Nobody yet knows how the Cyprus crisis will finally play out; but the talk of confiscation a percentage of Cypriot’s bank deposits has Spaniards worried that the same could happen to them. The insanity level seems to have kicked-up a bit.
A commenter on my post about the Cyprus crisis suggested it may be time to go back to the days of keeping one’s money under the mattress. Spaniard, Francisco Santos, thinks the same as we learn from Mish’s Global Economic Trend Analysis:
Putting new meaning to an old phrase (keep your money under the mattress), a Spanish firm touts ‘Mattress Savings’ the first mattress with built-in safe.
“Savings, are better under the mattress”. How often have we heard this phrase! The difficult economic situation in recent months and various scandals involving financial institutions have led many to dream about fluffy Spanish euros. Francisco Santos also dreamed, and woke up to make it happen: he created the first mattress with built-in safe.
A bit of a joke? Maybe. But this next “bit” is no joke. Zero Hedge has the story:
Something extreme is happening in Europe. Since Sunday, Bloomberg Businessweek reports a trio of Bitcoin apps have soared up Spain’s download charts, coinciding with news that cash-strapped Cyprus was planning to raid domestic savings accounts to pay off a $13 billion bailout tab. “This is an entirely predictable and rational outcome for what’s happening in Cyprus,” says ConvergEx’s Nick Colas. “If you want to get a good sense of the stress European savers are feeling, just watch Bitcoin prices.”
What is Bitcoin? Bitcoin is a virtual currency where the prices is determined by free market supply and demand. From Wikipedia:
Bitcoin (sign: BTC) is a decentralizeddigital currency based on an open-source, peer-to-peerinternet protocol.[8] It was introduced by a pseudonymousdeveloper named Satoshi Nakamoto in 2009.[1]
Internationally, bitcoins can be exchanged by personal computer directly through a wallet file or a website without an intermediate financial institution.[9] In trade, one bitcoin is subdivided into 100 million smaller units called satoshis, defined by eight decimal places.[4]
Bitcoin does not operate like typical currencies: it has no central bank and it solely relies on an internet-based peer-to-peer network. The money supply is automated, limited, divided and scheduled, and given to servers or “bitcoin miners” that verify bitcoin transactions and add them to an archived transaction log every 10 minutes. The log is authenticated by ECDSAdigital signaturesand verified by the intense process of bruteforcingSHA256hash functions of varying difficulty by competing “bitcoin miners.”Transaction fees may apply to new transactions depending on the strain put on the network’s resources. Each 10-minute portion or “block” of the transaction log has an assigned money supply. The amount per block depends on how long the network has been running. Currently, 25 bitcoins are generated with every 10-minute block. This will be halved to 12.5 BTC during the year 2017 and halved continuously every 4 years after until a hard limit of 21 million bitcoins is reached during the year 2140.[1][10]
Confused? Me too. So, I went to another source. “Bitcoin Foundation standardizes, protects and promotes the use of Bitcoin cryptographic money for the benefit of users worldwide.” I am still confused. This virtual cryptographic money stuff is over my head. But, apparently, people do use Bitcoins to transact business over the internet. My guess is that the central bankers do not like the competition. Zero Hedge has more:
The value of the virtual currency has soared almost 30 percent in the last two days. “One hundred percent of that is due to Cyprus,” says Colas. “It means the Europeans are getting involved.” As German economist Peter Bofinger warned in an interview with Spiegel Online: “European citizens must now fear for their money.”
The same apps download data, however, showed that Italians aren’t ready to abandon commercial banking, remarkable as many Italians still recall that black day in 1992 when they woke up to a levy on their savings accounts to prop up the nation’s teetering finances.
The EUR price for a Bitcoin has jumped from around EUR37 to over EUR50 in the last two days as reality hits… and look at the volume…
Nassim Taleb (On Reddit) – via Mike Krieger (@LibertyBlitz):
“Bitcoin is the beginning of something great: a currency without government, something necessary and imperative.”
I may not understand the ins and outs of this cryptographic virtual money; but, the idea of a currency without government or central bank manipulation would be a dream come true. This is a David vs Goliath story if I’ve ever heard one. I’ll be rooting for the David’s, but I won’t be holding my breath.
Well, that’s what I’m thinking. What are your thoughts?
Asylum Watch 
Will invest in bitcoin commercials soon be replacing invest in gold commercials?
I have to start stuffing my mattress again.
Who knows, my frfiend, bitcoins may turn out to be better than gold.
Fiat money is fiat money–as long as people agree it’s money, it is. Sometimes I doubt our commitment to paper money (with apologies to Donnie Darko).
http://www.bing.com/videos/search?q=donnie+darko+sparkle+motion+quote&mid=062E74D5C11DE01D7372062E74D5C11DE01D7372&view=detail&FORM=VIRE4
Heh! Me thinks there might be good reason fo our failing commitment to paper(fiat) money.
Me too!
I think I am better off sticking with Monopoly. At least I know the money is worthless, no hidden agenda. 🙂
Bitcoins are trading at over $69 today. Two years ago they were at twenty cents. That beats monopoly money, don’t you think?
@Bunkerville – I want the hat when we play Monopoly. You can have the Scottie dog.
We’ve made the decision to slowly withdraw our money over the next few months. It won’t be under the mattress, but it will be impossible to find. Of course, it will be worthless at the rate they keep printing. I might add that our pantry is looking very full…
It’s hard to see a silver lining in these clouds, isn’t it. Adrienne?
Maybe I will take the cannon..just in case!
There’s a real problem in that savings, whether in a bank or under a mattress is absolutely devastated by inflation. Where do you hide it when the government can inflate its way out of debt, ultimately taxing every dollar you have saved, but doing it in a way where they have not officially taxed you? Scary stuff.
Very scary stuff, Pat.
Well, Prof, I think you are reading my emails. But that is nothing new. This business of the ‘bitcoin’ is getting a ‘bitcreepy’ though.
They were trading at over $69.00 a few minutes ago. Two years ago they were trading at twenty cents.
I would like to see 21 quadrillion bitcoins (21 million is silly) and then we can talk. I will talk to Carlos Slim.
But, if the bitcoin is subdivided into ten millionth parts, as think is what is the case,(cll them bities) there would be 240 trillion units. If a loaf of bread cost two bities….
Governments will have to find a way to stop this or there will be no more governments in the long run.
Bitcoin is legit and 100% opposed to the Fed and our bankster friends. One will not survive. The banksters are in bed with central governments and monetary systems worldwide. Who will you bet on? Maybe it will be regulatory. Maybe it will be through internet controls, transaction taxes and the like but something has to give.
This is going to be fun to watch. My guess is there will be a new even more sophisticated virtual currency that may be impossible for governments to overcome short of taking down the World Wide Web entirely.
Don’t really understand bitcoins and such, but I do understand that the EU/ECB imposing taxation on bank deposits as a condition for loans is the weirdest and worst idea to come along yet in the eurozone debt crisis.
Looks like they might be targeting the excessive deposits Russian businessmen of, shall we say, less than sterling character hold to pay for Cyprus’s debts
If the latest deal they’ve been talking about goes through then it is likely all the Russian money will leave and Cyprus will ultimately be worse off that it was before.
The EU may just have shot themselves in the foot with a cannon.
The ECB and the IMF are following orders from Germany. The basic tenet of the Germans (now a bit more exaggerated because of their elections) is that there should not be outright free bailouts of countries in the EU without any contribution of these countries to the cause. The problem with Cyprus is that it is not a real country but a free tax banking off-shore territory. As such the only contribution they can make is through their banking system that is serving as laundry matt for evading capitals; and to make things worse, these capitals are from the worse-of-the-worse, Russian gangsters.
There is some divine justice in it, however, and this is a big ‘however’, in their typical Teutonic clumsiness, they are taking “justos por pecadores” (the innocent pay for the guilty); at least in their original proposal.
But it is inevitably true that as the Prof says, they “shot themselves in the foot”.
Way over my head, Jim…I think I’m with Bunker on Monopoly money. “At least you know it’s worthless.” I’ve never been good with even foreign currency exchanges, so bitcoins just caused my head to do 360’s and fall off!
Now that I hear Russia didn’t go for a deal with Cyprus, looks like all bets are off. Hearing Monday some decision will be made re: raiding the Cypriots banks. Biblical times…