Things are not always what they’re billed to be in the cryptocurrency world. From Ed Zitron at ez.substack.com:
Yesterday, as cryptocurrency prices crashed and many lost their shirts and asses due to overleveraging, Celsius Network, a loan platform for cryptocurrency, chose to pause all withdrawals, swaps, or transfers between accounts, citing “extreme market conditions.” To be clear, this means that billions of dollars of funds are being held hostage on a non-specific timeline by a company that several people have suggested may not have the liquidity to handle a full withdrawal of funds. It’s a bit like if you went to a bank and put money in there, but there was a rough day on the stock market, so now your debit card doesn’t work, and you can’t transfer money to anyone.
PACIFIC PALISADES, CA—After the spectacular crash in the cryptocurrency market this week, Matt Damon and his publicists worked overtime to produce a new commercial to apologize for convincing amateurs to invest in cryptocurrency.
“History is filled with ‘almosts’ – and my crypto commercial was almost a good idea.” In the new commercial, Damon speaks while walking under a freeway underpass, then past a tent city, then stepping over newly-bankrupted derelicts.
“I had been seeking another space script since ‘The Martian,’ so my heart skipped a beat when I heard this ad would say ‘fortune favors the brave’ and show astronauts walking around! I was excited to embrace the moment, but I should have considered my responsibility as a trusted public figure like Tom Hanks, Bill Gates, or Will Smith.”
Many first-time crypto investors took to Twitter, complaining that they had waited to sink their family savings accounts into cryptocurrency until a celebrity told them to be bold. “I was waiting to buy until the peak, to be sure of proven value–and when you gave that speech over swelling music, it convinced me to bet the college fund. Thanks a lot, Matt!”
Twitter user @0wnCrypt0N00bs54321 concurred, sharing his astute strategy: “My crypto portfolio cratered, so I’ll sell off the rest now–sell the trough to cut your losses!”
At publishing time, Matt Damon has signed on for a commercial about NFTs, but multiple production assistants are still trying to explain it to him.
A lot of the wind has gone out of crypto enthusiasts’ sails. From Eric Peters at ericpetersautos.com:
While we’re awaiting the collapse of the dollar, let’s have a look at the collapse of crypto – aptly named because it’s so difficult to understand, the almost-axiomatic clue that a scam’s afoot.
The value of a Bitcoin has melted away like a mid-May frost. In fact, it has almost no value left anymore – relative to the value it had just a couple of weeks ago. The crash was on par with that of the Stock Market in 1929 and probably for the same or very similar reasons.
Both being the result of speculation and other variants of flim-flammery.
The actual value of Bitcoin was . . . what, exactly?
Here we had – in a purely abstract sense – a unit of money without physical existence, based on a fictitious “coin” that was divvied up into obscure denominations – e.g., “.00000345 Bitcoin” – whose value derived from the willingness of people to accept that it had value. People were told that, unlike the physical (and digital) money printed (or conjured) at will – i.e., dollars – the value of these Bitcoins was secure from inflation – that is, from devaluation – because the supply of them was strictly limited.
Supposedly, by “miners” who had a self-interest in ensuring too many weren’t “mined” – though in fact no one ever “mined” anything, in the way that word is generally understood. Nothing was dug up out of the earth, refined and minted. Various calculations – or some such – were performed.
The West’s fiat currencies are reaching the end of the line. From Alasdair Macleod at goldmoney.com:
After fifty-one years from the end of the Bretton Woods Agreement, the system of fiat currencies appears to be moving towards a crisis point for the US dollar as the international currency. The battle over global energy, commodity, and grain supplies is the continuation of an intensifying financial war between the dollar and the renminbi and rouble.
It is becoming clear that the scale of an emerging industrial revolution in Asia is in stark contrast with Western decline, a population ratio of 87 to 13. The dollar’s role as the sole reserve currency is not suited for this reality.
Commentators speculate that the current system’s failings require a global reset. They think in terms of it being organised by governments, when the governments’ global currency system is failing. Beholden to Keynesian macroeconomics, the common understanding of money and credit is lacking as well.
This article puts money, currency, and credit, and their relationships in context. It points out that the credit in an economy is far greater than officially recorded by money supply figures and it explains how relatively small amounts of gold coin can stabilise an entire credit system.
It is the only lasting solution to the growing fiat money crisis, and it is within the power of at least some central banks to implement gold coin standards by mobilising their reserves.
We’re headed towards an economic catastrophe that will render the world a completely different place. From Doomberg at doomberg.substack.com:
“One mustn’t look at the abyss, because there is at the bottom an inexpressible charm which attracts us.” – Gustave Flaubert
In 1988, Stephen Hawking published one of the best-selling science books of all time. In A Brief History of Time, Hawking made the impossibly complex topics of astronomy and modern physics accessible to a lay audience, inspiring countless young students (and at least one green chicken) to pursue a career in the sciences. It is estimated that the book has sold an incredible 25 million copies worldwide.
In Chapter 3 of the book, Hawking introduces the reader to the Big Bang Theory and the concept of a gravitational singularity, which Wikipedia describes as “a condition in which gravity is so intense that spacetime itself breaks down catastrophically.” Essentially, since the laws of physics are eviscerated at a singularity, what happened before it is both irrelevant and unknowable, and one could consider such an event as having reset the universe’s clock. Here’s how Hawking describes it in his book (emphasis added throughout):
“This means that even if there were events before the big bang, one could not use them to determine what would happen afterward, because predictability would break down at the big bang. Correspondingly, if, as is the case, we know only what has happened since the big bang, we could not determine what happened beforehand. As far as we are concerned, events before the big bang can have no consequences, so they should not form part of a scientific model of the universe. We should therefore cut them out of the model and say that time had a beginning at the big bang. Many people do not like the idea that time has a beginning, probably because it smacks of divine intervention.”
The simple truth of a singularity applies whether it occurred in the past or will in the future: what transpires on the other side is unknowable from here.
Given the horrific and still-unfolding events of Vladimir Putin’s invasion of Ukraine and the West’s collective response to it, one can’t help but wonder whether we are on the cusp of an economic singularity in which the laws and bedrock beliefs that formed the foundation of international economic order for decades break down. The consequences are similarly unknowable, but we suspect a great reset may indeed be upon us. Even if a ceasefire is announced moments after we publish this piece, shocking damage to the global economic system has undoubtedly already been done and certain genies won’t easily be put back into their bottles.
The article refers to a Mareva Injunction issued by the Ontario Superior Court against the convoy organizers (Dichter, Lich, Barber), Pat King (the convoy crasher in my book), several people who were involved in the Tallycoin fundraiser for the truckers, and then numerous John Doe’s. It orders that 134 crypto wallets be frozen, such that nobody remotely involved with them can basically move or cause to be moved any of the funds in those wallets.
Further, it orders that any wallet that receives funds from any of these wallets also be frozen. Technically that means if somebody were to move a single satoshi to Coinbase, Kraken, Binance, BitBuy, etc – then the receiving hot wallets of those exchanges are technically “frozen” as well.
This isn’t really tenable, and this issue has actually come up before within the context of Bitcoin mining and OFAC compliance. There was a time when Marathon Digital actually tried to create an initiative where they would only mine “fully AML and OFAC compliant” derived blocks. This would have essentially required the censoring Bitcoin transactions and was widely scorned by the industry. It proved itself to be unworkable, with Marathon scrapping the program almost immediately. (It is also worth noting here that according to blockchain analytics firm Chainalysis, which consults for numerous law enforcement and intelligence agencies, only 0.5% of all Bitcoin transactions are illicit in nature).
Trying to enforce a “taint chain” on specific crypto addresses would run into similar problems to the point where the choice would simply be to shutdown Bitcoin entirely (not possible) or give up.
They’ve been looking for a good excuse to regulate crypto. From Tyler Durden at zerohedge.com:
Update: Christine Lagarde, president of the European Central Bank (ECB), has called on lawmakers to approve a regulatory framework on crypto, hinting at potentially preventing Russia from getting around economic sanctions.
In response to a question on Russia potentially using crypto to evade some of these measures, the ECB president urged action on an existing proposal for a regulatory framework on digital assets.
“Whenever there is a ban or prohibition or a mechanism in place to boycott or prohibit, there are, always criminal ways that will try to circumvent the prohibition or the ban” said Lagarde.
“It’s so critically important that MiCA is pushed through as quickly as possible so we have a regulatory framework within which crypto assets can actually be caught.”
Notably, the European Parliament has delayed a vote on the Markets in Crypto Assets Directive (MiCA) due to fears that it would be “misinterpreted as a de facto Bitcoin ban” over questions surrounding the industry’s energy demands.
One of the problems with “crypto” is just that – no one seems to know exactly what it is.
Or at least, no seems able to explain what it is.
Somehow, a digitized online representation of a “coin” has immense value, though what gives it any value is difficult to understand. It is not backed by precious metals. It is not issued by a bank.
It’s just there, on the screen.
The willingness of a sufficiency of people to accept that it has value is what gives it value. Dirt could work on this principle. To be fair, crypto is not materially different from U.S. dollars, which have value chiefly because people accept them as having it.
The pieces of paper themselves, have no more intrinsic value than the digitized representation of a “coin” online.
And that of course is the primary danger of both. They have value only because someone (speaking figuratively here) assigned it to them and because others agree to that estimation of value, which isn’t moored to anything, really.
We all pretend the “dollars” – or “coins” – themselves are things of tangible value. That works just as long as it does. Which probably won’t be for very long.
Now, the pieces of paper issued by the private cartel of banks that control their supply are “backed” by the “full faith and credit of the United States,” for whatever that’s worth. And it is probably worth something. Not much, given the value of a “federal” dollar has declined by more than 90 percent since the “federal” reserve began issuing these pieces of paper more than 100 years ago. The value of “crypto” has generally tracked in the opposite direction, a phenomenon that has made it very attractive to people trying to figure out a way to staunch the seemingly unstoppable bleeding out of the value of their money. It’s tempting to transfer “dollars” into “coins” when “coins” seem to hold rather than hemorrhage value.
This is a great explanation of money and how money works in an economy, a shredding of Keynesian economics, a clear warning of what’s to come, and a dashing of hopes that cryptocurrencies will be the replacement for failing fiat currencies. Alasdair Macleod is one of the few economists who understands that debt is not money, that money cannot be a liability (see also “Real Money” by Robert Gore, SLL, September 9, 2015). From Macleod at goldmoney.com:
That the post-industrial era of fiat currencies is coming to an end is becoming a real possibility. Major economies are now stalling while price inflation is just beginning to take off, following the excessive currency debasement in all major jurisdictions since the Lehman crisis and accelerated even further by covid.
The dilemma now faced by central banks is whether to raise interest rates sufficiently to tackle price inflation and lend support to their currencies, or to take one last gamble on yet more stimulus in the hope that recessions can be avoided.
Politics and neo-Keynesian economics strongly favour monetary inflation and continued interest rate suppression. But following that course leads to the destruction of currencies. So, how should ordinary people protect themselves from currency risk?
To assist them, this article draws out the distinctions between money, currency, and bank credit. It examines the claims of cryptocurrencies to be replacement money or currencies, explaining why they will be denied either role. An update is given on the uncanny resemblance between current neo-Keynesian monetary inflation and support for financial asset prices, compared with John Law’s proto-Keynesian policies which destroyed the French economy and currency in 1720.
Assuming we continue to follow Law’s playbook, an understanding why money is only physical gold and silver and nothing else will be vital to surviving what appears to be a looming crisis in financial assets and currencies.
With the recent acceleration in the growth of money supply it is readily apparent that government spending is increasingly financed through monetary inflation. Those who hoped it would be a temporary phenomenon are being shown to have been overly optimistic. The excuse that its expansion was only a one-off event limited to supporting businesses and consumers through the covid pandemic is now being extended to seeing them through continuing logistics disruptions along with other unexpected problems. We now face an economic slowdown which will reduce government revenues and, according to policy planners, may require additional monetary stimulation to preclude.
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
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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