Tag Archives: Cryptocurrencies

Hedge Fund CIO: China’s Attempt To Crush Digital Assets Has Backfired Spectacularly, by Eric Peters, CIO of One River Asset Management

The Chinese government’s ban of cryptocurrencies is a sign of weakness. From Eric Peters at zerohedge.com:

“Is it your intention to ban or limit the use of cryptocurrencies, like we’re seeing in China?” asked Ted Budd, Republican congressman from North Carolina. “No,” replied Fed Chairman Jay Powell. “No intention to ban them?” asked Budd again. “No intention to ban them, but stablecoins are like money market funds, they’re like bank deposits; they’re to some extent outside the regulatory perimeter, and it’s appropriate that they be regulated,” answered Powell. And as it sunk in that the world’s largest economy would not chase China to stifle private sector innovation in the field of blockchain technology, digital assets prices surged

Getting Real

The US dollar is the world’s reserve currency. 59.2% of all official foreign exchange reserves are held as US dollars. 20.5% are euros. 5.8% are Japanese yen. 4.8% are British pounds sterling. 2.6% are Chinese renminbi — slightly more than the 2.2% of reserves held in Canadian dollars. 1.8% are Australian dollars. The remaining few percent are various other small currencies that don’t matter in the grand scheme of things. Swiss francs would be an example. Some reserves are held in gold. Someday, there will be digital asset reserves too.

For a foreign nation to hold dollars in reserve, it must first acquire them. It can either purchase those dollars in foreign exchange markets, or it can acquire the dollars by selling its goods, services, hard assets, or financial assets. There are consequences to such transactions. One of them is that the dollar’s value relative to other currencies is higher than it would be if these nations were not buying and holding dollars in reserve. Another is that by acquiring so many dollars and holding them in reserve, the US is forced to run a current account deficit.

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The No-coiners don’t get it: It’s not up to the government, by Mark Jeftovic

Cryptocurrencies don’t need governments’ permission. From Mark Jeftovic at bombthrower.com:

Prometheus Donation of Fire to Mankind – Wilhelm Luksch 1925-1927

My last couple of posts, the first on why a China-style Bitcoin ban can’t happen in Westernized liberal democracies  and the second on how cryptos are a beneficial counterforce to the coming CBDCs seem to have a hit a nerve.

More people than usual made the trip all the way over here to my blog to be sure to tell me how clueless I am and there was a lot of defeatism  in the comments on Zerohedge that all converged around a theme that governments will simply not permit the use of cryptocurrencies once their existence ceases to suit them.

I’ve been involved in cryptos since 2013, and for a long time I too was strategizing out the game theory around why would governments permit cryptos to gain traction.

It wasn’t until relatively recently, that I started to fully grasp something I read a long time ago, before all this crypto business ever started. It was in a rather obscure book by one W R Clement called Quantum Jump: A survival guide for the new Renaissance and it helped me understand the key point of today’s post.

I started alluding to it in A Network State Primer that described how what we understand as “the nation state” is in the process of losing relevance to ascendent network states and crypto-claves. You can chart out the structural differences between those three different governance models based on what the architecture of the monetary layer is:

When it comes to technological leaps like the internet and then public key cryptography and decentralized, non-state, sound money; those who eschew the new paradigms generally do so because they have difficulty fitting the new model into their worldview.

People like Alvin Toffler called this “Future Shock” and he ascribed it mostly to an accelerating rate of change. He wasn’t wrong about that, but what Clement layered atop of that was the ascending level of abstraction.

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How we know that Bitcoin is a force for good, by Mark Jeftovic

Private cryptocurrencies like Bitcoin are the antidote to Central Bank Digital Currencies. From Mark Jeftovic at bombthrower.com:

Cryptos are the antidote to repressive Central Bank Digital Currencies

Yesterday I wrote up why I don’t think any kind of China-style ban on Bitcoin and cryptos would be tenable in (so-called) liberal democracies here in the West. It referenced an earlier piece that described the threefold governance structure I see competing for relevance over the coming decades.

Somebody linked to those in the comments from a Tom Luongo piece (which I rather enjoyed enough to subscribe to his newsletter) but when I read through some of the other comments around Bitcoin, how it’s a globalist Trojan horse for surveillance capitalism and social credit I realized I needed to get a piece out to speak specifically to this aspect of future governance.

I cover this a lot in The Crypto Capitalist Letter, in fact it’s a pillar of our macro economic thesis (which you can download free here). It all comes down to the differences between real crypto currencies like Bitcoin, Ethereum, Dash, Monero, et al and coming Central Bank Digital Currencies (CBDCs), like China’s Digital Yuan, like the coming FedCoin, and anything else that will be issued by central banks, directly from governments or even in conjunction with Big Tech platforms.

There are the two main types of digital money that will co-exist in the future.

Each type of digital money corresponds to a governance mode of the future. Which type of this money you make your own or your business’ financial centre of gravity will have an outsized impact on whether you live in the future as a neo-Feudal serf or as a sovereign individual.

Each one has its own fundamental architecture, and the governance and economics that result from those architectures reflect the governance models of the mode that is built on them. This is critical and builds on what I’ve been writing about for  years now, drawing on the work of relatively obscure commentators like Vincent Locascio and Steven Zarlenga. The latter who wrote in his Lost Science of Money, whoever controls the monetary system, controls society.

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Bill’s Grave Doubts About Bitcoin, by Bill Bonner

If you didn’t know the price of your favorite cryptocurrency and had to assign a value to it based on the claims of it’s proponents, what value could you rationally assign? What criteria would you even use? From Bill Bonner at rogueeconomics.com:

YOUGHAL, IRELAND – Dear Reader, we are working on a shocking new insight.

It came to us yesterday as we were wondering about bitcoin, cryptos, and (a term new to us) “microcurrencies.”

The crypto sector has lost about $1.3 trillion since the beginning of May. Bitcoin itself has been cut in half.

But both colleagues and dear readers insist that the crypto class still has value.

“These are not just money substitutes,” said a colleague. “There are many microcurrencies that make business easier and less costly.”

But when we tried to pin him down on how they work, it was slow going.

“You see, they’re based on smart contracts that are registered on the blockchain and then bypass the middlemen.”

No Beer

All the foam was there; but where was the beer?

Perhaps we are just slow-witted. But the more he explained, the less we understood.

A smart contract, we discovered, is no different from a dumb contract. It can be a 200-page document… or a handshake… with as many “if X when Y, then Z” clauses as you care to put in.

If there is a dispute, it needs to be resolved. How the “smartness” part helps, we don’t know.

“You don’t understand,” an old friend added. “This is a whole new asset class. It is like the beginning of the auto industry. Most of the car manufacturers that started out failed. But those that remained were great successes.”

We still made no headway.

The auto industry produced millions of cars and trucks. It made huge profits. Its U.S. “headquarters” – Detroit… Motown – was once the richest city in America.

But crypto? What is the “asset?” Why is it an asset at all?

As far as we can tell, it is like Artificial Intelligence – one part new technology and nine parts old claptrap.

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The Cryptoverse – Bastard Son of the Fiat, by David Stockman

Many people who have made a lot of money in cryptocurrencies would vigorously resist the notion that their gains are fueled by the same monetary inflation that’s fueling gains in many other speculative markets. From David Stockman at davidstockmanscontracorner via lewrockwell.com:

Goodness gracious, me! Is this the ultimate case of the pot-calling-the-kettle-black or what?

If there were ever a pure play in the great fraud of fiat, Elon Musk is it. Yet here he is electing to go with crypto instead.

The true battle is between fiat & crypto. On balance, I support the latter.

Actually, there is a seminal picture in these few words and it amounts to this: Crypto currencies are not money, they are the latest boiling hot speculative asset class that, ironically, is just another bastard spawn of the central bank money-printers. They are not an alternative to bad central bank money; they’re are an issue from its own loins.

It’s blatantly evident that neither Bitcoin nor any of the other swarming herd of cryptos are a store of value or a medium of exchange. During the last 48 months, for example, the value of Bitcoin has changed on a monthly basis as follows.

Monthly Value Change:

  • Gain of 40% or more: 7 months;
  • Gain of 20% or more: 17 months;
  • Gain of 10% or more: 21 months;
  • Loss of 20% or more: 5 months;
  • loss of 5% or more: 19 months;
  • Loss of 2% or more: 22 months;

As to a means of exchange for anything less than a $125,000 Tesla (for a time), a good old fiat wire transfer, check or chunk of cash has a lower transaction cost as a percent of purchase price.

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The US, China, and the Geopolitical Battle for Monetary Dominance, by Nick Giambruno

Traditionally the world’s strongest power has the world’s reserve currency. From Nick Giambruno at internationalman.com:

Geopolitical Battle for Monetary Dominance

International Man: In a recent interview, we discussed the battle for monetary supremacy between fiat, bitcoin, and gold—but in the geopolitical sense, the country with the “best” money ultimately imposes its dominance on others.

Today, the US dollar is still the global reserve currency, but the US fiscal and monetary policy now resembles the destructive money printing of every other country.

What does this mean for the US and its financial chokehold on the rest of the world?

Nick Giambruno: First, I think it’s important to clarify something.

You often hear the media, politicians, and financial analysts toss around the word trillion without appreciating what it really means.

A trillion is an enormous, almost incomprehensible number.

The human mind has trouble wrapping itself around something so big. So let me try to put it into perspective.

One million seconds ago was about 11 days ago.

One billion seconds ago was 1989.

One trillion seconds ago was 30,000 BC.

So that’s how big a trillion is.

When politicians carelessly spend and print money in the trillions, you know you’re in dangerous territory. That’s precisely what is happening in the US right now.

After the onset of the COVID hysteria, the US government adopted a policy of printing money to finance growing multi-trillion-dollar deficits forever. This is what Modern Monetary Theory (MMT) is all about, and it’s already here.

Likewise, the COVID stimulus checks are the beginnings of a Universal Basic Income (UBI). There is no way any politician will ever be able to roll them back, much less stop them entirely. Who is going to beat Santa Claus in an election?

By embracing MMT and a UBI, the US has embarked on the most dangerous economic experiment since communism.

Eventually, all this spending financed by money printing will destroy the currency.

This is precisely the same problem that has trapped Argentina in a perpetual cycle of hyperinflation and economic collapse. And even then, it’s politically impossible to get rid of the freebies, so the process starts up again.

Here’s the bottom line. With MMT and a UBI, the US has gone beyond the monetary point of no return.

That’s why individuals, companies, and foreign governments will inevitably look to alternatives to the US dollar and financial system. As they do, a large part of the US government’s geopolitical leverage will evaporate.

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Market Weekly: The Pivot to Gold Has Begun, by Tom Luongo

Buying either gold or cryptocurrencies is a vote of no confidence in governments, their central banks, and their fiat currencies. From Tom Luongo at tomluongo.me:

For the past few weeks I’ve incurred the wrath of what I’m now calling “Gold-Only” bugs for constantly haranguing them about bitcoin and cryptocurrencies. These are the folks which state only gold can beat the central banks.

I’ve made my position very clear, in a world of digital money and accelerating technology there is room for both assets as stores-of-value for different types of investors and taking a ideological position for either is stupid as well as arrogant.

Like all things, there are reasons why putting all of your eggs in one basket in markets as cocked-up and purposefully manipulated as these is simply bad asset management. Risk is, ultimately, not someone else’s problem no matter how much Wall St. tries to convince of this otherwise.

Risk is your problem.

The gold and crypto communities have been at each other’s throats for months now, as bitcoin continued rallying off the Coronapocalypse low from last March while gold peaked in August and has ground out a truly demoralizing eight-month bear market.

The envy coming from Gold-Only bugs has them missing one of the great opportunities for wealth creation in anyone’s lifetime. You don’t have to love bitcoin to make money from it. Just like you can hate Facebook but own its stock and cash it in when it’s too expensive versus another asset, say… I don’t know? Gold?

But that inverse relationship is finally changing. Bitcoin and gold are getting back into phase. And it’s right on schedule.

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Why the future money is gold and silver, by Alasdair Macleod

Why we’ll be using gold, silver, and convertible currencies and not cryptocurrencies as the official means of exchange after fiat collapses. From Alasdair Macleod at goldmoney.com:

A reminder why they always will be sound money and why bitcoin cannot fill that role

With bitcoin’s price still rising and expected to rise even more, there has been a growing belief in cryptocurrency circles that it will replace unbacked government currencies when they eventually fail.

The assumptions behind this conclusion are naïve, exposing hardly any knowledge in what qualities are needed for sound money. This article agrees that current events are accelerating the path towards fiat destruction, and that historical precedents point to their eventual replacement with a sounder form of money. But what that money will be is decided when governments lose control over their fiat; and the public, its users, through free markets will set the monetary agenda.

Only then will the general public determine the qualities required, and in the past, it has always opted for metallic money. And because government treasury departments and their central banks coincidently possess only gold in their non-fiat reserves, its monetisation is the only option for governments to survive the collapse of their fiat currencies. That is what will eventually happen, with silver perhaps fulfilling a subsidiary monetary role to gold.

Introduction

While increasing numbers of the fiat investment community understand that the quantities of government money are being expanded without any sign of limitation, they have also concluded that bitcoin, not gold, is the pure investment play because over the next few years bitcoin will approach its final quantity.

It is almost certain that like the majority of gold and silver bulls hodlers expect to sell bitcoin for profit measured in their governments’ currencies, creating for themselves relative wealth in dollars, euros, yen — whatever their governments impose on their citizens as money. But it is an investor’s, or speculator’s approach, which is accompanied by feverish examination of charts, confirmation bias from “experts” and only a half-understood concept of what is driving the price. So sudden and wonderful has been the unbanked wealth creation in leading cryptocurrencies, that investors commonly proclaim that gold and silver are yesterday’s story and that we oldies should move with the times.

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Scarcity Cred, by Scott Galloway

Scarcity can be a value, which is one explanation for the people scratching their heads about the popularity of cryptocurrencies. From Scott Galloway at profgalloway.com:

Any firm that approaches $1T in value has tapped into a basic human instinct. Consuming, signalling, loving, and praying have been the fuel of Amazon, Apple, Facebook, and Google’s ascents, respectively. That the crypto asset class universe has reached $2T reveals, I believe, that it taps into two attributes we instinctively pursue: trust and scarcity.

Trust

Our superpower as a species is cooperation, which requires trust. It’s the reason banks, traffic lights, and anesthesiologists exist. Even before crypto, creative minds have been drawn to finance, as trust creates opportunities for leverage and securitization. In 1997, seeking more control over his songwriting catalog, David Bowie raised $55 million with Bowie Bonds. The bonds paid 7.9 percent interest over a 10 year-long term — a scant premium to a U.S. 10 Year Treasury Note at 6.4 percent. What made Bowie Bonds unique was the collateral, or source of trust: future royalties on Bowie’s music, which the bondholder felt people would continue to value. Moody’s rated the bonds A3 and Bowie used the proceeds to buy out his former manager, shoring up the bonds and securing long-term control of his music.

Though innovative in its collateralization, the Bowie Bond was on its face a vanilla financial instrument, no different in form than a bond issued by GM or P&G. In order to connect his art and potential investors, Bowie had to rely on the (expensive) apparatus of traditional gatekeepers in finance and entertainment to imbue his bonds with the essential attributes of trust and scarcity. The royalty stream (trust) was mediated by lawyers and accountants in big publishing houses, and the legitimacy of each individual bond (scarcity) was dependent on the financial powers of Wall Street.

What if Sir David Bowie (note: he declined knighthood in 2003, but it’s my blog) fell to earth in 2021? What might Bowie have done … with crypto?

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“You’d Have To Shut Down The Internet” To Ban Bitcoin, Says SEC’s Hester Peirce, by Tyler Durden

Will governments ban Bitcoin and other private cryptocurrencies? Tread carefully, it’s not clear what the outcome will be. From Tyler Durden at zerohedge.com:

Any government efforts to ban Bitcoin would be “foolish,” said Hester Peirce (aka “Crypto Mom”), a very Bitcoin-friendly commissioner at the U.S. Securities and Exchange Commission (SEC), during a MarketWatch virtual conference earlier this week, according to Cryptoslate reporter Liam Frost.

“I think we were past that point very early on because you’d have to shut down the Internet,” Peirce said, adding, “I don’t see how you could ban it. You could certainly make the effort. It would be very hard to stop people from [trading Bitcoin]. So I think it would be a foolish thing for the government to try to do that.”

Not only that, but the government would immediately wipe out $2 trillion in net wealth – the market cap of the crypto sector – an event that would have profoundly deleveraging consequences, and since much of that wealth is now backed by debt, for example all those debt-funded purchases of bitcoin by Microstrategy, such a move by the government would immediately destabilize the all important debt market.

The statement came on the heels of Ray Dalio, a billionaire investor and founder of Bridgewater Associates, arguing that there’s “a good probability” that governments around the world would ban Bitcoin and other cryptocurrencies.

Dalio told Yahoo Finance:

“Every country treasures its monopoly on controlling the supply and demand. They don’t want other monies to be operating or competing, because things can get out of control. They outlawed gold, that’s why also outlawing Bitcoin is a good probability.”

However, according to Peirce, the main issue for authorities—at least when it comes to cryptocurrencies—is to find an approach to regulation that would be productive and non-restrictive at the same time. She noted:

“We’ve seen other countries take, I would say, a more productive approach. We really need to turn that around. And I’m optimistic, with a new chairman coming in with a deep knowledge of these markets, that is something we could do together—build a good regulatory framework.”

At the same time, Peirce also pointed out that she doesn’t know when—or if—a Bitcoin exchange-traded fund (ETF) will finally be approved in the U.S. Recently, we’ve seen a new wave of major investment companies, such as Fidelity Investments, SkyBridge Capital, and VanEck, filing their applications for Bitcoin ETFs with the SEC.

The regulator, however, never approved a single filing of this kind so far, which as discussed earlier, may be a good thing for not only bitcoin but the entire nascent DeFi ecosystem where hundreds of billions in very real money is now intertwined.

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