“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:

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“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’β€”just like today’s paper dollars.

“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 yearsβ€”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 most major businesses and sectors — whether it be for inventory control, or medical records, or more complex transactions (real estate, etc.).

And what’s the investment to make because of this trend? Here are clues about Eifrig’s “secret” idea:

“There’s a single stock you can buy today… that is doing more to drive this powerful new technology forward than any other company on the planet.

“If you are looking for a way to safely make extraordinary gains over the next few years, this is it. And the time to get in is now….

“… this company is already generating positive cash flow from it.

“.. nearly every bank, company, or government that is looking to use blockchain technology is already working with this firm in one way or another….

“It has deployed this blockchain platform at the world’s largest banks and financial institutions… including Bank of America, Merrill Lynch, Barclays, Credit Suisse, Commonwealth Bank of Australia, HSBC, Royal Bank of Scotland, TD Bank, UBS, and KPMG.

“It is even working with the CEO of the small startup I told you about earlier…

“The one who was invited by Fed Chairman Janet Yellen to speak at the Fed’s secret meetingβ€”and conducted the first-ever blockchain-based transaction from inside the Fed’s headquarters.

“So we can assume that it’s probably working behind the scenes on the official launch of Fedcoin as well. That’s just an educated guess… but I’d be really surprised if it’s not true… this company just dominates this space.”

And we get a specific quote from the company, which is always a nice help to the Thinkolator:

“… one of the company’s VPs recently admitted, their business model is simple: ‘We want… access to every blockchain.'”

And apparently it’s not a little tiny speculative company… Eifrig says:

“You can invest in this company today and hold it for years to come. I expect you’ll get huge cash dividends… and great capital gains, too.

“Best of all, with this one stock, you’ll gain access to a growing royalty stream thanks to the thousands of blockchains that exist, and will continue to pop up all across the world.”

Eifrig says he “can’t share any more details of this company” … but that’s OK, because we can tell you that this is… Microsoft (MSFT)

I know, I know. All that for just for a “buy Mr. Softy” recommendation? Come on!

But yes, Microsoft has made a fairly visible commitment to working with blockchain technologies — that got ethereum speculators excited last year, because Microsoft was specifically enabling that technology in Microsoft’s Azure cloud platform.

And I expect it will be a long time before any kind of blockchain technology has a meaningful impact on Microsoft’s revenue or earnings, but you never know — perhaps they’ll pull a rabbit out of their hat and some sort of blockchain-related support will make their Azure cloud platform stand out for its support of ethereum or bitcoin or whatever, giving them some competitive advantage over Amazon and Alphabet. I have no idea. Though Amazon and Alphabet, unlike Microsoft, tend to be fairly secretive about their plans — so we shouldn’t jump to conclusions about what any of those giants are working on.

Microsoft is obviously a great company, and it has been a fantastic investment over the past 30 years — though whether it was a real market-beater depends, of course, on when you bought it (buying it in 2000 would have led to disappointment, and it pretty much tracked with the S&P 500 for about ten years or so, but over the last 18 months it has gone through a bit of a transformation under new CEO Satya Nadella and has again become a “hot” stock.

It is a pretty safe investment, since it’s clearly a “blue chip” in enterprise and cloud computing, with the powerful Azure cloud platform joining Microsoft’s Windows operating system and Office desktop suite and, increasingly, Xbox video game platform as key drivers. It’s a bit expensive in my book, at 20X 2018 earnings forecasts (that’s more expensive than Alphabet, despite Alphabet’s stronger growth rate), but it’s a good company and it pays a solid and growing dividend of about 2.5%.

I won’t try to talk you out of Microsoft shares, but if we’re picking among the rarefied universe of $400-$500+ billion companies I see more to like in Alphabet (GOOG) and Amazon (AMZN) at current prices because of their growth potential, both of which I own… and though I’m a little wary of the valuation now for Apple (AAPL) since its most recent surge I also still own that one, and I don’t think I’ve ever owned Microsoft shares directly (though, of course, since it’s been one of the biggest companies in the world for decades I’ve always had some exposure to it through index funds).

So that’s what I think. I agree that virtual currencies have some real potential, and it is true that Microsoft is showing substantial interest in incorporating blockchain technology… I don’t know if I’d go so far as to say that Microsoft will soar because of bitcoin or blockchain or “Fedcoin”… but it won’t collapse because bitcoin’s value drops by 50%, so it is certainly less risky than the various virtual currencies themselves, and there’s plenty of reason to consider a Microsoft investment for non-blockchain reasons.

It’s your money though, so what do you think? Interested in blockchain, or in Fedcoin’s potential, or bitcoin or ethereum or whatever? Have any other speculations you’d like to make on companies that might benefit from the rise of alternative currencies? Let us know with a comment below.

P.S. Eifrig also hinted at four other blockchain-related investment ideas in his ad — if there’s interest, I’ll dig in and see if the Thinkolator can ID those for you as well… they’re pitched as “picks and shovels” and “royalty” streams on blockchain investments by the major banks.

Disclosure: I have small positions in both bitcoin and ethereum, and am invested in Alphabet, Amazon and Google shares. I do not have direct investment in any other stock (or alt-currency) noted above, and won’t trade in any covered investment for at least three days per Stock Gumshoe’s trading rules.


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Gail V. Phillips
Member
March 6, 2017 4:46 pm

I was rather intrigued by this come-on as well, and did a little research of my own. You can’t invest directly in the start-ups on the forefront of blockchain technology (R3, Axoni, Digital Asset), but Efrig’s article also references other companies, besides Microsoft, who have partnered with R3 on this project, including IBM and Intel and banks such as Wells Fargo and JP Morgan. Others involved include Deloitte. Although not a techie, I somehow believe blockchain will be the next gold standard.

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curiousjoe
curiousjoe
Irregular
Reply to  Gail V. Phillips
March 6, 2017 11:49 pm

I also immediately thought of IBM as another player in the blockchain space. While bitcoin is currently much in the news because its value has surpassed that of an ounce of gold, MSFT, IBM, GOOG, etc. are looking at other applications of blockchain besides cryptocurrencies.

Read somewhere that the current interest in bitcoin comes mainly from China whose citizens see it as a means to get their money out of the country. The Chinese government has become aware and is clamping down. It remains to be seen whether governments will step in and adopt some form of global cryptocurrency (“cryptodollar”), or clamp down, or both.

As for other applications of blockchain, the two I have come across are supply chain management and real estate transactions. (See e.g. http://www.supplychaindive.com/news/blockchain-Maersk-IBM-digitization-challenge-Wal-Mart-real-time/437412).

If a company is already offering a cloud service, all manner of “aases” πŸ™‚ are possible, with blockchain being one more. E.g. MSFT offers EBaaS (Ethereum Blockchain as a Service) on Azure.

Another possible application is to weed out the many fake knockoffs of the genuine articles that plague BABA and possibly also AMZN. (IBM’s supply chain blockchain probably takes care of this). Lastly, there may be an application of blockchain to IoT.

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YoBrent
YoBrent
Reply to  curiousjoe
March 7, 2017 1:46 pm

Exactly. Cryptocurrency is leading the charge (news) in the blockchain industry/discussion, but there are many more applications that make investing in the technology more appealing (for me) than just currency . I’m just not sure how to do it efficiently.

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Terry Roshau
Terry Roshau
Member
Reply to  Gail V. Phillips
May 6, 2017 11:53 am

Join the discussion
I am a little more interested in investing in companies that are involved in helping other companies implement blockchain. I have only found two ‘less than blue chip with more growth potential’ so far that seem to be moving: BTLLF and BITCF. Both are small, of course. BTLLF seems to be a steadier climber and longer history, BITCF an up an down new scorcher.
If any one know of others, I’d sure like to diversify a little and would love to look at them.

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Older but Wiser
Older but Wiser
Guest
March 6, 2017 4:49 pm

Call me old school, but I prefer to stay with my Gold Coin currency.

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saline09
saline09
Reply to  Travis Johnson, Stock Gumshoe
March 11, 2017 5:17 pm

Do you think Govt’s will have a choice? Blockbuster didn’t want to give up control of the rental market. πŸ™‚ I understand the money supply, media,energy, and military are all systems of control and it looks like the money supply, energy, and mainstream media is getting disrupted over time. Where is Tony Stark to disrupt the military ? πŸ™‚

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Mark
Mark
Guest
Reply to  Travis Johnson, Stock Gumshoe
November 3, 2017 7:46 pm

The Government of most countries does not control its money supply. The same as United States relying on the Federal Reserve to handle and control the monetary system. A Central Bank in every Country accept North Korea/ Iran.

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Ron
Ron