Over a period of 32 years of writing this column, I’ve had a lot of time to reflect on many things. Things are so different now in 2017 than they were way back in 1986 when I started writing. Things that were considered important then, are not even on the radar now and thru the intervening years, change has been exponential. There was agriculture before the internet. In 2017, I’m sure that’s hard to believe for many younger people.
Of course, there have been some constants thru the years that are still here, one of them being money. Back in the day, money was expensive, cost me over 23% to borrow it. Now, it’s cheap, its almost for sale in Canada. Cheap money is the cocaine of the investment world and Canadian agriculture is no different. We all know what Canadian farmland prices have done over the last 10 years.
I have often said that the reality of super low interest rates have created an environment I find difficult to understand. For instance, I have written about interest rates getting so low that they could go negative like they have in some Scandinavian countries. I’ve written about money being poured into fixed assets looking for capital gains in lieu of some easier investment.
It is an environment, which I’ve often thought of as slightly crazy compared to the earlier days when I was paying for my farmland with much higher interest rates. However, it is not crazy enough for some people. There is the world of digital currency, commonly called crypto-currency, the most popular, which is Bitcoin. It has dominated the investment pages these days. It is the mania of our time, or at least the last few months.
I’m not going to go into a long explanation of crypto currencies and bitcoin and bitcoin mining. I will say that it’s not particularly new to me as I followed its path over the last several years, initially used by criminal elements in many foreign countries. However, in a nutshell it is a crypto-currency, a decentralized digital currency that works without a central administrator. It relies on the block chain technology, which has many other applications in many other genres. Bitcoin is mined. So I say keep boring. Are you confused yet? Remember the days when Canada Savings Bonds gave you 19.5% return for one year? Now we mine Bitcoin!
It is easy to say the world is normal and the worlds gone crazy. That was the title of last week’s column, where I didn’t even mention Bitcoin. However, a single Bitcoin today at one point was valued at $19,300 US. It has had a return in 2017 of at least 1600%. Of course, there are some people who are saying that it will be at $40,000 by the end of 2018. There are others who say it is the most ridiculous thing since the pet rocks. Needless to say, it is real, it might represent some part of our future and you can bet the Canada Revenue Agency is interested in it.
A good read of the history of Bitcoin is important. It is murky. It was also a favorite source of payment for criminal elements throughout this world in its early days. Of course, things have evolved to the point now where some people criticize the amount of energy it takes to mine a single Bitcoin. Clearly, I think it’s very complicated and convoluted, but still very real in 2017.
I do not know how all of this will end up. In many ways, I think the Bitcoin mania is a result of the super low interest rates, which have dominated the landscape over the last 10 years. The criminal element latched on to Bitcoin initially to help with transactions. The latest mania has simply being about getting super heated returns on real cash.
Of course, most farmers aren’t involved with any criminal element, even though they might feel they are getting robbed by growing corn in 2017, getting paid $4 a bushel for corn in real money. However, with the Bank of Canada keeping interest rates low again this week, it might be only a matter of time before some entrepreneurial agricultural vendor starts a bitcoin exchange. Real money has gotten so cheap; the returns from bitcoin might just be too enticing
Many farmers this week have told me Bitcoin reminds them of Bre-X, a famous Canadian gold mining fraud case, where many Canadians lost their shirt. I responded back by telling them it wasn’t quite like that. In the Bre-X case, there turned out to be no gold in the mine. The chief Bre-X geologist jumped out of a helicopter on that realization. With Bitcoin, I said, you just keep boring. You decide.