Janet Yellen smashes Bitcoin

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Macro Afternoon

US Treasury Secretary, Janet Yellen, weighed in on Bitcoin last night, clearly on the negative side. This is important:

It is a highly speculative asset and you know I think people should be aware it can be extremely volatile and I do worry about potential losses that investors can suffer.

I don’t think that Bitcoin … is widely used as a transaction mechanism. To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.

You don’t say. The result was a 22% smash in the “safe haven” asset:

It is pretty amusing watching this battle play out. There is some incredible cognitive dissonance going on when a brand new…err…private currency, with no backing from a sovereign, taxation system, or central bank, is somehow construed as the “new gold”.

Neither does BTC operate as a medium of exchange, despite Elon Musk’s hope that it will. And, if it does, what happens then as it undermines taxation everywhere?

It is very clear that nobody can even agree on what BTC is, let alone that it is the future of money.

Private currencies have been launched many times in history and eventually, all have failed. The reason is simple. There are two key sources of power that give a sovereign nation its definition. The most important is the monopoly on violence. Only the state can be allowed to be fully armed and to use these arms in defence of its integrity. This is not to say that that integrity is always right. Obviously not. Sometimes it must be fought.

The second source of power is control of the currency. This gives the state the ability to tax, the ability to grow the economy, and the ability to control the flow of wealth such that it can remain intact against such forces as class warfare, globalisation etc.

I do wonder if those that promote BTC really understand how radical is their product. I admire the anarchistic features of BTC. But this is not some worthy Millennial revolution in sexual and racial relations that we are talking about. BTC is fooling around with a nuclear device positioned directly under state power.

The state is ponderous, corrupted and beastly. But it will defend itself when the time comes. At that point, BTC will look like a pocket knife brought to a nuclear war.

This is why I say that the more that BTC succeeds then the closer it gets to failure. I don’t know where that tipping point is for the state. Nobody does. But it certainly exists. A point very much underlined when the US Treasury Secretary, the person most endowed with custodianship of state financial power, speaks negatively about crypto.

Janet Yellen is the one with her finger on the BTC equivalent of the BIG RED BUTTON.

David Llewellyn-Smith

Comments

  1. A good point. States do not want competition to their fiat currency monopoly. A good historical example of this is the Fed outlawing US citizens owning gold in 1933.

    Corrupt Yellen wants to print USD to get rid of debts.

    There is money to be made still, in last year.
    Gold: 1.2x
    BTC: 9x

    However, when will BTC get big enough to become a problem?

    • Agree, Crypto is way up, even with this pull back it’s still way up, gold is manipulated like most things and it’s performance hasn’t been great lately. It seems more tied to the US dollar than anything else.

      Altcoins will be the future, BTC for a store of wealth and many some trading but Altcoins will take over for day to day transactions, such as Etherium with DEFI coins.

      A good example is of a oz guy who recently refianced through DEFI because banks here suck https://cryptonews.com.au/aussie-programmer-refinances-his-property-loan-with-defi-in-a-single-day-following-red-tape-from-banks

      With DEFI you can act as a borrower or lender, advantages on both sides, banks are just a take take only institution.

      And with more stable coins that are trying to use other means for set value instead of pegging against fait like the US dollar it’s only a matter of time before crypto disconnects from any central bank currency and won’t be so easy to manipulate through central bank controls. And it won’t matter if one countries government boycotts or tries to ban it like India is trying to do, because anyone with a VPN can easly bypass government, and considering so many governments are looking at it for the future the ones that adopt late will be the losers.

      if crypto was going to die why are so many banks globally investing in their own crypto product lines. Take one of Thailands largest banks who just adopted Alpha Finance DEFI.

      Looks like BTC is in recovery already, I would say a number of investors just jumped on the pull back and it seems like long positions are building. There are now just too many large institutional investors coming into the market, Etherium is now showing signs of institional buyer demand and I would say other alt coins in future will become attrative to large institutions.

  2. Cannot a state simply enforce the law that their fiat is the sole legal tender in its jurisdiction if/when the time comes? A black market can always pop up, for sure, but there is nothing new about it. After all, black markets for fiats existed long before BTC came along.

  3. I have constant fights with my millennial mates about this. They can’t comprehend. For every winner there’s 10 losers.

    The convo turns like this, if BTC goes up and I sell there’s more money in my bank account and I am winning. /facepalm

    I am fed up with my generation.

      • Is there a lesson in “fiat currency will always be debased to nothing” and “government bonds are worth what the government and the RBA choose” and “savings will be confiscated by government and RBA debasement” ?

    • “I have constant fights with my millennial mates about this. They can’t comprehend. For every winner there’s 10 losers.”
      Are you talking about housing appreciation? The sharemarket? Job market? Government Policies? House Auctions?
      Or just Life in general?

    • Remind those millennials that Bitcoin was selling for $11,900 on the 30th of June 2019 and nine months later in March 2020 it was selling for $5000 – a 42% drop in price
      https://www.worldcoinindex.com/coin/bitcoin

      Ask them how they would feel about a that? A 42% drop in their bank account.

      And just for fun, here is the Bitcoin chart from 2014 to now. Since last October, the price has gone up from $10k to $50k – that’s five months on pure speculation and if that doesn’t explain “bubble” to the Millennials, then nothing will.
      https://www.worldcoinindex.com/coin/bitcoin

    • Bitcoin sellers tend to buy physical assets. Not fiat.Of course there’s was a correction, Yellen yelled and some weak hands sold now it’s buy the dip, USD is long in the tooth.

      • I suspect the original BTC holders bought BTCs precisely because they didn’t want to have anything to do with the fiats, so it only makes sense that they “tend to buy physical assets. Not fiat.”

        If you spot one that buys fiats you will know how a greater fool looks like.

    • I also had an argument once explaining someone the difference between perceived value and store in value.

      He was like, if everyone starts using BTC then that’s just like FIAT and its value becomes generally accepted and everyone will see its equal value. I tried explaining to him that BTC has terrible store in value because no one can agree what’s it worth and because of that its so volatile, so the groceries you buy today will not be the worth the same when you buy them again next week.

      His over arching argument was that he just wants to purchase a house like the Boomers before him did. I resonate with him, but we’re going about it the wrong way lol.

      I fear my generation is ripe for misinformation at greater numbers then the older cohort and we like to believe we know better.

      • Every generation has its own advantages and disadvantages. If the internet had existed when I was growing up, I would have found out the existence of Warren Buffett and the others much earlier than I did.

        You just need to be aware that tons of information come with tons of misinformation and disinformation.

  4. The Traveling Wilbur

    It is a highly speculative asset and you know I think people should be aware it can be extremely volatile and I do worry about potential losses that investors can suffer.

    I don’t think that asset purchasing under a government-backed stimulus program … is widely used as a transaction mechanism for making the majority of people better off. To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.

    Fixed!

    • He bought into the bubble at the right time.

      The question is whether he can sell at the right time. I’d suggest telling your son to tell his AFL mate to sell $1 million of those bitcoins to protect his original investment.
      (this is gamblers 101, it means your playing with the houses money, not yours)

      A graph of the current bubble
      https://www.worldcoinindex.com/coin/bitcoin

  5. “..Private currencies have been launched many times in history and eventually, all have failed…”

    Cobblers!

    As noted by the RBA 96% of the money supply is bank credit which is nothing more than privately created money.

    https://theglass-pyramid.com/2018/09/22/rba-watch-money-money-money/

    That is an impressively successful performance for private money.

    What you really mean is that private forms of money that are not supported by the state do not have the advantages of private forms of money that do.

    That is quite a reasonable observation. And as we know, the issuers of private forms of money that do have state protection are very antagonistic to ANY competition whether it be from new forms of private money (such as bitcoin et al) or even money created by the state (deposits at the central bank).

    The question is when are you going to start calling for the end of the corporate welfare implicit in giving ONE category of private money creators a MONOPOLY on operating deposit accounts at the RBA.

    What possible objection (apart from the self interested pleadings of the debt peddlers and their minions) can then be to allowing the Australian public the freedom to open and operate a simple deposit account at the RBA that pays no interest?

    • As we have been through many times before. They are merely promises to pay the states money and are regulated as financial products (with investor disclosure etc) not money.
      They can only serve as means of payment to the extent each payment can be settled with states money at the end of the day.
      Therefore they are not private money.
      Free banking where banks issue their own notes which are not promises to pay at par states money are money.
      And it was a huge failure.

      • pfh007.comMEMBER

        Sweeper,

        Sure we have been through this many times and like most of your killer points this one does not amount to a hill of beans

        “…..They are merely promises to pay the states money and are regulated as financial products (with investor disclosure etc) not money.

        They can only serve as means of payment to the extent each payment can be settled with states money at the end of the day. Therefore they are not private money.…”

        Not money and yet not private money.

        Isn’t it amazing how the economy functions using a lot of Not Money / Not Private Money.

        Word games – what banker’s do best.

        • “Isn’t it amazing how the economy functions using a lot of Not Money / Not Private Money”.

          Agree. This is something I often ponder.
          Isn’t it great how every single transaction in the economy is settled in CB liabilities. Every. Single. One.
          eg. Pre GFC US base (mostly currency) was about $800b yet it was settling about 14 trillion in GDP, plus a good chunk of global trade plus all the existing asset sales.
          And who said the state isn’t efficient?

          • pfh007.comMEMBER

            “.. Isn’t it great how every single transaction in the economy is settled in CB liabilities. Every. Single. One…”

            That is just plainly wrong.

            The only transactions settled in central bank liabilities are interbank transactions.

            Transactions between customers of a bank do not involve central bank liabilities at all.

          • Interbank transactions are done to settle customer transactions between banks.
            I hope you’re not really saying that is wrong.

        • “..Interbank transactions are done to settle customer transactions between banks. I hope you’re not really saying that is wrong..”

          I was pointing out that you were wrong.

          But even with interbank transactions central bank liabilities are only used to settle NET differences at the end of the day. Individual interbank transactions are not settled with central bank liabilities.

          So you are wrong again and I was being kind about your tedious attempts to obfuscate the significance of bankers having a monopoly on operating deposit accounts at the RBA.

  6. “Neither does BTC operate as a medium of exchange, despite Elon Musk’s hope that it will. And, if it does, what happens then as it undermines taxation everywhere?”

    All you have to do is start following this lead and see where it goes and you will realise we are near the beginning of a paradigm shift in money and finance. Don’t be scared of it. Just reason it all out.

    And think about how the petrodollar’s day is almost done and what the possible alternatives are.

    And stop with the false assumption that governments are all powerful and can just assert themselves on the markets however they like. Do I need to point to the Fed’s attempt to normalize interest rates to point out that they aren’t?

  7. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.

    Rubbish, in fact it’s extremely easy compared with dealing with the existing banking system. And the best bit is hardly any fees to do so. Money can move borders without existing banks dipping in and taking a chunk.

  8. This drop is nothing in BTC’s historical context.
    This is no more than a speed bump to shake out the weak hands.
    MB will catch on precisely when it reaches the late adopters stage.

  9. I started looking into crypto recently and I was impressed with what Cardano is doing, enough that I bought a little bit (and not just speculation). Proof of stake means it is far more sustainable in terms of energy and in terms of a long term roadmap it holds much more promise than BTC in my opinion.
    Agree BTC might get crushed by regulation, but blockchain is not going anywhere. Keeping an open mind.

    • Any regulation crushing crypto will not be btc specific. That would just be playing wack-a-mole.

      Blockchain is just a database, without any of the good features…

  10. You cant blame the young for looking for hope in a world so corrupt.

    With a Baby Boom generation thats practically got a knife to the youngs throat, is it any wonder the young are looking to break free? I’d say the young have done everything BUT violence.

    • A nice, simple, easy to understand,
      emotional answer., but completely wrong. Both Gen X ( the biggest and richest generation) and Y own more collectively for each of those generations in IP and superannuation than boomers. Not only that, we are well into a Gen X and bordering on gen Y Government. Why did so many younger people vote LNP last time when Labour at least had plans to deal with the corrupt IP scam? Gen Y numbers alone could have destroyed the status quo of ponzi economics, at least in housing. Violence is jumping several steps ahead after ignoring what you could have done but your mates chose not to.

  11. Those horrible horrible people who piously preach about Bitcoin, the same people that have no real understanding of History and herd mentality.
    The same awful awful people who love Elon Musk and his guruinfomercial type business model sold.

    May they suffer enough to learn but not enough to stop them from spreading the message of pain and loss.

    • Being altruistic by nature, I warned younger colleges to keep their house deposit money out of the dot.com bubble. They were younger and assumed themselves to have superior intelligence so just laughed in my face and told me ” you old farts know nothing” ( I was just gone 40 at the time) . They all lost their money and in one case their families money.

  12. David the Max Weber quote refers to sovereignty and the state, both the external and internal and is intrinsically tied to Descarte and Hobbesian theory and it is very specific, “legitimate” monopoly of violence (both external and internal) is the operative word.

    This legitimacy is anachronistic, for example Germany held a legitimate control which was retrospectively rescinded.

    Part of my post grad thesis was specifically dealing with the rise of PMC’s (private military corps) where the monopoly of violence is entirely outsourced at both the national and international level (UN private peace keeping forces). The international and historical NORM is in fact for private military’s. State control of violence is a particularly unique thing post Napoleon with standing armies. Generally they were “raised” or bought.

    There have been hundreds of private currencies launched, and the currency / money has also been entirely outsourced. Again – like they state they are only as legitimate as their historical tenure allows – the East India Company had their own which lasted years – until it did not.

    There is a vast gulf of difference between a medium of exchange and a currency. Bitcoin is a form of “fine art” – a way of moving billions across borders – that is where its power lies.

    No art is actually worth $30, $60, $150 Million for a canvas – but as a medium of exchange its priceless. Same with Bitcoin – it is not going anywhere.

  13. If i had listened to macrobusiness I would literally be $5 million plus poorer. You guys are so dogmatic and by the time you open your minds, I will probably be retired with over $50 million.

  14. I think bitcoin is too big to fail now – it will not be legal tender as it does not have men with guns to enforce this but it is a store of wealth like gold, or realestate – the state is happy with this because they can raise capital gains tax.

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