Welcome to Finance and Fury,

Last Friday – new monetary reset might be going digital

Today – Dive into Cyrpto/BTC potential traps of the future – The potential regulation and eventual centralisation of Cryptocurrency at the nation-state level – i.e. domestically in any country

Something always has puzzled me

– Who invented BTC – I know the anonym’s name and we all know the story –

  1. In 2008 – Bitcoin was proposed by unknown author or authors – pseudonym of Satoshi Nakamoto
  2. At the heart of blockchain is the distributed ledger – or a distributed network is a shared database
    1. So rather than one central entity holding the information, it’s spread through a network of millions of sites or nodes – in the early days decentralization offered many benefits over traditional, centralized systems: increased security and transparency
    2. As it uses a trustless, fungible and tamper-resistant distributed ledger called a blockchain
  3. Ironic it is called a decentralised currency, when you need power and the internet to access – and turns out – potentially Government permission

Take a step back

– bit of conjecture in this episode – but think this through with me

  1. Blockchain is a revolutionary invention – another extension of the internet – I liked it initially as well
  2. But remembered one key factor – Where did the internet come from? Technology for GPS, almost the foundation for most of the stuff we use day to day? Governments or their funding arms – Like the CIA’s DARPA – funding almost all tech since the 70s
  3. Examples – Internet and emails, Windows, WWW, and Videoconferencing, google maps, Siri, Unix, and cloud technology, GPS, VR
    1. Essentially – the foundation for most technologies – but bitcoin just came to be from an unknown source – in this day and age?
    2. There are plenty of narratives through history – Benjamin Franklin and the invention of electricity –
    3. Total BS – how? Step 1, fly a kite in a storm, step 2, attach a skeleton key to it – weighs a good 50grams – then he is shocked by lightning – is a narrative of history that falls apart with some scrutiny
  4. But Given the inventor of BTC is unknown – we don’t know where it came from – but following the trend – just as likely (if not more) a government as some lone programmer/group – especially when you look at the current
  5. Especially if it serves their needs in the end game – How do you get someone to adopt something –
    1. Willingly – Edward Bernays the founder of PR- Spin and book of Crystallising public opinion
      1. Examples = Smoking freedom torches for women, or selling American Aluminium’s waste products – fluoride
  6. By force is hard – resistance when told what to do – much easier to have people adopt by choice
      1. New cool technology, antiestablishment, untraceable, profitable! Who wouldn’t want to get in?
      2. But What if that is what Central banks and the banks of Central Banks (BIS and IMF) want? They know fiat is going to collapse at some point – too much debt – never be repaid
      3. Central Banks – BOE’s Carney Floats Idea of New, Virtual Reserve Currency
        1. Statement: “Such a synthetic currency potentially could damp dollar dominance, ease burden of greenback’s moves on smaller economies”
      4. Banks of banks – It is well within regulations of banks – Rhetoric regarding cryptocurrencies is somewhat more moderate in a recent report from the BIS – finds that cryptocurrencies in fact, “rely on regulated financial institutions to operate, bringing cryptocurrencies within reach of national regulation.”
  7. This isn’t to be taken lightly – The BIS regulates and holds capital on behalf of 60 central banks across the globe
    1. Though the BIS has expressed moderate conclusions about cryptocurrencies in the past
      1. Statements made by BIS Head of Research Hyun Song Shin in June and recently the BIS president – called cryptocurrencies “psuedocurrencies” and Bitcoin, “a combination of a bubble, a Ponzi scheme, and an environmental disaster.”
    2. But the new report from the BIS says that a close correlation of trading behaviour with regulatory news suggests the crypto sector responds like any other market to news about legality:
    3. Cryptocurrencies are often thought to operate out of the reach of national regulation, but in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions…(E)vents related to general bans on cryptocurrencies or to their treatment under securities law have the greatest adverse effect, followed by news on combating money laundering and the financing of terrorism…News pointing to the establishment of specific legal frameworks tailored to cryptocurrencies and initial coin offerings coincides with strong market gains.”
        1. BIS views the crypto sector being orientated towards lawfulness – as they see an increased dependence on regulated interfaces (exchanges and banks) and by “market segmentation,”
        2. i.e. – BIS statements: “These results suggest that cryptocurrency markets rely on regulated financial institutions to operate and that these markets are segmented across jurisdictions, bringing cryptocurrencies within reach of national regulation.”
    4. Also – S. Commodity Futures Trading Commission – officially confirmed that both Bitcoin and Ethereum should be considered commodities
        1. They know cryto market is going to get bigger – this is what the Governments actually want – why? Look at this in a second
    5. Can Governments/Banks actually regulate crypto markets?
      1. Technically – cryptocurrencies can function without institutional backing and are intrinsically borderless – this raises the question of whether regulation is effective – in particular national regulation
      2. The BIS advises that lawmakers tasked with governing the sector should not be awed by technological claims, but should rather focus on understanding how crypto functions economically: “To tackle regulatory concerns, authorities will first need to clarify the regulatory classification of cryptocurrency-related activities, and to do so using criteria based on economic functions rather than the technology used.”
      3. In Aus – Or any country – very easy – A Financial Systems Legislation Amendment can be made – update definition of ‘property’ in currency subsection using a simple amendment

Going deeper, is bitcoin an option?

  1. What do you value BTC in? Is it AUD? Or USD? Think about that – When something is valued in Fiat – is it truly a new currency?
    1. Is it really a new form of money if it is still valued in current currency – not in relation to good themselves
    2. Fractal version of fiat currency – you need fiat money to start with to purchase under current economy
    3. Therefore – the very conversion of crypto is where it will start in legislation changes
  2. Unregulated leads to fraud and manipulation – or regulation being introduced
    1. Future regulations are a worry – for the most part left alone – easy to regulate – Requires internet –
      1. Aus providers easily block IPs – what if access through internet is blocked – can’t verify without internet connection
    2. May have a base value purely due to the areas it is most useful for – tax evasion, laundering, terrorism, illegal stuff – North Korea blocked in cash transfers, but could trade in crypto – utility token until use taken
    3. the supply of it also being snapped up by Governments – China, seized all of the citizens BTC, while on the surface against it, they likely have the largest control over the mining and ownership of BTC – come back to this in a sec
  3. Doesn’t escape concentrations in control/supply – cheapest power or deepest pockets – China has both
    1. June 2018, over 80% of Bitcoin mining is performed by six mining pools – five of those six pools are managed by individuals or organizations located in China. Other is in Iceland.
    2. First – why concentration in china? Cheap power – mining takes a lot of Electricity power requirements

 

Why would China, or other Govs want Crypto market to grow – admits the possibility of Government doing a ban/buyout of Crypto – and implementing their own as a money base

  1. History is a powerful tool – Gold used to be the money bass – hence the Gold seizures of 1900s
    1. Gold used to be the monetary base – and Governments would ban private ownership of this to take all the gold for themselves
  2. For example – Executive Order 6102 is a United States presidential executive order signed by FDR in 1933
    1. “forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States”
    2. Made under the authority of the Trading with the Enemy Act of 1917 – amended by the Emergency Banking Act 
    3. EO6102 required all persons to deliver on or before May 1, 1933 all but a small amount of gold owned by the population to the Federal Reserve – in exchange for $20.67 (equivalent to $410 today) per ounce
    4. punishable by fine up to $10,000 (equivalent to $200k today) or up to ten years in prison, or both
    5. Exemptions were made for those in the know – i.e customary use in industry, profession, art and also exempted was “gold coins having recognized special value to collectors of rare and unusual coins”
    6. After all the gold was taken for $20.67 – Treasury then raised price of gold under the Gold Reserve Act to $35 an ounce – Governments/Banks made a massive profit – 40% overnight – again population got screwed
  3. Why did they do this? – US was on a gold standard at the time – therefore people owning gold (i.e. the backing for money) was seen as a threat to the stability of the financial system
    1. FDR desperately needed to remove the constraint on the Federal Reserve that prevented it from increasing the money – which was a limit to their Gold Stores
    2. the ban on private ownership of gold in America—the home of the free— went on for over 40 years until 1975 when the population was allowed to own more than $100 in gold again
  4. Gold also had many other regulations in other countries to be taken from the population to ‘stabilise’ the financial system
    1. Australia Gold Confiscation – 1959 – The Australian government similarly nationalised gold
      1. Art of the Banking Act in 1959 – allowed gold seizures of private citizens if the Governor determined it was “expedient to do so, for the protection of the currency or of the public credit of the Commonwealth.”
      2. Made it legal to seize gold from private citizens and exchange it for paper currency
      3. All gold had to be delivered to the RBA within one month of it’s coming into a person’s possession
    2. Great Britain’s Gold Ban—1966 – Same thing – needed to stockpile more gold for financial system stability
  1. These three gold confiscations have commonalities –
    1. Were imposed by first world nation governments – were advanced societies, among the richest countries on the planet – yet they all confiscated gold due to this very factor – wealth appeared through monetary policy
    2. Arose out of economic crisis. Each government had abused its finances so badly that it eventually nationalised privately held gold from citizens

 

China is the canary down the coal mine – as they have just gone through another crackdown in crypto markets

  1. Back on 5 December 2013, People’s Bank of China (PBOC) made its first step in regulating bitcoin by prohibiting financial institutions from handling bitcoin transactions
  2. Then – Cryptocurrency exchanges or trading platforms were effectively banned by regulation in September 2017 with 173 platforms closed down by July 2018

New Financial System likely involves Many new cryptos 0 which isn’t crazy

Since Bitcoin’s inception, thousands of other cryptocurrencies have been introduced – no limit or requirement to join

Every country can have own form of currency – similar to crypto – but issued by the state – or central banks – like Fiat system

Would be easy to regulate –

 

Summary – there is money to be made in BTC and other crypto through trading within the bands – but long term has massive political risks – same reasons I wouldn’t invest in African mines – depending on country has massive political risk through Government nationalising

Episode is a cautionary tale – I may be 100% wrong – but it is potentially a point of view you haven’t heard and something else to consider

Thanks for listening today. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/

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