In his newsletter and blog “Altucher Confidential,” maverick investor and author James Altucher usually focuses on out of the box investments like obscure pharma stocks, or buying a laundromat.
But the common stock market is not beyond him. An eternal optimist, James came during the depths of the last crisis in 2009 to predict a fantastic run for the coming years, which has materialized in the second longest bull run in history.
James was also early to see the potential of the alternative currency bitcoin.
He recently sat down with The Epoch Times to discuss what the future holds for bitcoin:
Epoch Times: Why do you like bitcoin?
James Altucher: Take a look at the past 10,000 years of the history of money. So let’s say 5,000 years ago there was some form of barter. If you had rice and I made shoes, we could trade it. Wasn’t quite that civil and I’m oversimplifying it, but that’s how people think of, of barter.
But what if you only had enough rice for one shoe and not a pair of shoes. That’s a problem with bartering. And then there’s too many exchange rates. How many oranges for rice, how many shoes for rice, how many shoes for oranges, too many exchange rates to keep track of.
That’s the beginning of the history of money. At one point, one commodity emerged which was traded against the other commodities. People didn’t necessarily need it but they knew they could exchange it. Wheat, salt, cattle, then eventually gold and silver. Later empires developed coins for that purpose and you had to make the coins out of something that were hard to forge.
So gold and silver were relatively hard to mint. You couldn’t just go to the ground and dig up gold. You had to mine gold. And so it was very rare. Precious metals were used to make coins and then on top of it they would forge in an image of the emperor, the god, or the power.
It’s making it more difficult to fake coinage. There are problems with just basic coins. They can be forged, and why limit yourself that only the countries near gold mines could use gold as money. Also if your country was attacked, how are you going to carry your wealth to another country? You’re going to carry a sack of gold on your back, and in the end the people who did were caught or the gold was stolen on the way.
And when you buy a house, would you drive up in a truck full of gold bars? So using precious metals as coins as money had many problems. So we decided to replace them just a few hundred years ago with a banking system and paper money that was backed by gold and silver. But it still had some of the basic problems.
Epoch Times: This was the classical gold standard.
Mr. Altucher: Then the United States government, in particular, was spending more than the gold it had. So we went off the gold standard. So now we just had paper money backed by the trust of the U.S. government. And then gradually every country switched to just paper money and a banking system and there’s of course, many problems with that.
If I give you money, we have no privacy. Let’s say you lived in Canada and I lived here and I want to send you $20,000, just giving you money. I have to go to my bank. My bank goes to the local reserve bank, which goes to the Federal Reserve Bank, which goes to the SWIFT international wiring system, which goes to the Royal Bank of Canada, which goes to the local reserve bank which goes to your local bank, which goes to you. And every step of the way there are fees.
Every step of the way there are government organizations who could see our transaction. People at the IRS or the FBI or the Defense Department saying, why is James sending $20,000 to you? What’s going on here? If you spend more than $10,000 in any transaction, bells go off. So there are problems with forgery, there are problems with fees, there are problems with privacy, there are problems with human error every step of the way.
If I were to wire you money, there’s always that little scary period where the money is not in my account and it’s not in your account. It’s somewhere in the ether. It’s in the ether somewhere where humans are sending it around, but maybe someone typed in the wrong number.
Epoch Times: And there are other problems with fiat money.
Mr. Altucher: And there’s another issue with human error which has happened in almost every other country and continent other than the United States. Someone in Washington could just decide on a whim, hey, we’re going to just print up another trillion dollars in paper money because we needed to spend it on a war or a bailout. And that means the dollar bills in your wallet are going to be worthless because of inflation.
And when I say inflation affected many countries, of course we know famous examples like Germany in the 1920s had what’s called hyperinflation. Why did they have hyperinflation? Because they printed up trillions of marks for government spending. Every single South American country had hyperinflation, Venezuela at the moment.
Russia had hyperinflation after the collapse of the Soviet Union, Yugoslavia, Zimbabwe. Almost every country, it’s just the United States that has been lucky. We’ll see how long it lasts. Hopefully it will last a long time. Even so, the U.S. dollar has lost 99.5 percent of its value since 1913. So it’s not like the dollar hasn’t lost value, here it has been a very slow, gradual process.
Epoch Times: And bitcoin does better in this regard.
Mr. Altucher: Bitcoin solves all the problems and many others. There’s a fixed supply. There is only going to be 21 million bitcoins ever, so humans can’t just go and print up more. Meanwhile, if I want to send you money, I don’t have to go through 27 banks, I can just send you money directly. So that solves the kind of human error issues. A lot of the forgery issues, privacy issues for sure.
As long as you are running the right software, there’s no way to forge a bitcoin. And it’s largely private for almost anything we could ever care about. So bitcoin solves the problem with paper and bank money, bank and paper money solved the problems of metals, metals solved the problems of barter. Bitcoin solves the problems of paper money, and then there are other cryptocurrencies that subtly solve the minor problems of bitcoin.
And that’s why other cryptocurrencies exist. So because people say, well, why don’t you just have bitcoin? Why there were all these other cryptocurrencies? You can ask the same thing about paper money. Why is there a Canadian dollar and the U.S. dollar?
With cryptocurrencies, there are no geographic borders, but there are what I call problem borders. So there might be a coin that has more privacy than bitcoin. Bitcoin has minor, minor privacy issues. I don’t want to get technical. If you get very technical, there are some minor privacy issues with bitcoin. Monero and Z-Cash solve the privacy issues. So they create a problem border and there’s a new cryptocurrency. So cryptocurrency is operating more on solving real-world problems rather than these arbitrary geographic borders. So I’m very optimistic on bitcoin, because it solves very real world problems of paper money, problems that have brought down entire countries.
Every empire in history and every country in history except for maybe the United States and a handful of other countries have been brought down by monetary problems that bitcoin solves.
And then you can say, well, what if some other coin is developed that solves all these problems that replaces bitcoin? Maybe, but I doubt it. Bitcoin is the king. It’s the first. It’s everywhere. People trust it at this point, it has the highest network effects. There are $100 billion invested in bitcoins by some of the smartest money in the world. Not the governments, but the smartest hedge fund managers and venture capitalists. Essentially people are gonna want bitcoin in their portfolio that’s going to keep bitcoin alive as a reserve currency. People are going to want to have some of their assets in bitcoin.
Epoch Times: How will people be able to invest, at the moment this is rather complicated.
Mr. Altucher: In the future, the average middle-class American consumer who trades stocks will be able to buy bitcoin linked assets on the New York Stock Exchange in the form of ETFs. So that’s going to bring about a big rise in bitcoin. So it functions as a reserve currency and as a store of value. But I can also go across the street right now and buy a donut using bitcoin. And then on the cash register they have an app that converts bitcoin into dollars right on the spot. So bitcoin can already be used for transactions.
Now bitcoin’s very volatile, right? It has gone from $20,000 to $7,500 today, but that’s not unusual for the stock market or even currencies. It’s just when a new financial product is out there and it has potential to go up, then it’s going to be volatile. That’s the normal function of the financial markets.
So eventually volatility will go down and it’s been going down every year and bitcoin will begin its next rise up.
Epoch Times: What are other factors working in bitcoin’s favor?
Mr. Altucher: Three things. One is regulation. I think Joseph Stiglitz a former Nobel Prize winner and the former chief economist of the World Bank at one point he said regulation is going to kill bitcoin. I don’t understand where he’s been studying history. And I hate to disagree with a Nobel Prize winner in economics, but if you look at the history of everything, regulation actually helps. Prices go up because people feel safer investing in that market. The banking industry is heavily regulated and that hasn’t gone away.
Look at 2009. Citibank was trading for less than a dollar and it was relatively less regulated then. Boom, they put regulations on, it went up by a factor of 58. There are many examples of regulating an industry where the industry goes straight up. And I’m not saying regularly every industry, I’m saying when, when you’re in the Wild West when it hasn’t been regulated ever, starting regulations cause markets to go up because people feel safer.
When the Securities and Exchange Commission (SEC) was created in 1933 the stock market had its biggest year ever, it went up 100 percent that year. So regulation is not a bad thing. When the SEC and the New York Stock Exchange start to trade mutual funds or exchange-traded funds that buy bitcoin, that means people will think that if the New York Stock Exchange approves this, then it must be okay.
And the average person in Cleveland, Ohio can buy bitcoin ETFs for the first time ever. And right now it’s very difficult for that person to own bitcoin. So regulation will actually remove some of the distance between the average, middle class or upper-middle-class investor and bitcoin.
Another thing is the lightning network which allows for more and more transactions to occur in bitcoin that’s being developed and will be released soon for the consumer. So that will allow a lot more transactions and software to be developed on top of bitcoin and allow for more users. It will increase usage and will increase the price.
And eventually, the population of some country will say, you know what, we’re sick of our currency. We’re all going to switch to bitcoin, like in Venezuela and Zimbabwe.
Even in Iran when the United States pulled out of the nuclear accords, $2.5 billion dollars went from Iran into bitcoin. So more and more countries are starting to use bitcoin as a flight to safety, eventually an entire country will do it and we’re seeing countries like Malta actually exchange their reserve currency into cryptocurrencies. So this in general is going to increase the wider acceptance of bitcoin and cryptocurrency as money.
The interview was edited for clarity and brevity.