In my previous post Cryptocurrency: Friend, Enemy or Anarchist? I elaborated on the role of the central banks, blockchain and the anarcho capitalists. We’ll take it from there.
The enemy – or when the enemy becomes a friend
Some crypto supporters argue that the new currencies are giving hard times to central banks. The banks will do anything from preventing them to take their power away. With the instrument of cryptocurrency, gigantic “artificial” assets can be intentionally vanished into thin air. Take as a counter force only the dollar surpluses of the Middle and Far East economies. The US purchasing power will not be interested in export profits from their effectiveness. Ultimately, one can turn every hype into the opposite with today’s power systems. Cryptocurrencies have no substance, they are not deposited with values such as gold and thus unstable. Compared with the current fiat money debt system, cryptocurrencies have no intrinsic value since they are not credited as debt of the money issuer in the balance sheet. There is no asset in the money issuer visible. Today, however, you cannot trust the overindebted states neither with their corresponding central banks issuing money.
Today’s paper money is no longer deposited with gold and is artificially kept alive. Nevertheless, today’s classic national currencies are based on real productivity and the fiscal capacity of an economy. With digital currencies there is no economic basis, just a kind of euphoric trust and there is this underlying struggling technology which makes it currently difficult to take the lead as the new global currency.
The argument regarding money laundering and the bypass of state restrictions on the movement of capital is as hypocritical as the evasion of controls carried out above the control organs.
Banks are depending on printing money. So where does the Bitcoin come from? The person (miner) who signs the ledger page in the block gets a little reward for that. That is how the money gets into the system. The majority of mining is done from major mining pools though. A single participant will not be able to host his own node nor getting a reasonable reward.
So where is the difference to fiat money? The fiat money today is also created from “nothing”. Commercial banks also create fiat money by signing for example a mortgage loan and crediting the amount to the customer’s account. Because this money originates from a simple and free booking, it is called a bank book money drawn from nothing. The other side of the loan, such as deposits and the refinancing parts also come eventually from nothing. If you take a different approach by arguing with the commonly accepted theory of financial intermediation which is also reflected in the Basel III regulation, it still does not prevent you from a major financial crisis as seen before.
The bank get to lend that money out of interest, multiple times. Henry Ford said that it is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Because of the low interests, banks also make money with fee income. Using cryptocurrencies, banks cannot charge fees because they are not required anymore. That is another reason why banks do not recommend to invest your money into cryptocurrencies.
Cryptocurrencies are also currently difficult to regulate. Part of the PR campaign behind the scene is to instrumentalize CEO’s of Wall Street to speak loudly about Bitcoin is a fraud but it can still hit $100K. Of course, you need a bad guy (Bitcoin) to blame it for the crash and then raise the new, government proved crypto or digital currency (like a revived Phoenix from the 80’s). So for sure we can expect another coin to become the global digital currency that has “solved” the problems Bitcoin had. If this happens, the enemy becomes a friend. Fiat money becomes cryptocurrency.
Fear, uncertainty and doubt (FUD spreading) has become more popular in times of radical changes. Whether it comes from the declining mainstream media or from a raising alternative media. Make your own research and do not believe what others want you to believe in. The political staging and brain wash got smoother over the last couple of years. The rise of awareness also. Are you wasting your time with explanations? People anyway believe only in what they want to hear.
The question remains whether this theater is a political stage by coming up with a rehashed Phoenix story or whether another existing cryptocurrency will take the new lead. And yes, be careful when raising these questions because anything which seems made up or a scam may become suddenly considered as conspiracy.
How to deal with the enemy? A cookbook for regulation.
What are governments doing to regulate cryptocurrencies? First of all, the lobbyists tell the government what needs to be done. The incredible concentration of billions and billions of capital to less and less people created some powerful NGO’s and lobby organizations. They determine. In contrast, the people who think the population can determine live in a fake democracy.
Any regulation will not be able to stop manipulation. We see it currently in the old monetary systems. You can start by bringing the question to the table and asking: is Bitcoin even money? Bitcoin is a financial product like a certificate and not a currency. The value is speculative and influenced by market psychology.
Then you let the national banks arguing that money should be stable in value and of course the Bitcoin is not as the recent price fluctuations show. You will argue that the public has no protection when investing in digital currencies and that the blockchain technology is expensive and inefficient. Lesson number one: make the audience insecure. Then you can start introducing new laws.
Firstly, you announce that you will crack down on speculative trading in cryptocurrencies. For example, the opening of anonymous cyber-currency accounts will be banned.
Secondly, you introduce a new law that will allow regulators, in certain circumstances, to close stock exchanges where such currencies are traded or you impose a ban on stock exchange companies doing business with cyber currencies such as Bitcoin. In the meantime, you ensure that companies whose business models is based primarily on cyber currencies, cannot go public.
Thirdly, you tax investment income from related trades. And by the way, Bitcoin is not a currency, so central banks will demand a VAT on the cryptocurrency.
Apart from the new laws introduced, you keep a constant warning of high losses in this area due to excessive price fluctuations. You claim that the prices of most cryptocurrencies in domestic trading exchange places are much higher than in other countries.
The sooner people get insecure the better you can enforce laws. At the end of the day, money is what the government determines as such. They will ensure that a currency needs a reliable and a legal framework as a foundation, also to enforce demands or taxes. There is no need of algorithms, gold or some kind of imaginary hypes. This is about pure state power.
The hysteria
In 2017, Bitcoin has been the best performing asset across all classes and also on average on the last seven years. The banks don’t even have the tools to deal with this observation. However, it is not new that greed eats brain. Let’s just think of the stock-exchange dotcom bubble, which built up around 20 years ago and then crashed. The ones which were hyping the dotcom mania 20 years ago left on time before the bubble got burst and made good cash. The ones who survived and became famous and successful, like the Amazons, Googles and Facebooks – no one can predict how long they will remain successful. Who will be the next Fintech Amazon, Fintech Google and Fintech Facebook? 20 years ago, we believed that best in breed dotcom companies will survive. We had to realize that not the best products survived but the ones with the biggest power and money have survived.
The same will happen with the Bitcoin. Again Bitcoin and Bitcoin Cash are different things. If I get a real value for Bitcoin Cash, I am getting real value for paper money today as well.
If the profit outlook is big enough, the mind will fail. Do the masses understand in detail cryptocurrencies, algorithms and blockchain? You should invest in things that you really understand. You need to differentiate between becoming a millionaire, a cryptonaire or both if you are lucky.
If the propaganda is big enough, it follows the unsuspecting mass. If then that complete wealth has resolved into nothing, the hangover is great. Most people jump on the train, but have no idea of the matter. Like in the financial crisis ten years ago, has someone really understood speculation objects such as CDS (Credit Default Swaps) and just accepted the pretended intelligence of investment advisors as expert knowledge without skepticism?
The risk of investing always lies in the future, never in the past. With extrapolated charts, it’s easy to refer to the past. In other words, if you had bought Bitcoin for a few thousand euros a year or two ago, you would have earned a horrendous amount today. Then people tend to say “if I just would have invested, then …” An immeasurable greed for quick wealth, without having to work for it leads to the inevitable crash and subsequent complaining why it was not explained and why they have not been warned against it. This is not the first time when human beings make mistakes, but only incorrigible ones make the same mistakes several times.
The misleading certainty of the Bitcoin is the mathematical limitation of the money supply unless you divide it in smaller units such as Satoshi (like cents). It also claims that the inflation risk would be eliminated. The price of the encrypted currency thus results from the pure demand. The inflation of the money supply, as created by the national banks, is thus eliminated. However, the number of potentially unlimited and different cryptocurrencies is not.
There are currently over 1’000 different cryptocurrencies and no one knows how the wild growth will develop. The total amount of money is therefore not limited according to the character of cryptocurrencies. A collapse of the Bitcoin can be quickly staged by the banking system itself. With a PR campaign by the banks and mainstream media, a new pseudo cryptocurrency can be staged medially to deceive the masses to jump on this new cryptocurrency. The new price fluctuations can then destroy confidence in the Bitcoin.
The mass media heats up the hysteria by putting the spot on the highly speculative transactions with the possibility of total loss. You keep warning on the excesses that would produce bitter losers and it worst case you can lose all of your money. In the meantime, you can start a new PR campaign for a government controlled quasi cyber currency which will be introduced after the Bitcoin crash.
What is your opinion on Bitcoin and cryptocurrencies? Happy to read your comments.
In the next posting, I will give you my thoughts about the impact on cryptocurrencies on the environment, whether cash will survive, if a government controlled cryptocurrency is possible, a conclusion and prediction.