Published on December 20 2017

Doug Casey on What Will Trigger Bitcoin’s Collapse

Justin’s note: Central bankers are losing sleep over bitcoin.

And they should be. It’s a direct threat to their monopoly on money.

Because of this, they’re trying everything they can to crush bitcoin.

They’re urging people not to buy it. They’re calling it a bubble. They’re even talking about launching their own rival digital currencies.

Regular readers know that I think these efforts will fail. But I couldn’t help but wonder what Doug Casey thinks of this. So, I called him up a few days ago to get his take…


Justin: Doug, governments around the world seem to be waging a war on bitcoin.

Do you see expect to see more of this in the years ahead?

Doug: Absolutely. You can plan your life around governments doing everything they can to discourage not only bitcoin, but all the other private cryptocurrencies as well.

It will be for pretty much the same reasons they hate gold, and other hard moneys. The State believes the issuance of currency is one of its major prerogatives, like making war and levying taxes. It’s critical to them not to have alternatives, competition, when it comes to money.

For one thing, almost every government in the world is running deficits—gigantic deficits in many cases. They’re financing those deficits by printing money. It’s national policy everywhere because they believe deficits “stimulate” the economy as a bonus.

Most of that newly created money is flowing into the stock, bond markets, and real estate markets. It’s making everybody feel much wealthier. Except for the bottom 50%—they’re getting poorer.

Government and central banks don’t want to give up that monopoly on money. Least of all the US, since our major export isn’t wheat or airplanes—it’s dollars. So, they’re going to do what they can to quash bitcoin and the others. For a myriad of reasons.

Justin: But will they succeed?

Doug: Well, they could certainly illegalize it. But would that eliminate it? About as well as their laws eliminated drugs or prostitution today. Or alcohol during the ‘20s. Fat chance. Although illegalization would certainly make cryptos inconvenient and risky.

But could they destroy cryptos? Who knows what kind of computing power the National Security Agency (NSA) has. They might be able to destroy any computer network or digital product at this point.

This is a huge argument against any kind of purely electronic currency—anything can happen in the ether.

Bitcoin is evidence of a worldwide distrust in government fiat currencies, though. And they’re right to be distrustful; I don’t doubt that we’ll experience monetary chaos in the future.

At some point, they’ll try to ban bitcoin, though. They’ll tell people it’s the law that they have to use the national e-currency. Plus they’ll use moral suasion and propaganda. You know the drill. They’ll say if you use bitcoin you’re a money launderer, a drug dealer, a terrorist, or a tax evader. Actually, the morality involved in all those activities is worth a separate discussion… it’s perverse they’re always classed together.

But this is what we can look forward to.

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Now, that doesn’t mean that bitcoin won’t still be valuable. That’s because, as I’ve said before, three-quarters of the people on earth live in the Third World. These people use currencies that are worth little within their own countries. Outside of their country, they’re worth nothing. They’re “blocked” currencies. So, these people will continue to use bitcoin, or other cryptos, to a growing degree. There’s trouble brewing.

And let me add something else. I’ve said for some time that bitcoin is a wonderful thing. But what happens when somebody develops bitcoin 2.0? I’m talking about a digital currency that uses a considerably better or different technology. What happens then to the value of bitcoin? It will likely collapse.

But these aren’t even the main reasons to be concerned about bitcoin.

Justin: So, what would be?

Doug: The development of quantum computing power poses a huge threat to bitcoin.

The little computers that are making bitcoin today will be obviated.

Now, I don’t know when quantum computing will be become commercial or practical—although it seems quite soon. But when it does, no code will be uncrackable. So any alteration of blockchain may be possible. Who knows? It’s been said that any sufficiently advanced technology is indistinguishable from magic.

But, entirely apart from that, the owners of quantum devices will be able to create bitcoin or its look-alikes in gigantic quantities almost instantly. Of course, at that point we’re living in the world of the Singularity—and the price of bitcoin will be the least of our worries. Or opportunities.

There are all kinds of X-factors that most people haven’t considered.

But there’s the biggest one. Cryptos have gone hyperbolic. At $18,000 a Bitcoin, I no longer have the nerve to play the game. After all, it’s gone up about 18,000% this year. I’m happy to leave something on the table for the next guy.

Justin: What about governments that are trying to launch their own digital currencies?

Doug: A certainty. And it’s happening as we speak. We’re living in the digital age. Everybody has a smartphone today. And governments are developing their own digital currencies to take advantage of that fact…

In the U.S., they’ll call it FedCoin. In Japan, it will be called JCoin or something. The Russians will come up with their own digital currency too.

Even the Venezuelans are trying to go digital with Petrocoin. Of course, they’ll fail miserably. That’s because digital currencies only work if there’s an element of trust. And there’s zero trust with them. But there should be zero trust with any government.

Still, governments around the world will try this because they want to eliminate paper currency completely.

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Justin: And why do they want to do that?

Doug: They want to herd everyone into the digital money system. That way they can know absolutely everything about your entire financial life.

They’ll know what you buy…what you sell…how much you earn…and how much money you’ve tucked away. Everything.

Not only that, they’ll be able to confiscate everything that you own at will if everything is digital and online—if you use their digital currency.

So, this is a big deal.

Justin: Do you think the average person will go along with this? Or will the “War on Cash” push more people into bitcoin?

Doug: Worse. The average person will not just go along with the government’s plans, but support them enthusiastically.

The average person trusts authorities. They trust the government. They buy into the nonsense about “We the People” and such.

Plus, it’s convenient to do everything digitally. And the average person values convenience much more than privacy—which no longer exists anyway. Many people prefer it this way.

In China, for instance, millions of people are already involved in China’s social credit system. Everything they do, everything about them, is online. Your credit score…where you live…what kind of job you have… your habits… your thoughts… your friends. And everything about your friends too.

You get a social credit rating. And if you’re a “good citizen,” you’ll get the equivalent of frequent-flyer points for associating with the right people, putting out the right memes, doing as you’re told, and so forth. If you don’t, you’re overtly and also subtlety punished. So people will vie with each other to show they have Orwellian Goodthink.

It makes me feel like a dinosaur who sees a big asteroid about to hit the Earth. People with individualism and personal freedom as central values won’t do well in the near future. Neither will Western Civilization.

This is all part of a much larger trend. The world is basically turning into something of a hive. And as far as I’m concerned, it’s another reason to privately buy small gold coins and put them aside. I expect other countries to follow China’s lead, certainly including the US.

Justin: It sounds like you’ve turned bearish on bitcoin.

Doug: Well, as I’ve said before, I was first exposed to bitcoin when somebody gave me one in 2013. It was worth $13 at the time, and I still have the physical token.

And last summer, I brought a bunch of bitcoin and other cryptocurrencies.

Since then, I’ve more than quadrupled my money. But the market is getting too bubbly for me. It’s a lot like junior mining stocks after the public gets involved. It’s not the time to buy. It’s the time to sell. And, incidentally, buy small mining stocks—they’re now extremely cheap. But nobody cares. Which is typical of a bottom.

Justin: So, have you sold all your bitcoin? Or are you just no longer a buyer?

Doug: I’m a firm believer that you should make the trend your friend. This is because a trend in motion tends to stay in motion until a serious event or crisis breaks the trend.

Based on that, I’m inclined to hold, certainly at least until January 1—hardly forever. So, I don’t have to pay taxes on my gains this year.

I don’t know how high bitcoin will go. Some smart people think it could go as high $30,000. Or $1 million. These aren’t stupid people, either.

Justin: Doug, your network includes some of the world’s top cryptocurrency experts like John McAfee.

What are these guys saying these days?

Doug: I haven’t talked to John about bitcoin since it hit $20,000.

But he still thinks that it’s going to hit $1 million.

I’ll have a chance to explore his reasoning when I visit the Solomon Islands with him in February. That’s another, and somewhat exotic, story.

But I’m skeptical of that price target, however, because there will someday be 21 million bitcoins, according to the bitcoin protocol. There are about 16.7 million out now—although a good number have apparently been permanently lost.

Anyway, if you multiply 21 million by $1 million, you get $21 trillion. That’s more than the annual economic output (GDP) of the entire U.S. economy. That’s a bit outlandish. On the other hand, if every millionaire in the world—it’s said there are around 20 million—were to own just one…

I’ve heard the pros and cons. There’s reason to be skeptical of the market. You could have tried to pick a top at $10, $100, $500, or even $1,000 and you would have been made a fool. I’m playing higher prices via the shares of a couple of bitcoin miners—the bubble has yet to really expand in the stock market.

It’s very hard to call tops during a mania. But the money is now very big and serious. One thing is for sure, it’s not the time to be buying more bitcoin.

Of course, bitcoin could soar to $100,000 and make a liar out of me. I hope it does—if only because the big payers are mostly libertarians. And I like having rich libertarian friends. But I doubt it.

Justin: Only time will tell. Anyway, thanks again for taking the time to speak with me.

Doug: My pleasure, Justin.


Justin’s note: Every month, Doug shares his unique insights in The Casey Report, our flagship publication. In the most recent issue, Doug and editor E.B. Tucker revealed their predictions for six of today’s most important asset classes.

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