Quarters, dimes, and bitcoins

Bitcoins have soared to nearly $3,000 apiece at a speed that most certainly is the tragic arc of a bubble. When is the best time to buy a currency? When it’s new or, at the very least, extraordinarily cheap. Here’s a small example.

Back in the Cretaceous period – ok, 1964 – the government announced that dimes and quarters, then 90% silver, would be made of copper coated with nickel, starting in 1965. (Half dollars of 40% silver were minted until 1970.)

Image result for standing liberty quarterWhile the government had changed coin design from time to time, it hadn’t fiddled with the composition of silver coinage before. In 1964, it wasn’t uncommon to find silver standing Liberty quarters in your pocket. They were a beautiful coin designed by sculptor Hermon Atkins MacNeil and were minted from 1916 through 1930. They were replaced by the familiar Washington quarter.

My mother, at the time, saved as many silver quarters and dimes as she could: I still have them. Coin dealers call them “junk silver,” because they are too worn to have any real value as collectibles. Nevertheless, they are 90% silver. How did they fare as an investment?

Not too badly. As of June 10, each silver quarter would be worth $3.11, if you melted it down and sold it for its silver content. That’s a gain of 1,144% over the years, handily beating the 691% cumulative rise in inflation since 1964.

We certainly weren’t in a position to stash gold coins. My mom was a high-school secretary, and my dad was a government worker. Also,  the U.S. didn’t make gold coins, and hadn’t since the Great Depression. And private ownership of gold was illegal until January 1, 1975.

One could argue that we could have done better in the stock market, and that’s true, with one itty-bitty problem: Most stock investments available to the public were pretty awful, laden with outrageous fees and commissions. The Vanguard 500 Stock Index fund was just a twinkle in Jack Bogle’s eye. (As a side note: The fund’s current $3,000 minimum initial investment was the equivalent of $23,577 back in 1964).

One big boost to silver’s price, at least in 1964, was that the government had a significant interest in keeping silver prices low: If silver broke $1.29 an ounce, the Treasury would face a wave of redemptions from silver certificates. At $1.29 an ounce, people could melt their silver coins and sell them at a profit. (As an interesting historical fact, U.S. silver coins had ridges, or reeding, on their edges so you can tell if people have shaved a bit off the side. The tradition continued through the later, less valuable copper-nickel coins.) In any event, the government was the main player in the silver market, and so we acquired our silver at an artificially low price.

While Bitcoin may be in its infancy, it’s by no means cheap, especially since it has no intrinsic value. You can melt your silver and make a nice sculpture, if you’re so inclined, Image result for frankensteinor use it for weird electrical experiments. Even dollars, while primarily an intellectual construct, have the backing of the U.S. government and every other government in the world, at least indirectly.

Back in 2011, you could have bought a bitcoin for $1. After a brief surge to $31, bitcoins fell back to $2. By design, the number of bitcoins is limited, so at least in theory, they will retain some of their value – unless, of course, a new shiny internet object comes about. And at the moment, there are about 100 cryptocurrencies available. I can’t imagine people collecting them. At least with my dimes and nickels, I can think of my mother and smile.