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$5 Wrench Attack: Bitcoin vs Gold in a Real Collapse

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The monetary battle of the 20th century was gold vs. fiat. But the monetary battle of the 21st century will be gold vs. bitcoin. With Wall Street jumping into the game with bitcoin ETFs, a bitcoin halving recently splitting the block reward for miners in half, and both gold and bitcoin hovering near their all-time highs, it’s a great time for a sober look at which asset would come out on top in a genuine, full-blown hyperinflationary financial collapse.

Bitcoin bros are currently salivating at the prospect of a bull run for Bitcoin vs. USD, as the crypto-asset typically sees significant gains in fiat terms following the halving events that cut the supply of freshly-mined Bitcoin by 50%. When bitcoin was little more than a fringe hobby for cryptography geeks and libertarian nerds, and the basis for a micro-economy for tech-savvy hippies to buy mushrooms on the dark web, these halvings had a more direct effect on price.

Before this month’s halving, the last was in May 2020. Combined with the COVID crash that brought prices extremely low in the preceding months, it was followed by a huge spike in Bitcoin vs. USD. Without the Black Swan setup of the COVID implosion, however, 2020’s fiat gains would have been far less significant.

Bitcoin vs. USD, With Halving and ETF-Driven Price Increases

But with the halving dynamic now widely known, investors stock up to front-run these halvings with dollar signs in their wide starry eyes, already planning to sell as soon as they get their fiat gains. Bitcoiners don’t appreciate the extent to which the price rise in the 12-18 months following halving events is now driven by short-term buyers with “lettuce hands,” which always portends a severe correction when the sell-off phase arrives. Those who got into or out of their “halving trade” too late get stuck with massive losses. As Peter Schiff said on a recent appearance on Market Overtime with Oliver Renick:

“There won’t be enough demand for the people who bought to get out. The price is going to crash. We’re going to see the biggest Bitcoin crash we’ve ever seen…These are paper hands, they’re not diamond hands.”

Meanwhile, the halving causes chaos in the Bitcoin mining industry when profits take a hit, making it harder for small-time miners to compete with huge and increasingly centralized mining firms. That kind of chaos doesn’t happen with gold, because in addition to having the characteristics of better money, its litany of uses means that it steadily preserves its value, which is why it has been the go-to for 5,000 years of human commerce. Bitcoiners will argue that precious metals like gold are too manipulated to serve this role meaningfully — among other methods, criminal bankers buy and sell paper metal to suppress prices and move the physical market.

But bitcoin “whales” who got in early (or otherwise managed to accumulate massive bitcoin holdings) can do this as well, and with Wall Street now getting into the game, you can bet that they’re devising similar schemes as what they try with gold. While the deed to the bitcoin you hold on a physical cold storage wallet is quite immutable and incorruptible, the broader bitcoin market is not: The current wave of new buyers in no way resembles the libertarian or anarcho-capitalist punk of bitcoin’s early days.

Wall Street banksters are salivating for ways to manipulate prices and collect fees, get into mining themselves, and co-opt existing miners (as Blackrock already has). It isn’t hard to manipulate the market when the current wave of “bitcoiners” are customers who have zero interest in the unforgivingly technical process of self-custody that is one of the only things backing Bitcoin’s promise of being incorruptible sovereign money.

A popular phrase in Bitcoin is “Not your keys, not your coins.” In other words, if you don’t hold your access key and are trusting a third-party custodian or a non-custodial wallet, your Bitcoin can be assumed to not exist. It’s merely a paper claim on your Bitcoin, which can be rehypothecated, inflated, stolen, loaned out, or maybe even stuffed into Sam Bankman-Fried’s pockets. In other words, it’s basically fiat.

In addition, when the Bitcoin network gets clogged, network fees rocket too high for even the self-custody advocates to be able to afford to move, sell, or buy anything with their Bitcoin as miners demand higher premiums. Bitcoiners who try to save by setting low fees for their transactions will get them trapped in the digital ether with no one to complete them, leaving the bag holder with no choice but to wait an indeterminate amount of time, try to set a new fee if possible, resort to other cryptos, or even turn to normal banking methods to actually move or use their “money” — hardly a picture of financial liberation from the evils of fiat money and traditional finance.

In this way, bitcoin superfans admit what is obvious: That bitcoin, including the halving, only works as promised if the tokens are bought, sold, and held in pretty specific ways, and even then there are problems it hasn’t figured out how to solve. Unfortunately, Joe Boomer who buys the ETF, allocates some bitcoin into his pension fund, or buys stocks in a bitcoin mining operation is not going to be controlling his own private keys and defending them with an arsenal of ghost-printed rifles and homemade fertilizer booby traps, as this bitcoin influencer appears to be planning:

These buyers will hold various forms of paper bitcoin or bitcoin held by their financial institution, which isn’t their bitcoin at all. It will be Bitcoin owned by megabanks or centralized exchanges, defying the project’s driving ethos and diverging from all the practices that are the prerequisites for Bitcoin to remain the “freedom money” it was dreamed up as.

Both Bitcoin and gold can be bought peer-to-peer, but in a real collapse, is the average person trying to figure out what to trade for food and bullets on the street going to have their Bitcoin hardware wallet ready to go? Will they use a wallet app on their phone, or trust their private keys on a password manager connected to the internet, using centralized servers to store their “decentralized” currency? Even now, a whole chain of convoluted apps and networks are required just to buy something “seamlessly” with your supposedly instant, super-advanced Bitcoin:

Bitcoiners often say they shouldn’t trust any third parties and should only use offline cold storage methods, yet actually using Bitcoin appears to require all kinds of third parties. And in a true collapse, will phones even work 24/7 as they (mostly) do now, or will municipalities be unable to keep basic infrastructure running? When desperation reigns, will it all be stripped by copper thieves, making Bitcoin even more impossible to use reliably?

More likely, bitcoiners will immediately become targets of constant “$5 wrench attacks,” which refer to the threat of physical violence to force a known bitcoiner to reveal their private keys. In various forms, these attacks have been occurring to the first-ever bitcoiners, including Hal Finney, a cryptography expert now known as one of Satoshi Nakamoto’s right-hand men who helped get the project off the ground.

But the same can’t be said for gold bugs who have their investment stored and protected by custodians around the world. What good is it to kidnap, extort, or threaten to murder someone who holds the bulk of their assets in guarded vaults? And what good is “perfect money” if in a real collapse it loses all its usability and value relative to gold — which is likely to have industrial uses for as long as human beings exist?

After the chaotic phase wherein there’s a brief monetization period for barter items like toilet paper, bullets, and tampons, the money that will rise from the ashes isn’t Bitcoin. It’s gold. And since gold has applications beyond being money, bitcoin has a hefty challenge ahead: it must convince the entire world that not only is it the most perfect form of money today but will remain that way in the future, under any circumstance, even as Wall Street swoops in and more inner conflicts erupt about how the underlying protocol should or shouldn’t be updated.

Because short of achieving that goal, bitcoin has no other use case or industrial application to fall back on. In other words, it becomes worthless.

And when the Everything Bubble finally pops, there aren’t going to be any speculators buying crypto for fiat gains anymore, sucking the air out of bitcoin’s lungs as the digital token’s price plummets to a floor set by a small minority of hardcore all-or-nothing “hodlers” who couldn’t get rid of their bitcoin at that point even if they tried.

Meanwhile, gold will continue to do what it has always done: Protect your wealth from the fiat destruction caused by central banking.

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