Of course, the Federal Reserve would give everyone dollars in return for their gold, at the current market rate of $20.67 per ounce of gold. Feels fair, right? Well, less than a year later the dollar was revalued at $35 per ounce of gold through the Gold Reserve Act of 1934, devaluing those dollars by almost 50% against the gold everyone traded in.
The Federal Reserve was thus able to continue devaluing the dollar, but private citizens were barred from holding the very asset that could protect their savings from that devaluation.
Those Americans who held gold coins under the floorboards of their house had some chance of protecting them from seizure. Gold kept in banks, however, was far easier for the government to seize — the authorities knew exactly where to go to get it.
Who had custody of your gold mattered a lot during this period.
Still, this was a very strained and extreme time in American and world history. What indications, if any, do we have that this little bit of history might repeat? How might bitcoin be involved?
Do Governments Have Any Reason To Want To Seize Bitcoin Today?
First, it’s important to understand that bitcoin was designed purposefully to combat the inflationary tendencies of governments and central banks. When economic downturns occur, governments are always tempted to print more cash, saying they are “satisfying demand for cash.” In reality, they are debasing the value of cash for all who hold it and reallocating value to whoever the government pays with that newly printed cash.
From Satoshi Nakamoto’s thread unveiling the Bitcoin white paper:
The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.
[Bitcoin is] more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes.
This is why bitcoin has come to be known as “digital gold.” It provides the same protections for savers that gold provided in past inflationary periods, with vastly improved accessibility and portability. This is due to bitcoin’s supply not responding whatsoever to changes in demand. Precious metals are the only other assets on Earth with a total supply that acts similarly, though not as predictably, as bitcoin.
When governments decide to spin up the printing presses for their fiat currencies, store-of-value assets like bitcoin and gold serve as exits from fiat debasement.
The Conditions For Seizure
For governments to have any reason to seize Bitcoin — or any other store-of-value asset — there would need to be a major crisis at the end of a long accumulation of debts, like in the 1930s. Governments would need to respond to the crisis by devaluing their currencies through money printing — just like in the 1930s.
This would punish those who hold or receive salaries in fiat currencies by debasing their savings and earnings. In turn, people (everyone!) would run for the exit, selling their sinking fiat currency for other assets that cannot be debased.
Governments can either watch their currency — and the power that comes with it — evaporate faster and faster as a result of their own debasement and the selling it caused, or they can use the power they have left to do what Roosevelt did in 1933. They can seize store-of-value assets and stop further purchases by force, essentially blocking the exit and keeping individuals from protecting their savings.
Do The Conditions For Seizure Exist Today?
Do we have a major crisis on our hands at a time of record debt levels, causing unprecedented money printing? Are we seeing rising prices for store-of-value assets?
Major crisis: check. Thanks, COVID.
Record debt levels: check.
Unprecedented money printing: check.
Rising prices for assets: check.
During a year when most of the world was in a recession , stock prices grew in value tremendously. This is a classic marker of “running for the exit” — anyone with cash is looking to buy anything else that’s a better store of value than cash. From January 1, 2020, to the time of writing, the S&P 500 is up almost 40% and bitcoin is up almost 500%. Even lumber is up 230%.
Still not convinced? Ray Dalio studies markets and economic cycles for a living — and he’s damn good at it, as the founder and CEO of the world’s largest hedge fund. In a recent piece covering the current financial climate, Dalio compares today to the 1930–1945 period, stating:
“If history and logic are to be a guide, policy makers who are short of money will raise taxes and won’t like these capital movements out of debt assets and into other store-of-wealth assets and other tax domains so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected.”
In times of crisis, who has custody of your assets matters most. Will you leave your bitcoin on an exchange or with a custodian, or will you hold it yourself?
Withdraw Your Bitcoin
We are living in unprecedented times, in a situation that the vast majority of us have never experienced before in our lives. History and logic point to a repeat of events at the end of the last major debt cycle, where governments seized assets from citizens to solve a problem they created and save a system they benefit from.
This time, the people have a far more powerful tool to escape this seizure. However, that tool needs to be used correctly. Owning bitcoin but failing to hold it yourself is like buying a helmet but refusing to wear it when you ride. It’s not there to protect you when you need it most.
Storing your bitcoin on an exchange or owning it through an ETF product exposes your coins to seizure in the very scenario where bitcoin is most valuable and necessary: an unwinding of the current monetary system.
Thankfully, it’s still simple today to purchase and securely store your bitcoin. You might want to get on the lifeboat now before the captain cuts it away.
This is a guest post by Captain Sidd. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
