seashells, cigarettes or 5-ton lumps of stone either.

“The Swiss central bank has worked to destroy the Franc’s reputation for stability. Like every other monetary authority, it wants cheap money to juice the economy no matter the cost to wage-earners, savers, and the country’s international standing. But Dollars, Euros, Sterling, and Yen are the currencies quoted and dealt by the professional wholesale bullion market. It’s the deep liquidity and low costs of that market, free from costly FX transactions,.to which BullionVault seeks to give its users access. Outside the 3 major currencies we’ve accepted since launching in 2005, only the Japanese Yen has been added because it has the depth and liquidity we need to ensure low friction and low costs for ourselves and our users. So, while we haven’t missed the interest, excitement and innovation building around Bitcoin since its invention in 2009, we still don’t believe it currently offers BullionVault any commercial opportunity. BullionVault’s ambition [is] to be the best in physical precious metals which makes us the largest provider to private investors anywhere on the internet.

“This latest bubble (and bubble it is) also maps the boom-bust seen at the birth of other revolutionary technologies and tools in history. Think of listed shares and government bond markets (the French Mississippi and then South Sea Bubble 1720), .railways (the British bubble of the 1840s),.investment trusts (Wall Street’s bubble and then Great Crash 1929), and of course the internet (the DotCom Bubble and crash of 1996-2003). Which is it for Bitcoin? Tulips or railways? Useless tulips and very useful railways both destroyed herd investors who bought too late into the initial hype and didn’t get out before it burst.”