“Government Erasing Serial Numbers” and Eifrig’s “Fedcoin” Pitch

What's Retirement Millionaire pitching as "Blockchain" investments?

By Travis Johnson, Stock Gumshoe, March 6, 2017

Quite a few eagle-eyed Gumshoe readers forwarded the latest ad from Dr. David Eifrig to us over the weekend — he’s pitching his Retirement Millionaire newsletter, which is an “entry level” offering from Stansberry that includes money-saving retirement tips and health tips as well as investment ideas.

It tends to not be an aggressive or exciting newsletter — this is designed for folks in or approaching retirement, not those looking for moonshot-type investments… but, of course, even those who are approaching retirement might be enticed by the idea of making a fortune thanks to a secret government plan, right?

Here’s a little taste of the ad:

“The Government Is On the Verge of Erasing The Serial Numbers On 38.1 Billion Individual Bills, Starting in 2017

“Here’s a clever way you could make a fortune thanks to this covert government plan….

“The Feds have made similar moves over the years… and each time, folks who understood what was happening and took advantage of the situation made quite a bit of money.”

He gives a few examples of those “similar moves” that made money for folks — essentially, they fall into two categories: Government changing physical money, and therefore making the old stuff either collectible or otherwise valuable (as in the case of pre-1964 quarters and dimes, which were made of silver and have become more valuable as silver prices rose; or collectibles like the no-longer-printed $1,000 or $10,000 bill); or government changing the rules for payments and opening up new lines of business for companies — as was the case for credit cards in the 1970s or online banking in the 1990s.

And yes, some of the companies who benefitted from those latter changes certainly made fortunes for shareholders — though that assumes the benefit of hindsight since we now know which companies survived and thrived (like American Express starting in the 1970s and 80s or Intuit in the 90s, for example).

So what’s the big change coming now? Here’s a bit more from the ad:

“Right now, a similar opportunity is presenting itself yet again…

“Congress just passed a new bipartisan resolution that could ultimately have a more transformative effect on American money than any of these sweeping changes the government has made in the past 100 years.

“And because of this new House Resolution, I believe that the serial numbers will essentially disappear from every U.S. bill in circulation…

“And in their place, federal officials will implement an entirely new system to both mint and manage the flow of the $14.9 trillion that changes hands in America every day.

“It’s a revolutionary change… one that will impact any American who owns, uses, or saves any of their wealth in U.S. Dollars.”

The pitch is really about blockchain, which is the key part of the new “cryptocurrencies” that have surged in investor interest over the last couple years, like bitcoin (by far the most popular and widespread of these “alt-currencies”) or ethereum (or dozens of others, though all the others are much smaller so far). Blockchain is essentially the new database structure (for lack of a better term) attached to each unit of cryptocurrency that makes it fully trackable and verifiable (though theoretically also anonymous, depending on how strictly you define “anonymity”)…. here’s what Eifrig has to say about that:

“The technology that makes all current and future digital currencies possible is called “blockchain.”

“It’s essentially a giant interactive spreadsheet… a digital database that maintains records of assets and transactions, and keeps track of who owns what.

“Each digital dollar on a blockchain carries an ever-changing serial number.

“New digits get added to it, as the money moves from one person to another.

“And that’s how a blockchain keeps records of who owns what… by tracking each and every transaction that takes place as it changes hands across a digital network.

“With a national blockchain, money would be digitally minted and backed by the ‘full faith and credit of the U.S. government’—just like today’s paper dollars.

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“Surprisingly, it won’t take much for the government to make this change…

“The government already owns the largest digital money network in the world….
Fedwire processes about as much money in a week as the entire U.S. economy generates in a year.

“All the government has to do now is to put blockchain technology on top of this network, and a cryptocurrency is instantly possible.”

I suppose that’s true, though it doesn’t address the “limited supply” part of the appeal of the cryptocurrencies (unlike the US$, which can effectively be written into existence by the Federal Reserve and by fractional-reserve banks, most cryptocurrencies have fixed limits for how many new units of currency can be created).

And there is, as Eifrig notes, a movement to create something that pundits are calling “Fedcoin” — Eifrig refers to David Andolfatto, who is a Fed official (a VP at the St. Louis Fed) and also a blogger… Andolfatto’s blog includes some interesting speculation on the potential of a “Fedcoin” that would use the blockchain but separate out monetary policy (meaning, essentially, that the Fed adopts a blockchain technology for money transfer and payment processing, saving lots of money and time, but keeps it fixed to the dollar).

That, to me, makes the fairly obvious point that mainstream financial people are taking cryptocurrencies and the blockchain seriously — we’ve known that for some time, and there are meaningful institutional transactions now using the blockchain… though the attractiveness of bitcoin or any individual cryptocurrency as a payment system remains subject, to some degree, to the concerns about the fluctuation in value of bitcoin versus the dollar. You can’t expect to make billions of real-world transactions in a currency that fluctuates substantially in short periods of time (even a few hours sometimes) like bitcoin does, but the blockchain idea is compelling enough that all the big banks and central banks and payment systems companies are actively trying to figure out how to use it (and, preferably, how to “own” some particular way of using it).

And, of course, there’s a way to profit — if only you’ll subscribe to Eifrig’s newsletter:

“… a perfectly-timed investment in the right companies in this space could be a life changing event for you and your family.

“Today, the overall blockchain market is valued at roughly $210 million…

“But at least one research firm predicts that it will grow to $20 billion within the next 10 years—100 TIMES bigger than it is today.”

I don’t know where that “overall blockchain market is valued at $210 million” bit comes from — certainly the level of interest and speculation and business exploration of bitcoin itself is far larger than that. There is currently about $20 billion worth of bitcoin in existence, and venture capital companies are still throwing money at virtual currencies — there is at least one venture-funded company that has raised over $100 million just to provide user-friendly virtual currency account/wallet services (that’s Coindesk, of which I am a customer… though there are many others in the same space as well), and there remain several bitcoin ETFs in the pipeline for SEC consideration that would probably increase interest in the virtual currencies considerably.

For what it’s worth, bitcoin and ethereum have both gotten a fair amount of investment newsletter attention over the past year or two — most recently, it was the laissez faire letter pitching bitcoin based on the upheaval that might hit next time the federal budget hits the debt ceiling, and last Summer the Palm Beach Letter was pitching ethereum as the more appealing “next bitcoin.”

So the big argument here is that the government and big companies are “gearing up” for big changes in the dollar, and in payment processing in general — perhaps to the extent that an official blockchain version of the dollar is released someday, though that’s certainly not the consensus expectation. And, more to the point, that the technology behind the blockchain is also being used and considered in m