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Gold – according to Dominic Frisby: Kublai Khan – the first money printer

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We tend to credit ourselves here in Western Europe with the invention of the printing press, but China had been printing (using wooden rather than metal blocks) for many hundreds of years before Gutenberg brought his invention to market in 1436.

Gutenberg’s invention didn’t sell, by the way, and he died penniless, with his presses impounded by creditors.

Money develops as technology develops, and the Chinese discovered they could use their presses to print money. It began in the 7th century with promissory notes from merchants to wholesalers (with the same function as the clay tokens representing sheep or barley baked inside clay balls by the merchants of Ancient Mesopotamia thousands of years earlier).

By the 11th-century paper money known as ‘jiaozi’, a form of promissory note, was circulating alongside coins. Europeans had attempted something similar with pieces of leather or cloth, but it never really caught on. By the 12th century the Chinese government was issuing its own state-issued paper money.

In the 13th century the Venetian merchant Marco Polo, at the age of just 17, together with his father and uncle, famously made his way along the Silk Road to China, on a voyage that would end up lasting some 30 years. In China, he fell into the favour (and employment) of the Mongol emperor Kublai Khan.

On his way home, in 1295, he was captured by the Genovese, enemies of Venice, and in a prison in Genoa he met a writer by the name of Rustichello of Pisa. Together they collaborated on a manuscript recounting the story of Polo’s adventures, called “Description of the World”.

Polo marvels at the great Khan and the wonderful things he saw in China: the palaces, coal, a postal service, eyeglasses. But there is one chapter I want to talk about today, which has the most wonderful title: “How the Great Khan Causeth the Bark of Trees, Made into Something Like Paper, to Pass for Money All Over his Country”.

“He hath the Secret of Alchemy in perfection”, marvels Polo, making money from the bark of mulberry trees – “trees so numerous that whole districts are full of them”. “All these pieces of paper”, he goes on, “are issued with as much solemnity and authority as if they were of pure gold or silver”. When various officials as well as Khan himself have put their seal on it, “the money is authentic. Anyone forging it would be punished with death”.

Indeed anyone who dared refuse these notes faced “pain of death” as well, no matter “how important he may think himself”. No surprise then that everyone took them “readily, for wheresoever a person may go throughout the Great Khan’s dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold”.

We then learn that any merchant arriving into the kingdom with gold, silver or pearls was “prohibited from selling to any one but the Emperor”, who then “pays a liberal price for them in those pieces of paper”. How easy it is to be generous with printed money that has no cost of production to it!

If the paper got damaged, merchants could take it into a mint and get a replacement piece – at a cost of 3%. So Khan made good there as well.

The net result of Khan’s money system was that he pretty much sequestered all the wealth of China and the surrounding empire, while everywhere else was left with his paper. “His treasure is endless”, said Polo, “whilst all the time the money he pays away costs him nothing at all”.

Merchants accepted Khan’s money and his prices. What choice did they have? But here we also see the convenience of paper money. Fast – “They are paid without any delay” and portable – Khan’s paper was “vastly lighter to carry about on their journeys – ten bezants’ worth does not weigh one golden bezant”.

Polo may have marvelled at Khan’s enterprise, but it was one almighty racket, not so dissimilar to the process by which wealth has been leaving citizens through today’s fiat money system. No wonder Khan had “more treasure than all the kings in the world”. And no wonder the Mongol Empire soon fell into irrevocable decline.

This combination of the centralised wealth, imposed fiat money and excess government control has led to many a paper money collapse throughout history.

So, back to Europe and Johannes Gutenberg. Gutenberg’s problem was that he had no network. He could print 100 copies of a pamphlet but he had no means to disseminate them and there might only have been a handful of people local to him who could read. So what was the point of all the copies?

It was the Venetians, the great businessmen of the time, who turned Gutenberg’s invention to profit. Venice was probably the epicentre of European trade in the late 15th century, a great hub of shipping, and news spread orally via their ships. You could print, 100 copies of a pamphlet in Venice, give a handful to each ship captain, and their contents could be carried around the known world.

In the destinations where the Venetian ships arrived, local printers could then copy the manuscripts and redistribute them internally, while the illiterate, which was most people, could gather and hear the news read to them.

Thus did Venice become the printing capital of Europe. And it would not be long before Venice and the rest of Renaissance Italy discovered promissory notes, bills of exchange and paper money.

This new financial technology had come to Europe.

* Dominic Frisby, author of Daylight Robbery – How Tax Shaped The Past And Will Change The Future, out now in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.

Around the Campfire: Hugging is back!

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In the UK, that is. Prime Minister Boris Johnson said on Monday that from next Monday pubs and restaurants in England will be allowed to re-open for indoor services – museums, theatres, cinemas and children’s indoor play areas will also reopen. Pretty much the same relaxation of the rules will also be true for Scotland. UK deaths from Covid-19 are now at the lowest level since July last year and England’s Covid-19 alert status has gone down from four – the epidemic is in general circulation and transmission is high – to three, which means the virus is still in general circulation but transmission isn’t high. Things are starting to loosen up everywhere, including the US, where at the height of restrictions in late March and early April more than 310 million Americans were under directives ranging from “shelter in place” to “stay at home”.

I’m giving three cheers for what is starting to look like the final days of Covid-19-caused restraints – being able to hug friends and relations again will be for me, and no doubt for many others, as important as being able to dine out or have a beer inside a pub. Johnson has said England is on an “irreversible” path out of its third nationwide lockdown; but he hasn’t ruled out further restrictions if the virus spreads out of control in the future.

What will you do with this unusual freedom? Those fortunate enough to have escaped unemployment are probably flush with cash – the Bank of England said at the end of March that households put more than £17 billion into the bank in February, well above the monthly average of £15 billion since March 2020 and a monthly average of £4.6 billion in 2019.

Economists are now falling over each other to predict a massive ‘bounce-back’ from last year’s biggest economic contraction in 300 years, fuelled by an assumed consumer pent-up wish to get out and spend. I’m not so sure. The people who will spend will mostly be the ones who need to buy essentials, the have-nots or the approximately one-third of people who last year had less than £600 ($847) in savings. People have got into the habit of saving more of their income, putting aside money for a rainy day or for some big-ticket ‘treat’.

I only wish they would look at the interest rates they are getting from their bank deposits – less than 1% on average, about half what the government would like the inflation rate to be, and much less than what it actually is. In a world where inflation is returning, bank deposits daily lose value.

Get out and hug!

Until next week,

Jason

Around the Campfire: Who’s in control?

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My eye was caught this week by the Bank of England (BoE) posting vacancies for several people for jobs related to Central Bank Digital Currencies, including a ‘Stakeholder Analyst – Central Bank Digital Currency’. Not that I am looking for another job – but the relentless shift towards a cashless society and digital payments is a big part of my life.

It’s going to become a big part of your life too.

In April, the BoE and the UK Treasury created a ‘task force’ to study the establishment of a CBDC. The CBDC idea is spreading like wildfire – the National Bank of Georgia said at the start of this month it’s considering launching its own CBDC by creating a digital version of the Georgian currency, the Lari. The CBDC is no longer just a theoretical concept; it’s already been tried and tested in China. Cash – paper money – is dying on its feet. In the euro area, cash transactions account for around 10% of GDP. In the UK and US it is around 5%. In Sweden, it is less than 1%.

The Bank for International Settlements (BIS – the central bankers’ bank) put out a report last year, a collaborative study from seven central banks (including the US Federal Reserve) on the ‘foundational principles and core features’ of CBDCs. The first sentences of this report say: “central banks have been providing trusted money to the public for hundreds of years as part of their public policy objectives. Trusted money is a public good”.

The problem for central banks – which they hope to redress by developing CBDCs – is that ‘trusted money’ has become a scarce commodity. Declining confidence in fiat currencies has followed the decline in their purchasing power – that essentially explains why privately-created cryptocurrencies have been created. People have lost confidence in governments and understandably want to control their own assets; they hope to do that via cryptocurrencies.

A major fight is looming and there are more questions than answers. Who issues and controls this ‘public good’? Will CBDCs in our country be identity-based rather than token-based? As one commentator says: “the state of the discussion is so specialised and technical, new monetary systems risk being swept in without any democratic oversight at all”.

The issue of public money was on no-one’s agenda in the latest elections in the UK, where some 48 million people on Thursday this week were eligible to vote in the most extensive range of local elections in almost 50 years. In Scotland – still part of the UK – voters chose the 129 MSPs of the Scottish Parliament, with the Scottish National Party, which backs Scotland’s independence, seen as returning with a majority. The ties that have bound Scotland are bound to be tested again soon; those that link Northern Ireland to the UK feel looser, post-Brexit, than for many years.

Against the background of one of the most shattering events in recent history – the pandemic – the world feels poised on the verge of momentous changes. It’s a bit like the W.B. Yeats poem The Second Coming:

“Things fall apart; the centre cannot hold;

Mere anarchy is loosed upon the world”,

Countries divided, monetary systems changing, previous certainties tossed aside, authoritarian creep in many places – the need for control over what one has, has rarely been more important. In the midst of all this gold provides some certainty – some security. If gold is security, then Glint is its key.

Until next week,

Jason

Press Room: Glint in the news!

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Alternative currencies dominated much of the news this month. This week, Ethereum hit a new record high and broke the £2,000 barrier for the very first time. Alternatives are now firmly established amongst consumers as a viable store of value and means of exchange as we all look to take greater control over how we save and spend our money. Our commentary on the latest crypto milestone appeared in two articles in The Sun (here and here), Daily Express and Yahoo Finance.

Has the crackdown on crypto begun? One of the biggest stories this month was the creation of Central Bank Digital Currency (CBDC) taskforce by the Bank of England and HM Treasury. This is the strongest sign yet that the UK is looking to launch a CBDC and has potentially huge implications for our savings, purchasing power and privacy. Jason’s commentary appeared in some of the UK’s most influential newspapers including The TimesDaily Mail and Evening Standard as well as key financial websites including MSN, This is Money, MoneyWeek, Yahoo Finance, CryptoNews and UK Investor Magazine.

Earlier this month, the UK announced inflation continued to rise and is on track to meet the 2% target set by the Bank of England. The cash in our accounts already loses value by the day due to inflation outstripping the current miniscule interest rates – the potential introduction of negative interest rates would be catastrophic. Read our full commentary in the Daily Express.

Ever wondered how your savings have performed vs gold? We crunched the numbers and the value of gold holdings increased 41% over the last decade, whilst Cash ISAs have lost 2% in value over the same period. Our research and explanation behind cash’s fall in value appeared in Yahoo Finance and Fintech Zoom.

In last month’s Press Room we welcomed Emmanuel Ide to the leadership team, this key new hire appeared in Mondo VisioneFintech Insight and Fintech Inshorts over the last couple of weeks.

Soapbox: It’s payback time

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US President Joe Biden has given away trillions of dollars to American citizens, is preparing to give trillions more – and then to claw back some of that ‘free’ money.

A President who comes from Delaware, the state which is a kind of US onshore tax haven – companies that are incorporated in Delaware can pay a corporate tax rate of 0% – risks looking like a hypocrite if he clobbers people too much.

The US Congress listened on Wednesday evening this week as the President outlined his ideas as to how to fund his American Families Plan. This plan is the third big economic package since he took office, following his $1.9 trillion fiscal stimulus plan in March and a proposed $2 trillion infrastructure bill, still fighting its way through Congress.

This third plan, called the American Families Plan (who would be so churlish as to oppose a plan for families?) proposes more generous child support until 2025, extra funds for universal pre-kindergarten schooling and community colleges, and other social welfare ideas; to pay for it the total capital gains tax for the richest Americans would go up to almost 44 %. The top rate of income tax would rise from 37% to almost 40%. Americans earning more than $1m a year would face the application of ordinary income tax rates to capital gains and dividend payments.

These ‘reforms’ would also hit private equity and hedge fund managers – easy targets one might think – by effectively eliminating the preferential tax treatment of their profits, or ‘carried interest’. At the moment, carried interest is taxed at the lower capital gains rate rather than ordinary income, but Biden would equalise their tax treatment. The president is also considering taxing unrealised capital gains passed on to heirs at death. Taxes on capital gains and dividends are currently 20%; under Biden’s plans they would be treated as ordinary income, at a 39.6% rate.

The mere whisper of some of this on 22 April invoked an immediate response. The S&P 500 index fell 1%. Next day, Bitcoin fell below $50,000, leaving it almost $14,000 lower in value since it hit a record high the previous week. People were nervous that capital gains tax rises would hit their pockets, so they got out of some assets while the going was good. The gold price also dropped, from $1,793 per ounce at midday on 23 April to $1,774 by 3pm that day. US corporations are well-accustomed to finding tax loopholes – 60 years ago corporations paid around a third of federal tax revenues but today its just 10%. No wonder the US Treasury Secretary is keen to gain support for a global minimum corporate tax rate. Without that, much of the intended corporate tax take will still elude the Treasury.

The ‘wannabe’ FDR

In May 2020, New York magazine ran a feature on Biden under the title “Biden is planning an FDR-size presidency” – the FDR being Franklin Delano Roosevelt, the former Democrat President who in the 1930s faced the Great Depression and started many state-funded programmes to get America working again. FDR is either a US 20th century hero or a bogeyman, depending on whether you believe it’s the state’s duty to rescue a society or that such a rescue should be left to the free market.

Biden sees himself following in the footsteps of FDR; he told CNN in April 2020 that the challenge being faced by a Covid-wracked US economic collapse “may not dwarf but eclipse what FDR faced”. The financial sums are certainly much bigger – under Roosevelt’s New Deal US debts grew from $22 billion in 1933 to $33 billion by 1936. In those days, the word ‘trillion’ was hardly ever used. The devaluation of the US dollar can be felt in the ease with which we have moved from talking about ‘billions’ to ‘trillions’; a US Dollar today buys less than 5% of what it would in 1933.

Under the Biden American Families Plan, the tax rates on individual incomes below $400,000 would not increase. New and expanded tax benefits, including provisions for child care, first-time homebuyers, educational debt relief, retirement savings, health insurance, and long-term care insurance, could reduce taxes for average families. Those who will suffer will be corporations and those taxpayers with incomes of $400,000 or more. Individuals with incomes of more than $1 million would pay the same rate on investment income as on wages.

Will it work?

Raising taxes, especially on the ‘rich’, and spreading money and welfare on the ‘poor’ is a classically populist measure. Whether social engineering will make America ‘more equal’ (whatever that means) is an open question. FDR’s New Deal hired Americans to work on the improvement of their own country; as they worked for the government, so the government worked for them. Legacies of the New Deal can be seen all across the country, from bridges, tunnels, roads, schools and libraries to monuments, murals and sculptures. What the New Deal called for was a greater sense of rights and duties – the state funnelled money into work-creation schemes and the citizenry were called on the step up to the plate and reciprocate and work on behalf for the state’s projects. American society is very different today from 1933; will citizens today step up to the plate or just be happy to take the money?

Imposing more taxes on the ‘rich’ is no doubt politically popular but without addressing loopholes such as the Delaware get-out it will seem unbalanced. Biden has scarcely been in office more than 100 days; his intentions remain a work in progress, and will no doubt face stiff Congressional opposition. The dramatic loss of purchasing power of the Dollar since FDR’s time, however, shows no sign of halting.

Around the campfire: Timing the market

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When’s a good time to buy gold? It’s a question on many minds at the moment, with the price languishing about $258 an ounce (£274) from its peak of over $2000 per oz last August.

There’s no simple answer. The obvious response is “buy it when it’s cheap and use it when it’s expensive”. But that’s not useful; none of us has a crystal ball to peer into the future. Quite obviously no-one who may have bought their gold at last year’s peak wants to spend it now, and crystallise those ‘losses’.

Maybe ‘experts’ know something you or I don’t? According to the latest Reuters poll of 42 gold analysts and traders, the consensus is for a median (i.e. mid-point) gold price of $1,784 an ounce for 2021 and $1,743 for 2022. But just three months ago the same analysts were forecasting $1,925 and $1,908 an ounce for 2021 and 2022 respectively. What has changed so fundamentally in the past three months? “Most of the drivers (of the rally) are fading”, said one of those polled.

Really? Analysts are like sheep – they don’t like deviating from the herd. They also like to hedge their bets. So Reuters also reported that “interest in gold could be rekindled by events such as a weakening of the US dollar, an inflation surge, falling stock markets or a wave of coronavirus infections big enough to derail economic growth”.

These analysts don’t seem to be taking much notice of the inflation that’s already here, in everything from the price of beach huts in Essex, England (being snapped up at an 80% higher price than this time last year, according to one renter) to basic foodstuffs. The international price of soybeans – China is the world’s biggest soybean buyer, mostly for animal feed; it bought 100 million tonnes of soybeans in 2020 – has gone up by more than 70% since this time last year. Other basic commodities have also increased in cost astronomically.

If you believe, as I do, that the supply of fiat currency – paper money – in the financial system correlates to inflation, then we could be in for a strong inflationary shock later this year. Money supply – M2 in the jargon – is growing at around 27%, the fastest rate ever. The latest US consumer price index (CPI) data from the US showed prices rising by an annualised 2.6% in March – the highest since August 2018. But house prices are not captured by the CPI – and they rose by 17% in March; almost half of homes are getting sold within a week of listing. Officially everything is under control; unofficially I have my doubts. Official inflation figures do not reflect what’s really happening.

Does this give you a clue as to when it is a good time to buy gold? Trust the ‘experts'(who can evidently turn on a dime) or trust your own experience? However you play it, gold remains an inflationary defence par excellence.

Getting the timing right is virtually impossible – it’s probably wiser to follow the trend. Let’s suppose that you bought gold months before that July/August 2020 peak. Had you bought gold on 9 March 2020 for example – when a major dip happened – then you would now be sitting on a ‘gain’ of $281 an ounce. If you had bought gold when Glint was still an infant, say towards the end of November 2016, your ‘gain’ would by now have been more than $1,600.

For me, and all of us at Glint, gold is money, and it should and can, be used as money – it’s your gold and it can be spent or saved as you wish. As the financial system in the US and elsewhere is flooded with paper money and cryptocurrencies remain incredibly volatile, for me any time is a good time to buy gold.

Until next week,

Jason Cozens, CEO and Founder

Gold – according to Dominic Frisby: Medieval Coinage

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The Byzantines had their solidus, the Arabs had their dinar, both around 4.5g of gold, but in Dark Age Europe, gold was notable by its absence.

Silver was money, and librae, solidi and denarii, or as we call them, pounds, shillings and pence – £sd – were the measures. The origins were Roman, but Charlemagne brought the system to Europe and Offa to Britain.

There were 12 silver pennies to a shilling, and 20 shillings, or 240 pence, to a pound. A penny was about half the weight of a 1p coin today, around 1.5g.

The mathematics of such a system may seem horrendous to our decimalized brains, but actually it worked. It enabled many fractions of a pound – tenths, eighths and sixths. When dealing with items in dozens, multiplication and division are straightforward. If a dozen pints cost four shillings, then each pint is fourpence. Basic addition, it should be stressed, is easier with decimals.

There were no coins at the time that weighed a pound of silver, whether in Britain or on the continent. The pound or livre was a unit of account. Today we would call it the Troy pound (around 12 ounces or 373g).

In Northern Europe, early in the second Millennium, they began to do things, quite literally, by half measures, well, ⅔ measures. The Mark, which would become the currency of Germany, and probably has its roots in the markets of Cologne, was a weight of about eight ounces. Again it was a convenient divisor, especially as wages were counted in pence. It was 160 pence, or 13 shillings and fourpence.

The £sd system continued for a thousand years or more. The United States of America dropped it in 1792, not long after its revolution. Revolutionary France followed in 1795 – one franc was 10 decimes or 100 centimes. But the UK stayed with it till 1971.

By the 13th century, with Europe’s silver mines exhausted and economics in Italy buoyant, gold began its comeback. Florence led the way with its florin, three and a half grams of pure gold. This would be the first gold coin struck in Europe for maybe 600 years to play a significant commercial role. But with Florence’s extensive trading and banking networks it quickly became the dominant coin for large scale transactions, replacing the bulky Mark bars.

By the fourteenth century, there 150 different varieties of the coin stamped by various issuers around Europe, most notably the Hungarian forint. (Hungary’s mines provided Europe with much of its gold, until the Spanish discovered America).

The original florin saw Florence’s emblem, the fleur-de-lis (literally lily flower, but actually the iris flower) on one side, and John the Baptist on the other. Elsewhere, John the Baptist would be replaced by other patron saints and sometimes kings.

One florin was tradable for a lira (pound) of silver, although it seems the Florentine lira, perhaps for reasons of debasement, only contained around 35 grams of silver. (Silver mines in Europe were heavily exhausted at this point). So the ratio of silver to gold was 10:1.

The French franc, first introduced in 1360, was 3.9 grams of gold (just 0.4g heavier than the florin) and its value was set quite specifically in law as one “livre tournois”. A “livre tournois” was 240 deniers, or 20 sols – the same as pounds, shilling and pence in other words. This was set by decree, rather than the market, and French silver coinage had been similarly debased.

The Dutch guilder has its roots in the florin too. Its symbol was Fl. or ƒ.

England too minted florins – the first coins of Edward III in 1344 – and it seems the reason for doing so was that the 3.5g continental florins were underweight for their value relative to British silver coins. Edward’s coins were effectively double florins, containing 7gs of gold, with a value of six shillings or 72 pence. That would mean 112g of silver had a value of 9g of gold and that the gold-to-silver ratio was thus 11, which ties in with historical averages.

Barely 30 years after Florence struck its first florin in 1252, Venice struck its first ducat, meaning “of the duke”, in 1284. These too contained 3.5g of 24-carat gold. Venice was following the Florentine and Genovese, as it happened, models. One side of the ducat shows the doge kneeling before St Mark, the patron saint of Venice, the other shows Jesus Christ.

Shakespeare fans will recall that 3,000 ducats is the loan Antonio wants to borrow from Shylock, the money lender, in the Merchant of Venice. If he fails to repay, Shylock will cut out a pound of flesh.

Italy’s striking its own coins was no doubt spurred on by Byzantium debasing its gold coin, the hyperpyron or “bezant”, which had for 200 years been the dominant coin of the northern and eastern Mediterranean. Today’s leaders take note: China’s development of its own digital coinage today is no doubt spurred in part by the US’s debasement of its dollar.

As with the florin, other European nations, including Hungary, Austria and Holland, minted their versions of the ducat. Later there would be imitators in Spain, Persia (the Mamluk ashrafi) and the Ottoman Empire (the saltun). Though at first the florin was more widely circulated than the ducat, by the 15th century international traders shifted to the ducat as their preferred currency. The Venetian ducat would become the standard money of the Holy Roman Empire, and the dominant currency of world trade.

Soon, however, when Spain got its hands on American gold, the Spanish dollar came to dominate. And the dollar will be the subject of my next piece.

* Dominic Frisby, author of Daylight Robbery – How Tax Shaped The Past And Will Change The Future, out now in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.

Press Room: Glint in the news!

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Alternative currencies dominated much of the news this month. This week, Ethereum hit a new record high and broke the £2,000 barrier for the very first time. Alternatives are now firmly established amongst consumers as a viable store of value and means of exchange as we all look to take greater control over how we save and spend our money. Our commentary on the latest crypto milestone appeared in The Sun and Yahoo Finance.

Has the crackdown on crypto begun? One of the biggest stories this month was the creation of Central Bank Digital Currency (CBDC) taskforce by the Bank of England and HM Treasury. This is the strongest sign yet that the UK is looking to launch a CBDC and has potentially huge implications for our savings, purchasing power and privacy. Jason’s commentary appeared in some of the UK’s most influential newspapers including The TimesDaily Mail and Evening Standard as well as key financial websites including MSN, This is Money, MoneyWeek, Yahoo Finance, CryptoNews and UK Investor Magazine.

Earlier this month, the UK announced inflation continued to rise and is on track to meet the 2% target set by the Bank of England. The cash in our accounts already loses value by the day due to inflation outstripping the current miniscule interest rates – the potential introduction of negative interest rates would be catastrophic. Read our full commentary in the Daily Express.

Ever wondered how your savings have performed vs gold? We crunched the numbers and the value of gold holdings increased 41% over the last decade, whilst Cash ISAs have lost 2% in value over the same period. Our research and explanation behind cash’s fall in value appeared in Yahoo Finance and Fintech Zoom.

In last month’s Press Room we welcomed Emmanuel Ide to the leadership team, this key new hire appeared in Mondo VisioneFintech Insight and Fintech Inshorts over the last couple of weeks.

Glint Special Report: Bitcoin vs Gold – who won The Great Debate?

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Like many of you, we were glued to the Bitcoin vs Gold debate between industry heavyweights Michael Saylor (Bitcoin Billionaire) and Frank Giustra (Gold Billionaire). As expected, it was a fascinating discussion, with plenty of insight to digest.

The debate covered a huge range of key issues and arguments; we’ve reviewed and analysed some of the big talking points – as well as highlighting some of the major points that weren’t mentioned.

Asset comparison

According to Michael Saylor, Bitcoin is secure and possesses many of the characteristics of monetary gold, but without its “defects”. This echoes the classic standpoint of Bitcoin as “new” or “digital” gold and its devotees will undoubtedly believe this encapsulates the entire argument in just one pithy phrase.

Frank Giustra, on the other hand, clearly doesn’t. He makes a point we’ve demonstrated on these pages many times over the last few years – Bitcoin has never been tested in a crisis, whereas gold has been valued, relied upon and trusted as both a means of saving as well as money, for centuries. Gold has stood the test of time.

Giustra also questions whether Bitcoin will be accepted as a mainstream method of payment. Whilst Bitcoin and other cryptocurrencies are easily accessible as a store of value, it’s much more difficult to actually spend them. Whilst some of the world’s largest retailers and companies do accept payment in Bitcoin and the number is growing, it’s still very uncommon to be able to use cryptos with smaller businesses. Until this changes, Bitcoin isn’t a viable alternative as a means of everyday exchange, he argues.

There are two other major factors that are likely to prevent Bitcoin from establishing itself as an everyday currency – slow transaction processing times and high fees. Bitcoin has only been able to process a maximum of seven transactions per second and there are many factors which can slow down transactions – taking as long as five days in 2018. In terms of fees, Bitcoin transactions are prohibitively expensive – the average fee over the last week is around $45, meaning that it is an unviable option for most everyday purchases… imagine spending $5 on a coffee and being hit with ‘gas’ fees of $45!

Risk factors

As Frank Giustra highlighted, quantifying the risks of Bitcoin is hugely important. Whilst we all know that investments can fall in value as well as increase, Bitcoin can sometimes be positioned as an almost risk-free asset – this is very dangerous, especially as it is such an attractive proposition for private investors.

However, as Giustra pointed out, Bitcoin shouldn’t be worried about gold; “central banks are the ones you need to look out for”. This is a crucial point that we’ve raised here many times. Governments need to control their currency, making ownership of cryptocurrencies illegal could easily happen. We’ve already seen it in China and India is once again looking to ban Bitcoin. What would be the impact of this? It is likely to curtail Bitcoin to the point where only a minority use it. This could have a catastrophic impact on its value and the portfolios of its holders.

On a related note, Bitcoin is unregulated. It is the wild west of global currencies; this doesn’t put off investors, in fact for many the lack of regulation is another advantage of Bitcoin (our debate preview delved into regulatory details). However, this also makes it very attractive to manipulators as well as another potential threat to governments – PayPal Founder Peter Thiel recently went as far as describing it as a “Chinese financial weapon”.

Once again, taxation is key. Governments won’t want to risk losing out on potentially billions in tax revenues whilst an unregulated, anonymous currency like Bitcoin flourishes. Many believe it is inevitable that central banks will look to control or curtail cryptos – in the UK, we’ve recently seen clear signs of this as the Bank of England announced the launch of a Central Bank Digital Currency (CBDC) taskforce; what is a CBDC if not an attempt to intervene in the digital currency arena?

Historical performance

No one questions the longevity of gold and its role as currency throughout moments of monumental change throughout history. However, Bitcoiners often claim that gold has had its time and suggest it is no longer fit for purpose – this is incorrect as Glint’s payments ecosystem allows gold to be spent as an everyday currency whilst also performing its timeless role as a store of value.

Saylor claims that Bitcoin has matured as an asset and is appreciating at 200% per year. This seems unsustainable – Giustra suggests as much by remarking how it “sounds more like a bubble environment than a store of value”. Whilst Saylor claims that Bitcoin is an asset rather than a currency – which should be held over the long-term – what happens if this does turn out to be a bubble?

Regardless of the hugely impressive recent performance of Bitcoin, there is one irrefutable point – Bitcoin has not been tested over the long-term and has not been around long enough to demonstrate its viability as a store of value.

Supply dynamics

Saylor made one particularly revealing comment during the debate: “Gold is a commodity, Bitcoin is a scarcity”. This provides a fascinating insight into how he, and no doubt, many other Bitcoiners, view gold’s position. Gold is a finite resource, we cannot simply create more of it – this is part of its intrinsic value and why it has been viewed by many as a trusted and reliable asset for thousands of years.

On the other hand, Bitcoin is created by humans. There may only be 21 million coins in existence but who’s to say this cannot change? History is full of surprises that were seemingly impossible, until they happened. By its very nature, Bitcoin is subject to human intervention and at risk of corruption – whether that is caused by the best intentions or through malign forces.
This poses an interesting question, does the supply dynamics of Bitcoin prevent its use as a currency? We’ll find out soon enough.

Ownership

Gold ownership is widely spread amongst people around the world. The world’s central banks only own 17% of the world’s gold.

The complete opposite is true of Bitcoin. A recent Bloomberg article revealed that 95% of Bitcoin’s market cap was owned by only 2% of wallets; even if the figure is lower (71.5% according to other research), these ‘whales’ hold undue influence over the asset and can impact its already high volatility – 75% to 125% compared to 8-20% for gold.

One of the most telling points made during the debate was Giustra’s anecdotal suggestion that Larry Fink, CEO of Blackrock, sees little real institutional investment in Bitcoin. It will be fascinating to see if this changes over time.

Market forces

“None of us have experienced an investment climate like today” – Giustra’s words certainly put 2021 into context. This supports his message to private investors of the importance of diversification. And for many, gold is the ultimate hedge in times of uncertainty.

Of course, more big-tech and finance companies are embracing Bitcoin – Tesla being one of the highest profile recent institutional investors. Saylor clearly believes that this is only likely to accelerate in the future. However, as Giustra highlights, Bitcoin isn’t owned by any central banks and it is highly debatable that it would become a reserve currency. This is partly down to a need for control and is one of the motivations behind the development of CDBCs.

Bitcoin appears to be behaving like a growth stock, time will tell how it performs over the long term.

Glint’s view

As expected, it was a forthright and hugely insightful debate, but the panel missed out on the opportunity to cover some crucial topics. Some of these we discussed in our preview earlier this week.

Firstly, it is a shame that the discussion focussed on the two assets as a store of value and offered little in terms of gold as a means of exchange. Giustra believes that gold is no longer used as everyday money, whilst Saylor even claimed it is a myth that gold is money – the opposite is exactly what Glint offers with its global payments ecosystem allowing clients to spend, save and share real gold through our app and Glint Mastercard®.

Also, the scalability of gold as a currency wasn’t discussed. Through the digitalisation of gold with Glint, instant and secure cross-border payments in real gold are possible at the touch of a screen, these don’t require huge amounts of energy either, which is often one of the main criticisms of Bitcoin.

Finally, gold is increasingly relevant to younger consumers – recent research from the Royal Mint shows a 32% increase in millennials turning to gold. Through Glint, gold can now be used in the same way as many cryptocurrencies – traded, spent and sent to friends and family. We’re working hard to develop a payments alternative that positions gold as a relevant and viable currency for the 21st century.

Around the campfire: Their punches didn’t land

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It was no ‘Thrilla in Manila’, as Muhammad Ali dubbed his fight against “Smokin'” Joe Frazier in 1975. Wednesday’s much-hyped two-hour ‘contest’ between American billionaire Michael Saylor and wealthy Canadian businessman Frank Giustra on Youtube was promoted as a “Great Debate” over Bitcoin versus gold.

I felt as I watched the six ’rounds’ that while Saylor (in Bitcoin’s corner) did some great ducking and weaving, Giustra (in gold’s corner) failed to deliver a knock-out punch. By the end, it felt a bit of a damp squib.

Coming a week after Coinbase, the cryptocurrency exchange, listed on Nasdaq at a heady $80 billion valuation, coinciding with the UK Chancellor Rishi Sunak’s announcement of a Treasury/Bank of England taskforce to consider the potential for a central bank digital currency, I expected more sparks to fly than actually happened. Coinbase is now trading around five times its price of six months ago. It’s an unusual IPO – a tech company that has come to market and is showing profitability, which most never manage.

The comments that stacked up on Youtube from spectators of the Saylor/Giustra dance as it happened said it all – the world seems bitterly divided between pro and anti-Bitcoin and gold cult followers. According to them you are either destined for poverty or riches from gold or Bitcoin – neither of which is true – and missed the point about both cryptocurrencies and gold. In fact both Saylor and Giustra missed the point.

Cryptocurrencies were developed and have flooded the popular imagination for a very good reason – people have lost or are losing faith in fiat or government-issued currency. I get that; that’s why I set up Glint. Who knows what the future will bring? Cryptocurrencies may well survive – but they are infants scarcely out of diapers compared to gold. In any case there’s room for both.

Saylor for his part ducked away from Giustra’s sensible punches about risk, throwing some feints along the way, such as his extravagant claim that “Bitcoin’s the most popular investment asset in the history of the world”.

But the contest got bogged down and Giustra failed to land what could have been the most devastating punch – which is that while gold has indeed been used throughout most of recorded history as money, it has once more re-gained that status, thanks to Glint. For with Glint’s App and Mastercard® you can load gold onto it, and then take that shopping and spend gold as money. That’s not easy with cryptocurrencies, which are transactionally slow and cumbersome.

Note to self: contact Giustra and remind him that his pro-gold notes need updating to take account of Glint.

Until next week!

Jason