August 1971: The Foundations of Bitcoin
Plus, A BlackRock Bitcoin Trust, and a BlackRock-Coinbase Partnership
It was August 15, 1971, fifty-one years ago this week. The need for hard money arose.
It was the beginning of fiat money in the United States.
President Richard M. Nixon went on national television to announce the US would no longer exchange dollars held by foreign governments for gold. We were going off the gold standard.
Money would no longer be backed by gold. Gold is a hard, scarce asset. Fairly limited supply. So, how did this happen?
Basically, any country that ran a trade surplus with the US could exchange their dollars for gold. US gold reserves in Fort Knox were running down. This balance of payments deficit, combined with rising US inflation, caused a decline in confidence in the US dollar. Nations wanted to get their gold from the Federal Reserve, in exchange for the dollars they had accumulated.
And in August, 1971, a French Naval vessel arrived in Manhattan with orders to repatriate the gold being held by the US. That really happened, and it was the catalyst for Nixon’s actions.
(Note: The UK had broken the pound’s link with gold in August, 1931.)
But Nixon said it was “Temporary.”
After fifty-one years, you can see that it didn’t end up being temporary. Dollars are backed by the “full faith and credit” of the government. Not by gold. Not by silver. So how has it turned out?
In the two years following Nixon’s move, the price of oil increased four-fold. This was largely due to the weakening of the dollar, and oil producing countries receiving less value for their oil.
In the last five decades, we’ve seen the results of the weakened dollar. Central banks now print unlimited quantities of dollars. The euro was created, a new, strong rival to the dollar. Cryptocurrencies were created as a sounder, harder money was needed.
In short, the fiat system was not temporary, and it has not worked out.
“Bitcoin Fixes This”
It’s not that simple. Well, maybe it is.
A currency with a hard, fixed supply.
A currency that can be transmitted internationally, instantly, for a low cost.
A currency that is portable, digital, unlike gold.
A currency that is decentralized, free from government control.
With dollars being printed constantly and inflation raging, doesn’t Bitcoin make an awful lot of sense?
Thanks for reading.
Bitcoin History - What Else Happened in August?
August 15, 1971 - Nixon drops the gold standard and adopts fiat money (above). Bellwether day in Bitcoin history.
August 18, 2008 - The domain name Bitcoin.org was registered. This was just two months before the Bitcoin whitepaper was released.
August 11, 2020 - MicroStrategy Corp. makes its first Bitcoin purchase for $250 million. The company and its CEO Michael Saylor would continue to buy Bitcoin, accumulating billions worth.
August 2017 - The price of Bitcoin soars 74%. Yes, please. Overall, though, Bitcoin has been quiet in August. The average gain for the month has been about 3%.
BlackRock Going Big Into Bitcoin
BlackRock, which manages nearly $10 Trillion in assets, has announced two new ways for their investors to gain access to Bitcoin. They are the world’s largest money manager, so this is huge.
First, the firm announced a partnership with Coinbase, one of the largest crypto exchanges. The venture would allow BlackRock’s institutional clients to buy actual Bitcoin through the Coinbase platform. The move was hailed as significant, as industry watchers believe this could prompt other financial firms to follow suit.
Additionally, BlackRock is starting up its own Bitcoin private trust, similar to the trust managed by Grayscale. In absence of any approved Bitcoin spot ETFs in the US, the trust represents a great opportunity for institutions and individual investors to get Bitcoin exposure.
These moves are quite bullish for Bitcoin, to say the least.
“We are still seeing substantial interest from some institutional clients in how to efficiently and cost-effectively access these assets using our technology and product capabilities.” - Company statement.
Recommended Bitcoin Tools, Platforms, Podcasts:
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Arculus - The crypto hardware wallet from Arculus is one of the best products on the market for storing your coins. Very easy to set up and to use, and very affordable.
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Twitter - Follow The Bitcoin Files on Twitter at @BitcoinNewslet1 for all of my articles, commentary and links to my contributions to Bitcoin Magazine.
Medium - Check out my writings on Medium, including articles not featured in the newsletter. Join my 500 other followers who read and write about crypto. medium.com/@rickmulvey
Podcasts - To hear the top names in Bitcoin, and learn more than you could imagine, check out The Pomp Podcast with Anthony Pompliano, What Bitcoin Did with Peter McCormack, and The Wolf of All Streets Podcast with Scott Melker.
Issue No. 70, August 19, 2022
Rick Mulvey is a CPA, crypto consultant, and frequent contributor to Bitcoin Magazine. He writes about all things Bitcoin, and yells at the Yankees and Giants. He also runs marathons and makes wine, neither professionally.