I am currently embarking on a three-dimensional strategy of trading cryptocurrencies, that I cannot fully discuss currently because of non-disclosure agreements, save to say that I will also be trading mini-Bitcoin futures long AND short, going forward, as the trades set up.
I am not a real cryptocurrency fanboy. I have friends who have literally made and lost millions of dollars in cryptocurrencies. I also affirm, by logic, that anything in cryptocurrency that is valued in fiat currency is, by definition, ITSELF A FIAT CURRENCY.
Instead of arguing whether or not there is any true intrinsic value to cryptocurrencies or DeFi, which is murky at best, what I want to discuss are the inherent weaknesses in them that seemingly no one is realistically discussing. I will also drop the discussion about Austrian economics and cryptocurrency for now.
The one thing that is a real problem for cryptocurrency is its lack of fungibility. It’s hard to buy a pizza with a tiny decimal fraction of Ethereum or Bitcoin. Decentralized finance has attempted to build that bridge with something called a stablecoin.
A stablecoin is an altcoin that is to be proxy for a fiat currency (like the U.S. Dollar). It makes spending the profits and value of Bitcoin and other altcoins much easier than parsing decimal amounts previously.
The biggest difficulty with stablecoins is counterparty risk. It can be hard to determine if the value of a stablecoin can really be maintained closely to the value of a U.S. Dollar. Counterparty risk is the exact same problem that hit money market funds during the financial crisis of 2008-2009. There are no rating services providing bad or outdated information either. No one really knows how “stable” the stablecoins are. To read a particularly recent criticism of Tether, a major stablecoin, click on this link.
I have been reading J. Christopher Giancarlo’s book “CryptoDad, The Fight For The Future Of Money”. It is very detailed and helpful in the understanding of cryptocurrency and DeFi (decentralized finance). His entire pitch for both entities is that it promotes “democratic values – freedom of speech, individual economic privacy, free enterprise, and free capital markets…encoded in the digital future of money.”
As it turns out, the weakness of fungibility is at the root of the very opposite of those qualities Mr. Giancarlo lauds. I will now explain how that could and very probably WILL happen unless citizens push against America’s pernicious political will to centralize everything from money to individual medical sovereignty.
The U.S. Treasury Department, Office of the Comptroller of the Currency (OCC), the FDIC (Federal Deposit Insurance Corporation), and even the CFTC (Commodity Futures Trading Commission) recommend that stablecoins become banks Such changes in the law mean that these assets would become subject to Federal regulation for asset stability, proof of reserves, and perhaps even deposit insurance. Instead of talking about this at length, you need to read the article attached to the previous link. The CFTC would like to see Bitcoin, Ethereum, Litecoin, and Tether (USDT) be classified as commodities and the leverage be managed by the CFTC. Even though these cryptocurrency assets are used internationally. The very fact that the United States would regulate them on our soil would make their valuations a bit more uncertain, as the United States Treasury is itself bankrupt as is the Federal government.
That kind of regulation would end the entire idea of decentralization of finance, as the U.S. Treasury Department in concert with OCC would manage how these digital assets could function inside of the United States monetary system. Discussions about how to do this will begin in Congress on December 9, 2021.
Things get WORSE from there, however. President Biden during the 2020 election called for a transition to “post-shareholder capitalism”. That is about as perverse a term as “compassionate conservatism” used by George W. Bush.
Biden’s choice to run the Office of the Comptroller of the Currency is herself a Soviet-era Marxist, Cornell law professor Saule Omarova. She wants basically to end private banking, transferring them into “FedAccounts.” Not only would personal bank accounts be absorbed, but ALL business accounts would be absorbed as well. The Treasury and the Federal Reserve would be in control of all currency under such a plan. It is, in fact, one of her goals to bankrupt the United States coal industry, for starters. If you want to hear her in her own words, listen to this podcast up to and perhaps beyond 10:30.
Ms. Omarova is openly hostile to cryptocurrencies, so if stablecoins like Tether became banks, they too would be absorbed and be subject to Federal Reserve authority. That would be a double whammy to decentralization, as the stablecoins would be treated like other FDIC institutions and absorbed by the Fed. What makes that particularly onerous is that, if confirmed, she will serve as OCC chairperson for 5 years, expanding beyond Biden’s first term. Even though her nomination seems unlikely, Biden’s picks for OCC would likely push to end private banking altogether and essentially put all accounts under the direct control of the Federal Reserve.
Biden is also hostile to independently managed IRAs and 401Ks. He would rather see them invested in government-directed investments that would promote Environmental, Social, and Governance Investing. This would largely be RUN by the government. That would in fact end individual choice in investing. Criticism of that plan is discussed here. If Biden gets his way, the government would in fact control all individual retirement account investments.
2022 could also usher in the foundations of a social credit system forged into a vaccine passport system. Microsoft, Oracle, and several other software companies have cooperated to produce a smartphone app that will track vaccination status (in violation of HEPA medical privacy law) called VCI. I assume, if you read the about page in that link, it stands for “voluntary coalition initiative”. It is very much a part of the contact tracing modality that the American Democratic Party (and a likely majority of establishment Republicans) support to literally gain control of your ability to move freely in public.
I would call this program ground-level fascism. Why? Corporations have built the foundation of tracking and they seek and obtain the cooperation of the government to provide the data. Well, what happened recently? Congress passed H.R. 550, a bill to fund a vaccination database, by 290 to 130, with 80 Republican representatives voting to support it. If it passes the Senate, the social credit system machinery will begin to fit into place.
When corporations and governments coordinate to control citizen activity, that is the very quiddity of fascism. Are you awake now?
The other thing that is quite concerning is that Apple and Walmart are both onboard, so the idea of a financial arm of this app would also become a factor. If that were indeed to be the case, then this app would very shortly morph into a behavior-based social credit system that could limit access to your money. If in fact the OCC, regardless of its leadership, decided to operate FedAccounts as mentioned previously, there would be no other option for your controlling capital. That would include stablecoins if stablecoins were forced to become banks.
If you think that is a “conspiracy theory”, then read this article. Massachusetts is ready to use a QR code, and other states could in fact adopt that or the VCI app to track Americans. As 2022 moves forward, this agenda will likely be pressed by a desperate Democratic Party, beaten down by Americans’ dislike of their economic and foreign policy. Given that situation, their statist objectives will march forward. The real question, as defined by this The Hill op-ed, is how quickly Americans will fall into line? Once the major financial centers (located largely in Democratic-party-run states) accept it, who could stop it?
All that I can say is this. Cryptocurrencies, when forced by U.S. Treasury Department, the Federal Reserve, and the OCC to conform to banking regulations, will likely not weather the regulatory push. Once the camel’s nose is inside the cryptocurrency tent, that tent will likely topple. That opinion has nothing to do with valuation of the DeFI networks, or Bitcoin, or any other element of the blockchain network. It is simply a matter of which party can muster the brute force to keep their systems in place. The American oligarchy still controls the military and the power to regulate. I would bet on that entity winning unless the U.S. Dollar collapses or ceases to be the world reserve currency. That is also NOT an impossibility, but that will be left for another discussion on another day.
The year 2022, and the Federal elections that follow in November, will likely tell the tale of whether America truly becomes an authoritarian state or begins to break free from the Stalinist grip of its statist and fascist two-party system mainstream. With the current lockdowns in Austria, Germany, and Australia as examples of what once-free societies are doing, I don’t think we have a clear answer. We will find out, in my opinion, sooner rather than later. America cannot continue this tightrope act forever. There are too many forces around us internationally that will cause the final bear trap to be set. Let us hope saner minds take hold so that we can avoid an East-German-style ending to Western civilization. If you would like to see how that was operated, watch “The Lives Of Others”. the 2006 Academy Award winner for Best Foreign Film.
If you will notice, I left out any discussion of “The Great Reset”. That may come shortly. I just want people to think about what is happening in the economy around them before voting in November 2022. A lot is at stake.
Thanks for reading this.