Bitcoin’s problem is it has no monopoly on violence

See the latest Australian dollar analysis here:

Macro Afternoon

It was always bloody stupid rallying into a war with Uncle Sam but there you go. BTC gave way last night and has  nasty double top pattern:

US hearings were not kind, via Forbes:

Facebook previously announced plans for launching a new cryptocurrency, Libra. The company didn’t, however, discuss how this new digital currency could completely change and shake up the banking and financial establishment. Facebook CEO Mark Zuckerberg downplayed the new currency, claiming that it will be governed by a regulatory body in Switzerland and has a number of well respected participating institutions behind it.

Many doubt his assertions and believe that this is a power play to further grow his company and its span of control. If the billions of people who use Facebook decided to conduct transactions with Libra, it would jeopardize the United States and other country’s currencies and financial systems. While lightly covered, having one extremely powerful company control the flow of money, U.S. currency could suffer serious repercussions. Politicians slowly awakened to this danger and demanded that Facebook executives meet with congress.

It seems that Democrats and Republicans alike finally agree on something—the threat Facebook’s new currency will have on the country. Tuesday, Facebook found itself once again under fire from Congress. The Senate Banking Committee grilled Facebook executive David Marcus—as CEO Mark Zuckerburg smartly avoided a return trip to the woodshed—concerning the company’s plan to launch its digital currency.

The members of Congress did not look fondly on Facebook’s new initiative. Senator Sherrod Brown openly professed his displeasure and claimed that “through scandal after scandal…it doesn’t deserve our trust.” Brown said, “We’d be crazy to give them a chance to let them experiment with people’s bank accounts.” He further added that it was “delusional” for customers to trust Facebook with their “hard-earned” money.  Other senators shared their concerns. “I don’t trust you guys,” said Republican Senator Martha McSally. “Instead of cleaning up your house, you are launching into a new business model,” she complained.

Marcus, who was formerly a high-ranking executive at PayPal, tried—without much success—to get Congress on his side. He promised that Facebook would not begin offering Libra until important regulatory issues are dealt with.

Its existence is the regulatory issue. It will give Facebook the power to create money. What’s it going to do next, launch an aircraft carrier? Libra is buggered. It’s too big to succeed.

Some have tried to spin this as a BTC positive, at CoinDesk:

For a panel about a proposed cryptocurrency, Tuesday’s Senate Banking Committee hearing was notably light on crypto talk.

Bitcoin was barely mentioned during the two-hour session and most of the lawmakers seemed far less concerned with the technology than with who was planning to leverage it: Facebook.

Sen. Brian Schatz (D-Hawaii) put it perhaps the most succinctly. Responding to Facebook executive David Marcus’ oft-repeated talking point that the Libra project was important for the U.S. to avoid being left behind in the blockchain revolution, Schatz said: “You’re making an argument for cryptocurrencies generally. … The question is not, ‘Should the U.S. lead in this?’”

Rather, he said, the question is: Why Facebook?

“Why in the world, of all companies, given the last couple of years, should [Facebook] do this?” Schatz asked, referring to the social media giant’s data-privacy and election-meddling scandals.

Crypto savvy
Similarly, the remarks from Sen. Kyrsten Sinema (D-Ariz.) about cryptocurrency were FUD-free.

“Despite granting anonymity, cryptocurrencies aren’t the first choice for drug traffickers … because cryptocurrencies aren’t easy to use,” she said.

Sen. Chris Van Hollen (D-Md.), likewise, sounded much less worried about the granddaddy of all cryptos than about Facebook CEO Mark Zuckerberg’s new brainchild.

“The volatility of bitcoin … means it won’t be put in widespread use. While [Libra] is supposed to be put into wide use,” Van Hollen said.

Another difference is that unlike bitcoin, where there is no central issuer claiming to have assets backing the currency, “you do have to trust the Libra Association,” Van Hollen added. “When you’re talking about the world currency I’m not sure if there is sufficient sustainability.”

And Marcus, for his part, did little to invite comparisons between Libra and bitcoin, instead positioning the project as a path to financial inclusion for underserved populations.

“Our first goal is to create utility and adoption, enabling people around the world – especially the unbanked and underbanked – to take part in the financial ecosystem,” he said in his opening statement, which made no mention of bitcoin or cryptocurrency.

In contrast to bitcoin’s radical promise of a capped money supply invulnerable to political influence, Marcus said Libra, governed by a consortium of tech, VC and payments companies, had no such ambitions.

All we are doing here is underlining exactly why NO crypto currency can ever succeed. The moment it does, it fails, as it threatens the existing monetary order. Those who think this is viable are smoking crack. When the rubber really hits the road, it is the government’s monopoly on violence that backs the currency’s value.

Still, it can be argued that BTC did not crash (only) owing to the hearings. Gold also fell and if BTC is digital gold then it’s still rational that they fall together:

But I wouldn’t bet on it!

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. Here’s a question: if The Zuck keeps pushing, is US going to bomb Facebookistan? You know, for owning weapons of mass confusion and the like?

    Oh please drone the HQ. please please please,with sugar on top!

      • Facebook’s problem is that they went too far and got too greedy, too ambitious. They would have been fine if they hadn’t minted their own currency, and just copied AliPay or WeChatPay based on the USD or user’s local currency.

  2. They’re just aiming for product parity with wechat.

    Facebook + Libra = wechat = social credits = surveillance state.

    Problem is, they’ve kinda pissed off the Don. Oops.

  3. DominicMEMBER

    ‘Full Faith & Credit’

    You see, when the ‘faith’ dissipates altogether cash is going to want to go somewhere. Anywhere that is outside ‘the system’. Anywhere that is outside the reach of the grasping fingers of gubbermint. Hell, anywhere that isn’t a financial asset being smoked in a bear market for the ages.

    I have no idea whether gubbermint can hose down all the crypto plays but money will go there anyway.

    • In the end you still need a common currency to transact in, that is if we don’t accidentally revert to a barter economy like Argentina.
      The first problem with this Libra idea is the need for it to be transacted/measured against existing currency. People aren’t using Bitcoin or any of the other digital tulips to transact in (except maybe to move money from one currency to another without regulatory oversight), they’re just speculating. You can’t trust the value to be more or less the same day to day.
      The second problem is global trust. We all know money isn’t backed by anything, but shifting the dial to switch the world from dollars to bits calls for a massive mindset switch. The conditions are not yet right for that to happen. Mass adoption is difficult thing to engineer, especially when it come to money!

  4. “..the government’s monopoly on violence that backs the currency’s value..”

    This is a really strange comment, because there are some very violent governments who’ve seen (or are right now seeing) their currency fail. Increasing violence in protecting the current monetary regime could easily weaken confidence in it.

    I think to predict whether bitcoin (or another cryptocurrency) will be successful depends a lot on what you consider to be “success”. Bitcoin maximalists might set the bar for success at nothing short of it replacing the US Dollar or some other arbitrary currency (or all currencies), however I am sure there are many realists who own crypto and think it can be successful playing a more niche role.

    I don’t see any reason why a dominant crypto (or basket of different types) couldn’t reach a market cap similar to that of gold (~$8 trillion) and still not pose a substantial threat to the existing monetary order.

    • yep that’s about my take too.
      we already have credit creation by a variety of non governmental organizations and this is just one more form of credit creation.
      IF it can identify an economic sector where there is clear value (gaming , gambling, currency restriction bypass….whatever) than the currency is worth some fraction of the transaction value (initially the number will be greater than one because all interested parties must acquire and hold a certain amount of Crypto currencies for transaction reasons …it’s exactly same reason that many Australian companies have USD accounts) IF the crypto currency proves itself stable than I can’t see any reasons why it can’t continue to exist ,sure governments can restrict convertibility but there’s a flip-side to these restrictions (again if the Crypto currency fulfills some genuine need)
      There’s another aspect to this problem that’s unique to the High-Tech world which is so called “Features” anyone that has ever worked in High tech product development has lots of stories about completely useless “features” that some customer (or your own marketting dept) is demanding the next release MUST contain. There’s no point arguing that the feature is worthless, everyone knows this, but what’s not worthless is the concept of maintaining and being seen to maintain the leadership position in the industry. High Stock multiples is a direct function of sector leadership, so whatever feature tick boxes need to be filled that’s what needs to be done…it has nothing to do with real user demand and everying to do with not allowing the competition to define / redefine the playing field.

    • Try settling your tax obligations with crypto. Maintain that until the process exhausts. Let me know how you fared.

    • That’s interesting though important to note that “At no point does the Treasurer’s office hold cryptocurrency. Payments made on flow through the third-party payment processor, BitPay, and are converted to US dollars before being deposited into a state account.”

  5. Fiat currencies are backed by the productive capacity of their workforce and the security systems (a strong navy) enforcing/protecting their trade relationships.

    The US has been asleep at the wheel since the USSR collapsed. They are woke now.

  6. There is a place for Bitcoin and for now that place is online gambling and the black market. Those 2 use cases are constantly competing with one another. While one group wants to hold as the price rises, the other group wants to transact and get out as quick as possible.

  7. scottb1978MEMBER

    There will be a digital USD and they will support Libre if the basket is mostly digital USD.

    • There is already a digital USD – it coexists with cash dollars. In fact the vast majority of dollars in the world are 1s and 0s.

  8. mikef179MEMBER

    I don’t really understand the Digital Gold argument. Bitcoin is mostly speculative now. If it does not ultimately have value as a transactional currency then it won’t be able to hold it’s value.

    It’s just a question of scaleability at the moment. Can it handle the number of transactions required of a major currency? Or will some other crypto take the crown? Regardless, crypto is the future of currency.

    And as for the US dollar? History is littered with examples of “unsinkable” paradigms.

  9. So bitcoin recently went from $8K to $13K in a couple of weeks, and than back down to $9K in a couple of days. And this is after a larger period of lunacy around the end of 2018 and earlier 2019. I’m sure some people made a lot of money out of those shenanigans. And a lot of people lost a lot of money, too.

    If you’re sitting at the gambling table and you don’t know who the sucker is, you’re the sucker. The chumps investors who want to play in that sandpit are welcome to it. It must be hellishly exciting, but I’m not sure that drying up your adrenal glands is the point of investment.

  10. The success of any currency relies on the strength of its network or network effect.
    The count of parties willing to accept a currency is the main requirement for its ongoing success.
    The agreement within and across societies that currencies, which have no intrinsic value other than their issue by fiat, is simply the value recognition of a network effect.
    USDs are intrinsically worthless paper with no claim over anything of value (like gold) other than a claim over more intrinsically worthless USD raised from a US tax system which collects pieces of paper which are intrinsically worthless.
    Presently the USD has the world’s largest (currency) network effect presently followed by the Euro.
    It used to be the Pound and history shows the dominant currency network shifted from one gold backed sovereign currency to another over the ages.
    Gold’s currency network effect is rubbish. You’d be more likely to succeed in buying a car with Bitcoin than a few bars of gold given the enormous inefficiencies in converting it back into fiat and the challenge of verifying its quality . Gold has a role as money. Quite distinct from its crappy capacity to act as currency.
    Facebook arguably has a bigger network of users than the USD.
    Facebook is graced with several hundred million complete morons who are happy to trade their identity and privacy for entertainment.
    The Facebook network, when applied to currency and payments, will very likely be successful. In particular in e-commerce.
    As an adjacent point I’d be surprised if most of MB’s crypto shills aren’t also Facebook users. The cognitive dissonance in shilling cryptos while using Facebook is pointed indicator of ignorance and stupidity.