An attempt at an objective analysis of Bitcoin, which evokes strong emotions, even hysteria, from both its detractors and its proponents. From Simon Black at sovereignman.com:
There are famous stories that come out of the Great Depression in which very astute financiers sold all of their stocks just before the big crash of 1929.
Joseph Kennedy famously dumped his portfolio after receiving stock tips from a shoeshine boy. And Bernard Baruch, one of the wealthiest financiers on Wall Street, said after the crash,
“Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me [stock] tips. . .”
Now, these comments make it seem like taxi drivers and shoeshine boys don’t have financial sense. And that’s wrong.
Someone’s profession and their level of financial sophistication don’t necessarily go hand in hand; there are plenty of astute janitors, and plenty of idiot fund managers.
But I did think about Baruch’s remarks recently when an Uber driver started talking to me about cryptocurrency.
Again, his opinions are just as valid as anyone else’s. But what I found remarkable is that the only thing he knew about his portfolio was how much he’s ‘up’.
Cryptocurrencies are a vote of no confidence in the government managed debt instruments known as currencies. From Simon Black at sovereignman.com:
Two decades ago, General Tommy Franks– commander of the original US invasion of Afghanistan back in 2001– was asked his opinion about a civilian bureaucrat named Doug Feith.
Feith was an academic policy wonk who, despite never having served in the military, was a staunch warmonger who was happy for other people to go fight and die in foreign lands.
General Franks was a straight-talking Texan who wasted no words in his opinion that Feith was “the dumbest fucking guy on the planet.”
Over the years of this publication, I have, from time to time, submitted some candidates for what I call the ‘Tommy Franks Award’.
As you can imagine there’s pretty stiff competition for the dumbest f’ing person on the planet, especially these days. But I feel especially compelled right now to nominate the World Economic Forum.
Traditionally the World Economic Forum’s annual event in Davos, Switzerland has been a pageant of wealth and power.
If you’re there, you’ve made it… at least in the eyes of the global elite; it’s nothing but billionaires and politicians. And in the past, the event was typically just photo ops and pointless speeches.
But lately the World Economic Forum has been much more active in cranking out horrifically stupid policy ideas.
After the fiat currencies collapse, which could be soon, they’ll be replaced by gold and silver-backed money, which would impose stringent fiscal control on free-spending and heavily indebted governments. From Alasdair Macleod at goldmoney.com:
There is worrying evidence that 2021 will see the end of fiat currencies, led by the US dollar. US dollar money supply has accelerated at an extraordinary rate, a process that will continue.
Signals from the markets that a monetary collapse is increasingly likely include a weakening dollar on the foreign exchanges, bitcoin’s price reflecting an growing disparity between the rate of its issue and that of fiat, rapidly rising commodity prices, and a bubble in non-fixed interest financial assets.
Current thinking is yet to link these events with a developing collapse in fiat currencies, but it is only a matter of a relatively short period of time, perhaps spurred on by a banking crisis, before a realisation that a John Law-style financial asset and currency collapse is on the cards.
While gold rose in dollar terms by 25% last year, it has yet to reflect an increasingly likely collapse in fiat currencies, which this article concludes is likely to happen in this new year.
We enter the new year with a growing realisation that fiat currency debasement is accelerating. It is hardly surprising that bitcoin bulls, who have learned about relative rates of currency issuance, are in the vanguard of those hedging increasing currency debasement. They are being encouraged by statistics in charts such as that shown in Figure 1.
Messianic fervor for cryptocurrencies seems to ebb and flow with their prices. With many of them making all time highs, missionary zeal is rampant. The Zman has a more skeptical take. From the Zman at theburningplatform.com:
The magical fairy dust known as Bitcoin is back in the news as its price has soared to a record high in the last few weeks. Currently one bitcoin is worth 35,000 USD, which is close to double its value of a month ago. If last spring, when the Covid panic hit, you decided to get into Bitcoin, thinking it was a safe haven for your money, your return would now sit at 700%. Of course, if you were an early adopter when the price was a few hundred dollars, then you are now quite rich.
Of course, whenever Bitcoin is on the rise, the paladins of cryptocurrency are out evangelizing about the glorious future where currency is no longer controlled by those evil bankers rubbing their hands in their secret lair. Karl Thorburn has been making the rounds on this side of the great divide. Here is a podcast he did with Greg Johnson last week that is worth a listen. Bitcoin is popular among dissidents, because the bankers cannot get you deplatformed from it like they do with credit cards.
One problem with Bitcoin is right there in those huge gains. There are wild swings in its value as people rush in and out of it. Three years ago, Bitcoin had a similar surge then lost half its value over the next six months. A similar boom and bust happened the following year. As a means of exchange, it suffers from the same problem that all commodities suffer. That is, it tends to increase in value over time, but it also suffers from the cyclical tendency we see in these booms and busts.
You can tell something is dramatically wrong just by looking at Alasdair Macleod’s charts. From Macleod at goldmoney.com:
It is not for no reason that cryptos are roaring, and precious metals are playing catch-up. In the last month there have been developments that point to a new phase of accelerating monetary inflation for the dollar, and fiat money is only just beginning to be exchanged for these inflation hedges at an increasing pace.
Hyper-inflation of the dollar is now becoming obvious to a growing cohort of investors. It is driven by factors on both sides of bank balance sheets, with evidence that large depositors are reducing their term deposits and increasing their instant access checking accounts. This appears to be behind the increase in M1 money supply fuelled out of a shift from the M2 statistic, which includes savings deposits.
It amounts to a hidden run against bank balance sheets. Meanwhile, increasing supply chain problems against a background of covid lockdowns are leading to the withdrawal of bank credit from non-financial businesses, potentially imploding bank balance sheets as a bank credit contracts.
Foreign support for both the dollar and dollar-denominated fixed interest assets are being withdrawn, which is sure to lead to rising bond yields and dollar interest rates in the New Year, undermining the equity market bubble.
The Fed is now faced with not only financing ballooning federal budget deficits, but underwriting US supply chains in their entirety, which is corroborated by ongoing global logistical problems, tying up an annualised $34 trillion of intra-business payments in America alone. The Fed’s unwavering commitment to Keynesian monetary policies will lead the Fed to attempt to offset these supply chain problems, to rescue banks that fail to survive the inevitable contraction in bank credit, and to defray the bad debts that will arise.
It is a momentous task encompassing the whole US economy, requiring even faster money-printing, and is impossible without destroying the unbacked dollar.
Governments have a natural hostility to private mediums of exchange that complete with their fiat currency monopolies. From Omid Malekan at medium.com:
Some years ago, when I first began telling people about crypto, a friend pushed back and said that the government would never allow Bitcoin to succeed. “Money is power” he said, “and no self-respecting government is going to give that power up.” I told him that I agreed, but that Bitcoin was still too small for governments to take seriously. By the time it became big enough to register as a threat, it would be too late.
Then came the 2017 bubble, and a ten-fold jump in value in a matter of months. But that rally happened too fast for anyone to react, and collapsed just as quickly, alleviating any concern that cryptocurrencies might someday contend for significance in broader society. There was a regulatory crackdown around initial coin offerings, but it had more to do with securities violations than the threat of a new kind of money.
The current rally feels different. Both blockchain and crypto have had almost three years to prove their utility and seep into the cultural zeitgeist, and digitally native solutions that are not controlled by any corporation or government seem more appealing in a continuously fracturing post-Trump and post-Brexit environment. The pandemic is bound to change everything, so why not money? The current rally is also driven by institutions, so it has staying power. Paul Tudor Jones and MassMutual are more likely to stay with Bitcoin for the long haul than that YouTuber who used to shill XRP.
In a Twitter-thread, the chief executive [of Coinbase Brian Armstrong] said that his firm “heard rumors” about the US Treasury Secretary Steven Mnuchin’s plans to introduce fresh rules for “self-custody wallets” by the end of his term.
The open nature of cryptocurrencies allows anyone to create a private wallet by downloading third-party software on their computers/smartphones or through hardware devices that store digital assets. These types of self-custodial solutions come cheaper than traditional financial services — and they ensure privacy.
Those rumors are apparently valid since Mnuchin received a letter from four Congressmen imploring him not to do such a monumentally stupid thing.
The US and China are fighting a war on the battlegrounds of high tech and finance. From Alastair Crooke at strategic-culture.org:
At the explicit level, today’s geo-political struggle is about the U.S. maintaining its primacy of power – with financial power being a subset to this political power. Carl Schmitt, whose thoughts had such influence on Leo Strauss and U.S. thinking generally, advocated that those who have power should ‘use it, or lose it’. The prime object of politics therefore being to preserve one’s ‘social existence’.
But at the underside, Tech de-coupling from China is one implicit aspect to such a strategy (camouflaged beneath the catch-phrase of recovering ‘stolen’ U.S. jobs and intellectual property): The prize that America truly seeks is to seize for itself over the coming decades, all global standards in leading-edge technology, and to deny them to China.
Such standards might seem obscure, but they are a crucial element of modern technology. If the cold war was dominated by a race to build the most nuclear weapons, today’s contest between the U.S. and China — as well as vis à vis the EU — will at least partly be played out through a struggle to control the bureaucratic rule-setting that lies behind the most important industries of the age. And those standards are up for grabs.
When it comes to governments, there’s no stopping a truly terrible idea, like state-issued cryptocurrencies. From Tom Luongo at tomluongo.me:
It’s been a whirlwind week in the cryptocurrency world. There have been a rash of news items all pointing towards the same thing — attempts to rein in alternatives to the future of central bank digital currencies (CBDC) that are quickly creeping up over the horizon.
Even if its founders are not convicted, this might still spell the end of the embattled BitMEX. In tandem with the criminal indictments, the CFTC also launched a civil action against the BitMEX network of companies and its founders.
The formal counts on which the CFTC seeks relief are:
1. Executing futures transactions without registering with the CFTC
2. Offering illegal off-exchange commodity options
3. Failure to register as a futures commission merchant
4. Failure to register as a designated contract market/swap execution facility
5. Failure to supervise in relation to its lack of KYC and AML procedures and failing to ensure that its partners and employees lawfully handled BitMEX accounts
6. Failure to implement KYC and AML procedures as required under the CEA
That put a lid on a nascent rally in Bitcoin which was beginning to challenge $11,000. The net result was a $500 move down and killing any potential short-term bullish momentum. It should have seen a breakdown below support at $9800 (orange line, see chart) but that didn’t happen.
Since then Bitcoin has been bouncing around between $10,400 and $10,900 without any real direction, continuing to coil and consolidate.
But despite the violent intra-day reaction Bitcoin weathered that news item well, with last week’s volatility dropping off to next to nothing.
Couple a Federal Reserve cryptocurrency with a government issued universal basic income and you do indeed have a recipe for both tyranny and poverty. From Ron Paul at ronpaulinstitute.org:
If some Congress members get their way, the Federal Reserve may soon be able to track many of your purchases in real time and share that information with government agencies. This is just one of the problems with the proposed “digital dollar” or “fedcoin.”
Fedcoin was initially included in the first coronavirus spending bill. While the proposal was dropped from the final version of the bill, there is still great interest in fedcoin on Capitol Hill. Some progressives have embraced fedcoin as a way to provide Americans with a “universal basic income.”
Both the Senate Banking Committee and the House Financial Services Committee held hearings on fedcoin in June. This is the first step toward making fedcoin a reality.
Fedcoin would not be an actual coin. Instead, it would be a special account created and maintained for each American by the Federal Reserve. Each month, Fed employees could tap a few keys on a computer and — bingo — each American would have dollars added to his Federal Reserve account. This is the 21st century equivalent of throwing money from helicopters.
Fedcoin could effect private cryptocurrencies. Also, it would limit the ability of private citizens to protect themselves from the Federal Reserve-caused decline in the dollar’s value.
Unlike many websites, Straight Line Logic does not solicit donations. If you're going to lay out your hard-earned money, you should get something in exchange. If you like the site and want to support it, buy The Golden Pinnacle or The Gordian Knot, either as a book or download. The links are on the right-hand side of the page, in the Blogroll section. You'll be supporting the site, and getting a great book and hours of enjoyable reading.