I Want to Like Gold, but.....

The world is short an honest money. Gold and bitcoin both offer better options than the current failing system, it is just that crypto keeps chipping away at some of what were gold's best attributes in ways that keep surprising me.

Let's take the ICO market. I have been skeptical here. It in many ways seems like an incredibly good deal for the issuer....free money upfront in exchange for a service that the customer may never redeem. In a way, it almost seems like the peak of the fiat bubble.

There is another, more positive, view of tokens. Let's examine Facebook as what may be possible here. Facebook could easily issue coins to their most important contributors to keep them loyal to the service. Facebook could then say to advertisers that 50% of their ad buys on the platform must be paid for with the tokens. This would create a giant market for FB tokens.

Believe it or not, this is a problem for gold. For those of us who believe that the system will rebalance through CPI type inflation (to rebalance the lopsided financial asset inflation of the past few decades), gold historically offered us the best way to protect ourselves from this. After all, if CPI inflation took hold, the rush would be on to build inventory of things you use before the price rose. Since it is generally difficult to inventory services (you can't get two haircuts this month just because you think the price will rise), you had to inventory things. Gold was what you inventoried because it was liquid and would rise in price faster than most other things since it provided you with the most flexibility (it is hard to resell canned peas if you decide you don't want them).

ICO's change all of this. Services, like advertising, or a coffee  that can be paid for with a Starbuck's coin will allow you to inventory services fairly cheaply. Bitcoin will act as the new form of gold in this world, the most flexible asset. There will be a plethora of ways for one to inventory services in the future. One could almost think of these tokens as inflation etf's (depending on the structure of the coin). You pick the form of inflation you most want to protect yourself from.

Gold does retain one advantage that tokens lack however, gold cannot default. Nevertheless, long-term, tokens are a problem for gold.