The Digest #74

Published on March 26, 2021

“Once you start doing only what you’ve already proven you can do, you’re on the road to death.”

— Jerry Seinfeld

Ray Dalio sees ‘good probability’ bitcoin gets outlawed by Julia La Roche, Wednesday, March 24, 2021. “Every country treasures its monopoly on controlling the supply and demand. They don’t want other monies to be operating or competing, because things can get out of control. So I think that it would be very likely that you will have it under a certain set of circumstances outlawed the way gold was outlawed [in 1933].” For more on Dalio’s thoughts regarding bitcoin, I recommend his article on LinkedIn posted on January 28. Dalio also refers to the possibility of a cryptocurrency ban in India and a recent Reuters article has more details on that subject. (Yahoo! Finance)

Musicians Turn to NFTs to Make Up for Lost Revenue by Anne Steele, March 23, 2021. Non-fungible tokens use blockchain technology to represent unique digital assets including art, audio, video, and many other types of creative work. Musicians and other artists have been using NFTs to monetize so-called “super-fans” who might be willing to pay a premium for ownership of digital assets that are otherwise freely distributed. The application of blockchain outside the field of cryptocurrencies is not new. My 2017 review of Don and Alex Tapscott’s book, The Blockchain Revolutiondiscusses some of the ways blockchain can be used. There have been some crazy sounding NFTs sold recently, including a robot created “self-portrait” that sold for nearly $700,000, Jack Dorsey’s sale of his first tweet for $2.9 million, and a mind-bending $69 million sale of a digital collage by an artist known as “Beeple”. However, the general concept of artists monetizing super-fans doesn’t seem crazy to me. (WSJ)

Jesse Walden – A Primer on NFTs, March 23, 2021. More on NFTs in this insightful podcast episode: “Jesse Walden is the founder of Variant, an early-stage venture firm investing in crypto networks and platforms building the ownership economy. We cover the basics of what an NFT is, what new creative paradigms they might unlock, and where we are in the NFT hype cycle.” (Invest Like the Best)

Capital Allocation, 1955-1962: Buffett Buys Berkshire Hathaway Stock, March 24, 2021. Geoff Gannon and Andrew Kuhn discuss Warren Buffett’s purchases of Berkshire Hathaway stock in the early 1960s. Their conversation is based on Jacob McDonough’s book, Capital Allocation: The Financials of a New England Textile Mill which I reviewed last year. The recent Focused Compounding podcast on Charlie Munger’s comments at the Daily Journal meeting is also worth your time. (Focused Compounding)

Rick Steves’ Europe: Rick Steves, March 8, 2020. Rick Steves publishes useful guides for European destinations. His concept of traveling as a “temporary local” is very appealing. For example, staying at a 14th century pension in Prague several years ago was a better (and far cheaper) experience compared to the easy choice of booking a room in a chain hotel. Steves has an interesting background and has built an amazing business from nothing over the past half century. This podcast goes into some detail regarding his background and business philosophy as well as his thoughts on post-pandemic travel. (How I Built This)

Sovereign Writers and Substack by Ben Thompson, March 22, 2021. The economics facing writers who seek to monetize their work has never been easy. Substack allows writers to charge subscription fees to readers and takes a ten percent cut of the revenue. It is free to use for publications (like Rational Reflections) that do not charge fees. Thompson explores the Substack model in particular and future prospects for “sovereign writers” in general. There is a certain level of risk involved in using any platform but the simplicity of Substack might be worth the cost. Thompson himself has been a successful sovereign writer for many years so his thoughts are valuable for anyone thinking about pursuing this business model. (Stratechery)

Matt Ridley: Infinite Innovation, March 22, 2021. “Matt Ridley is the author of several books related to science and human progress including the Red Queen and How Innovation Works. He’s also a biologist, newspaper columnist and a member of the House of Lords in the UK. Matt and Shane discuss writing books about science, the age-old battle between viruses and humans, rational optimism, the difference between innovation and invention, the role of trial and error and the effects of social media on seeing others’ points of view.” Matt Ridley wrote an interesting essay for the Wall Street Journal regarding the pandemic which I also recommend. (Farnam Street)


Executive Order 6102

Ray Dalio raised the possibility of a government ban of bitcoin partly due to the precedent set by President Roosevelt’s actions with respect to gold in 1933. With very limited exceptions, executive order 6102 required all gold held by private individuals to be delivered to the Federal Reserve by May 1, 1933 in exchange for $20.67 per ounce. The Gold Reserve Act of 1934 soon changed the statutory price of gold from $20.67 to $35 per ounce.

Dalio may or may not be right about the possibility of government intervention in the Bitcoin market but it is clear that there is ample precedent for the Federal government to impose its vast powers in areas of monetary policy. Appealing to the judicial system offered no solace to those who would have preferred to retain gold. 

Executive Order 6102 remained in force for over four decades until December 31, 1974 when President Ford signed legislation legalizing private ownership of gold coins, bars, and certificates. 

What was the market price of gold when Americans were again allowed to own it at the end of 1974? The answer is $186.50, or nine times the price the government paid for confiscated gold in 1933. 

The price of gold compounded at approximately 5.5 percent over this timeframe. According to the CPI Inflation Calculator provided by the Bureau of Labor Statistics, $20.67 in May 1933 would have been equivalent to $85.14 in December 1974 dollars, so gold more than served its purpose as a store of value.


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The Digest #74
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