Could the United States president invoke Executive Order 6102 to restrict people from holding Bitcoin, which holds many of the qualities and behaviors of gold?
Well, the short answer is yes, if the president deems that they are in a financial crisis, then they can take executive action. And in 2019, with the Trump administration behind the wheel, wild and crazy ideas should no longer shock anyone.
History of the Debate
Under the administration of President Franklin D. Roosevelt, Executive Order 6102 was put in place on April 5, 1933. It was a presidential executive order “forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States”.
The failing economy was determined to be in a state of emergency. As such, Roosevelt made the order under the authority of the Trading with the Enemy Act of 1917. The order worked as an effort to stabilize and centralize the banking system. To enforce the order, the Emergency Banking Act had been amended earlier that same year.
As a result, the order required all citizens who had more than $100 worth of gold (roughly worth $6300 in 2016) to relinquish all remaining gold to the Federal Reserve to swap out for USD. For those caught hoarding gold over and above the $100, they faced up to $10,000 in fines and/or up to 10 years in prison.
But unlike the unpredictability of the United States’ current administration; President Roosevelt passed the order in response to a real issue. Nevertheless, the argument to use the order was very controversial. Executive Order 6102 meant that Americans could only hold a certain amount of gold.
The 1930s was a difficult economic period, to say the least. America was still struggling to recover from the stock-market crash and drought was decimating North American farms, bankrupting farmers in the process.
At this time, USD was still on the gold standard. So, in an effort to stimulate the economy, the United States Federal Reserve needed more gold to back an increase in the circulation of cash. Incidentally, those who were prosecuted for refusing to surrender their gold were mostly jewelers.
Depression Era Economics
In the wake of the stock market crash of the 1920s, the United States government reasoned that gold hoarding was a partial cause of the persistent recession; not enough money was in circulation. The holding of gold contributed to stalled economic growth because of the dollar’s relation to gold.
The Federal Reserve continued to rely on the gold standard. This would not change until the Nixon administration in the 1960s. As it was in the ’30s, the Federal Reserve could not release any more cash until they could back it with the equivalent amount of gold.
So, gold coin, gold bullion, and gold certificates were to be returned to the Federal Reserve to stimulate the economy. At that point, the bank paid out an equivalent amount of USD under the laws of the United States.
The result was that individuals were limited to the amount of gold they could hold privately. Those affected most were jewelers. The reason for this may have been because the order included some gold jewelry. Once the gold was surrendered, the owners were given credit or payment from the Federal Reserve.
Naturally, this was seen as an emergency act by the Federal government. And, of course, as a gross act of infringement on individual liberties.
Rosevelt’s Motivation and the Gold Standard
The Federal government wanted to increase the supply of money during the depression. Because the US dollar used the gold-standard, this was seen as a necessary economic tactic to stimulate the economy.
However, based on the Federal Reserve Act of 1913, it required that the Federal Reserve have 40% of the money in circulation backed by gold. The Federal Reserve had nearly reached the limit of credit allowed by their own rules, and so they needed to hold more gold.
The merits of the order and Nixon’s removal of the USD from the gold standard in the 1960s is still open for debate.
The question remains: Could the US government use Executive Order 6102 on Bitcoin?
HODL: Today in Perspective
Here are a few things to think about when considering how to best invest and manage your crypto assets in the current political environment:
- Both the United States and Canada consider cryptocurrencies taxable assets.
- With the increase in dark web activity, forensic analysis of Bitcoin transactions has also increased. This is in response to illegal activity. Moreover, Bitcoin is not exactly the most privacy focused cryptocurrency.
- Assets need to be held so that an economy can function. That way there is value in the longevity plus a steady inflation rate of assets. The assets also need to be exchanged to stimulate the economy.
- There will be lean times, and there will be fat times. The volatility of Bitcoin and other cryptocurrencies is not a new economic phenomenon. But if cryptocurrencies are to find an equilibrium then there needs to be both cash in circulation as well as asset holdings.
What is new when it comes to digital currencies is the rate of adoption. This is what is responsible for the continued spikes in cryptocurrency users. But because this is a new market, we are not entirely sure how it will behave over the longterm. Still, at this point, crypto-assets only make up a very small part of global income.
Perhaps some of the excitement is that, increasingly, large portions of Bitcoin are held by a few wealthy investors. Or maybe the worries about increasing the legislation around cryptocurrency behavior is related to Facebook’s recent announcement to create their own digital currency, Libra. Which is a whole new kettle of crypto-fish.
The moral of the story is; hold some, spend some, don’t lose your shirt and pay your taxes.
If you don’t like the current tax laws, for now, your options are voting, running for a political position, rebellion, or prison.
The Bitcoin Standard
It is more than likely that we will continue to see new and increased legislation around crypto-assets as its adoption rate continues to soar. This is bad news for the ultra-libertarian crypto holders.
I know that any sort of legislation around cryptocurrency rubs many crypto-asset holders the wrong way; and fair enough! Early adopters were looking for a way around dysfunctional regulations that led to the crash of 2008.
Now, here are two sides of a similar order hitting Bitcoin: if it happens as it did with gold, it would imply that Bitcoin had become the new gold standard! This could be great news, as it would assume that the economy fully recognized the value and functionality of the asset. Therefore, a cryptocurrency could be the new currency standard.
Moreover, it would also mean that the inflation rate of Bitcoin remained low. One of the reasons for a gold standard is to maintain a reasonable level of inflation. So if Bitcoin is the new gold standard, the Federal Reserve may want to use the intrinsic value of Bitcoin to stabilize the economy.
If it comes to that then we have officially entered a new age of digital currency with a new definition of intrinsic value. Early adopters will no doubt still come out on top.
If you just do not want the tax man touching your dollars, then I think that is already a hard pill many will have to swallow. The fact is that the more users of digital and cryptocurrencies, the more policy we are going to see formed around them. So better forwarded and forearmed.
A Final Word
It is also important to consider that cryptocurrency is a new age of economics. There is no reason to assume that old rules will apply to this new wealth because this is a new world and a new era of the digital age.
The bottom line is that for now, Bitcoin is not the same as gold and the economics of present do not mirror those of the Dirty ’30s.
The main reason for this is that Bitcoin is not as abundant as gold is. However, if Bitcoin is able to maintain its deflationary status after it has all been mined; it will prove to be even more like gold.
Finally, cryptocurrency would have to have a much higher proportion of adoption then it does currently. It is likely that crypto-assets will get there. But for now, we are comparing apples and oranges.