Crypto Crackdown: Bitcoin is a “Combination of Bubble, Ponzi Scheme, Environmental Disaster”

“If authorities do not act preemptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability.”

The official crackdown on the entire cryptocurrency space got a new and broader framework from Agustín Carstens, General Manager of the Bank for International Settlements (BIS) and former governor of the Bank of Mexico. In a lecture in Frankfurt on Tuesday, he let fly some real zingers interspersed with indications of what is to come. He clarified the main concern – that the crypto ecosystem, as it “piggybacks” on the financial system, transfers its risks to the financial system.

Here are some excerpts from his lecture that I think are very insightful views of how bank regulators will be looking at the crypto ecosystm.

He said, “We are seeing the type of cracks and cheating that brought down other private currencies starting to appear in the House of Bitcoin”:

Debasement.

“In Bitcoin, these take the form of forks, a type of spin-off in which developers clone Bitcoin’s software, release it with a new name and a new coin, after possibly adding a few new features or tinkering with the algorithms’ parameters. Often, the objective is to capitalize on the public’s familiarity with Bitcoin to make some serious money, at least virtually.”

“Last year alone, 19 Bitcoin forks came out, including Bitcoin Cash, Bitcoin Gold and Bitcoin Diamond. Forks can fork again, and many more could happen. After all, it just takes a bunch of smart programmers and a catchy name.”

These multiplying cryptos “dilute the value of existing ones, to the extent such cryptocurrencies have any economic value at all,” he said. There are now over 1,500 cryptocurrencies, up from just a handful several years ago.

“Even if the supply of one type of cryptocurrency is limited, the mushrooming of so many of them means that the total supply of all forms of cryptocurrency is unlimited. Given the experience with currency debasement that has peppered history, the proliferation of such private monies should give everyone pause for thought.”

Trust.

“Historical experiences suggest that these “assets” are probably not sustainable as money. Cryptocurrencies are not the liability of any individual or institution, or backed by any authority. Governance weaknesses, such as the concentration of their ownership, could make them even less trustworthy.”

“Indeed, to use them often means resorting to an intermediary (for example, exchanges) to which one has to trust one’s money.”

“More generally, they piggyback on the same institutional infrastructure that serves the overall financial system and on the trust that it provides. This reflects their challenge to establish their own trust in the face of cyber-attacks, loss of customers’ funds, limits on transferring funds and inadequate market integrity.”

Inefficiency.

“While perhaps intended as an alternative payment system with no government involvement, [Bitcoin] has become a combination of a bubble, a Ponzi scheme and an environmental disaster.”

“The volatility of bitcoin renders it a poor means of payment and a crazy way to store value. Very few people use it for payments or as a unit of account. In fact, at a major cryptocurrency conference the registration fee could not be paid with bitcoins because it was too costly and slow: only conventional money was accepted.

“To the extent they are used, bitcoins and their cousins seem more attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions. In a way, this should not be surprising, since individuals who massively evade taxes or launder money are the ones who are willing to live with cryptocurrencies’ extreme price volatility.”

“Strong case for policy intervention”

“In practice, central bank experiments show that [distributed leger technology] based systems are very expensive to run and slower and much less efficient to operate than conventional payment and settlement systems. The electricity used in the process of mining bitcoins is staggering… making them socially wasteful and environmentally bad.”

“Therefore, the current fascination with these cryptocurrencies seems to have more to do with a speculative mania than any use as a form of electronic payment, except for illegal activities. Accordingly, authorities are edging closer and closer to clamping down to contain the risks related to cryptocurrencies.”

“There is a strong case for policy intervention. As now noted by many securities markets and regulatory and supervisory agencies, these assets can raise concerns related to consumer and investor protection. Appropriate authorities have a duty to educate and protect investors and consumers, and need to be prepared to act.”

“Moreover, there are concerns related to tax evasion, money laundering and criminal finance. Authorities should welcome innovation. But they have a duty to make sure technological advances are not used to legitimize profits from illegal activities.”

“Central banks, acting by themselves and/or in coordination with other financial authorities like bank regulators and supervisors, ministries of finance, tax agencies and financial intelligence units, may also need to act, given their roles in providing money services and safeguarding money’s real value.”

“Working with commercial banks, authorities have a part to play in policing the digital frontier. Commercial banks are on the front line since they are the ones settling trades, providing real liquidity, keeping exchanges going and interacting with customers. It is alarming that some banks have advertised “bitcoin ATMs” where you can buy and sell bitcoins. Authorities need to ensure commercial banks do not facilitate unscrupulous behaviors.”

“Financial authorities may also have a case to intervene to ensure financial stability. To date, many judge that, given cryptocurrencies’ small size and limited interconnectedness, concerns about them do not rise to a systemic level. But if authorities do not act preemptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability.”

“Thus, central banks must be prepared to intervene if needed. After all, cryptocurrencies piggyback on the institutional infrastructure that serves the wider financial system, gaining a semblance of legitimacy from their links to it. This clearly falls under central banks’ area of responsibility. The buck stops here.”

“In particular, central banks and financial authorities should pay special attention to two aspects. First, to the ties linking cryptocurrencies to real currencies, to ensure that the relationship is not parasitic. And second, to the level playing field principle. This means ‘same risk, same regulation.’ And no exceptions allowed.”

Alas, cryptocurrencies have already crashed. But this is not like the dotcom crash – though it’s even more brutal. Read… Largest Cryptocurrencies Plunge 50%-80%, $372 Bn Gone in 1 Month. Will it Hit the US Economy?

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  93 comments for “Crypto Crackdown: Bitcoin is a “Combination of Bubble, Ponzi Scheme, Environmental Disaster”

  1. Night-Train
    Feb 7, 2018 at 12:35 am

    “Authorities need to ensure commercial banks do not facilitate unscrupulous behaviors.”

    Since the commercial banking system has such a credible record of being reliably good actors, all is well. No way they would get caught up in something unsavory as money laundering.

    • Thomas
      Feb 7, 2018 at 2:22 am

      Just saw the HSBC episode of Dirty Money on netflix. It is really shocking that they can get off with a fine when laws were clearly broken with intent.

      Also, google adwords detect the crypto theme and come up with “they’re young, they’re rich, they are Bitcoin millionaires!”. Complementing the article perfectly.

      Would be even more fun if my perpetually cash-strapped sister hadn’t followed her boyfriend into this crypto-mania.

      • Ethan in Northern VA
        Feb 7, 2018 at 9:49 am

        Was just thinking about that episode. A very good documentary series from Netflix that I found a few days after some folks on here were bashing Netflix as not producing good content :-)

        • mean chicken
          Feb 7, 2018 at 12:45 pm

          Microsoft has been bashed here as well, this site is quite informed on the fine details.

          And SNAP is beating the odds today, who’da thunk it?

    • Kent
      Feb 7, 2018 at 11:32 am

      Anything bankers do is by definition scrupulous.

    • Maximus Minimus
      Feb 7, 2018 at 12:58 pm

      I cracked up when he claimed cryptos are not a reliable store of value (they are not). In fact, I thought, he was talking about central banking that he is supposed to oversee. With this much delusional thinking, how is it going to end?

      • Tom
        Feb 7, 2018 at 4:18 pm

        In the four seasons of life:My gauge shows bitcoin in the waning hours of late,late summer.

        • Night-Train
          Feb 7, 2018 at 6:44 pm

          Now that’s funny.

    • KMOUT
      Feb 8, 2018 at 12:46 pm

      Read RBS article above.

  2. farmlad
    Feb 7, 2018 at 1:17 am

    bitcoin has crashed; Give me a break. At $7,400 it is still up 700% from a year ago. Once it goes under $1000 I would agree that it crashed.

    How many bitcoin forks so far this year? 0

    • Feb 7, 2018 at 8:32 am

      Bitcoin is down 57% from its peak, after a big bounce. It was down something like 70% a couple of days ago. So that’s not a crash? Just a dip?

      • stitch
        Feb 7, 2018 at 9:53 am

        Biggest BTD moment in human financial history.
        The true issue is counteryparty risk: the global accounting
        scam-war is coming to a head.
        Even gold rehypothecated to infinity out of the London gold pools seems to have hundreds of claim of ownership for each one in
        existence. Historical safe havens are corrupted and distorted.

        LIBOR choking (ie biggest banks STOPPED trusting each other)
        seems to be the precipitating event of the last crash.

        When the tide goes out this time, and IOU after IOU comes up zero, as swap and CDS and the QUADrillions in dark pool debt-money implode in cascading trigger events, as the paper value debt system unfolds, the true value of the blockchain will be revealed.
        This isnt fiction: its how all systems operate in nature.
        The more consolidated the power modes, the weaker the system: the closer to collapse.

        Has anything in global macro changed at all?
        Oh! I saw John Corzine has a new fund….[sarc off]

        BTW: GREAT site!
        Thanks for all the great thinking!

  3. Mike
    Feb 7, 2018 at 2:15 am

    Bankster gameplan is to make buying crypto with fiat illegal. Basis will be mix of claimed illegal purposes and to save the world environment.

    • Frederick
      Feb 7, 2018 at 9:23 am

      Will you still be able to buy Crypto with silver? And visa versa?

  4. MC01
    Feb 7, 2018 at 3:01 am

    Coming from a present BIS manager and a former Banxico governor it sounds deeply ironic: Mexican financial legislation has long been extremely restrictive on paper (to stop money laundering, to stem corruption, to fight tax evasion… whatever the latest PR spin is) while in reality being one of the most conductive worldwide to rampant speculation and “out in the open” corruption.

    It also betrays one troubling aspect of the modern financial/corporate/political mentality: deeply ingrained lack of accountability.
    Calling central banks to action means one and one thing only: have them put a safety net under yet another financial asset under the guise of “stability” and “protecting investors”.
    Señor Carstens is beyond doubt an extremely intelligent man with enormous experience in financial matters, so he must know very well any activity comes with some measure of risk. Removing that risk means encouraging and even incentivating those same irrational financial behaviors the Bank for International Settlements (Señor Carstens’ employer) has been warning about for the past three years.
    Let people speculate in Bitcoins (hey, there’s an add for a “Bitcoin Trading App” on the side of my screen! :-) ) as much as they want and let them take the enormous profits but also the huge risks. That’s what the bankers in Augsburg and Florence and the traders in Amsterdam and Venice did. The world didn’t end when the Függer bank went bankrupt or Negroponte was lost.

  5. alex in san jose AKA digital Detroit
    Feb 7, 2018 at 4:53 am

    I don’t trust or believe in money I can’t hold in my hand. I can go to my bank and ask them for “my money” and I guess it’s really bits, but they’ll hand me “my money” in bills, or hell, in dollars or 50c pieces if I ask them. My computer can get stolen or crash and my money doesn’t disappear.

    I believe I somehow own 1/10th of a bitcoin, as this amount was given to me, but nothing came in the mail, no stranger came up to me in the street and handed me a 1/10 bitcoin piece, nothing.

    It’s like tulips. I guess they’re real. but they’re nowhere worth the extreme money they were “worth” during the tulip mania.

    • Nobody You Know
      Feb 8, 2018 at 8:55 am

      The word document on your computer is real, right? Yes it is.

      What would that document’s value change based on the information contained and the level of encryption preventing easy copying? Yes it would.

      A crypto currency is an encrypted, distributed document that cannot be copied, whose ownership cannot be transfered without authorization. And depending on it’s code for the specific cryptocurrency, cannot be inflated, ever.

      Now what do you suppose something like that is worth in the long run, as it finds greater use cases in the economy?

      • John
        Feb 8, 2018 at 9:42 am

        Well, that’s just it, there’s no way to know either way. It could be worthless practically or it could be worth a lot but if you think about it, the technology itself can be duplicated over and over so one company does not have a monopoly on how to make a contract of any kind. Sure, there may be a bitcoin contract, there may be a did you buy contract there may be A neo contract, however, it doesn’t really matter in the end or soon because there is going to be so many fax machines and then the concept of a fax is going to be free. So, is that really long term money or is it just high supplied amountsof the same type of technology doing the exact same purpose?

  6. Gabor
    Feb 7, 2018 at 5:16 am

    Love the blog, but I feel this article is quite one-sided. I admit “cryptos” have many drawbacks and challenges but this is entirely negative view.

    • Michael Fiorillo
      Feb 7, 2018 at 9:15 am

      None of the hype about Bitcoin (using that as a proxy for Cryptos in general) has turned out to be true.

      We were told it would be a desirable medium of exchange; it’s not.

      We were told it’s a store of value; it’s not.

      We were told it’s anonymous; it’s not.

      We were told transactions would be all but free and instantaneous; they’re not

      In addition, it’s a thermodynamic/environmental nightmare.

      Now, where’s that positive view Wolf has neglected?

      • Ethan in Northern VA
        Feb 7, 2018 at 9:52 am

        Not that I’m pro-crypto but what is ecological/energy damage form Bitcoin versus mining gold? Real gold mining does damage as well.

        • Michael Fiorillo
          Feb 7, 2018 at 11:42 am

          I never mentioned gold, but yes, mining is environmentally destructive; it also produces commodities essential to life as we know it.

          On the other hand, consider Bitcoin: it uses immense and ever-increasing amounts of energy to solve totally useless computations, which are then decreed to represent “work” and/or “value” for strings of ones and zeroes that are neither a medium of exchange, a unit of account, nor a store of value.

          And to think that Crypto touts are usually the same characters ranting about the worthlessness of fiat money…

        • JZ
          Feb 7, 2018 at 11:54 am

          Michael, what’s the cost of human trust and confidence? In order to earn trust from your frat boys, you have to complete missions that cost you energy. Useless missions? True. Without them, you are NOT in the frat. Trust, confidence is EXPENSIVE and energy consuming. You can NOT easily get around that. If anything costs nothing, there is generally NO trust on it as well.
          I am NOT a BTC holdler, trader. I have my trust issues with BTC even after it consumes that much energy. I do like it from the principle of adding competition to the currency universe. Competition usually forces improvement.

        • Maximus Minimus
          Feb 7, 2018 at 1:38 pm

          Gold has its industrial and social use, but the main purpose is to put a limit on money supply, and thus destabilizing irrational bubbles. Gold production increases the supply slowly, but steadily as gold does not decay and noone throws it away. Absent gold standard, there is no measure by which to crimp credit creation when it gets out of whack, other than bogus consumer inflation.
          Bubbles can develop even with the gold standard e.g. tulips served as a means of exchange, but when such bubbles collapse, there needs to be a backup.
          Currently, there is central banking fiat competing with cryptos.

        • Michael Fiorillo
          Feb 7, 2018 at 2:28 pm

          With Bitcoin and the blockchain, math was supposed to replace trust. Based on the news reports – stolen/hacked bitcoins and exchanges, different prices on different exchanges, aka poor price discovery – I’d say that for all the energy expended on it, trust and confidence in Bitcoin are in short and decreasing supply.

          As for the Frat Boys, the last thing I want is their trust. What I do want is an end to their grossly disproportionate power over those of us excluded from the Fraternity.

          But that takes us to politics, a subject for another time.

        • just_axing
          Feb 7, 2018 at 5:12 pm

          I think JZ is on to something – consensus algorithms that allow for distributed ledgers/banking require computational power but you theoretically GAIN trust. Current banking systems are much more centralized and opaque but still require lots of resources – computers, atms, big bank buildings, etc. I think the mining aspect of crypto may not be the best way to incentivize participation but I dont know of anyone with a better solution out there (havent looked too deeply to be honest).

        • alex in san jose AKA digital Detroit
          Feb 7, 2018 at 6:50 pm

          Ethan – But I can go up to the American River in Sacramento with a pick and pan and mine gold. Not a lot of environmental damage there. Gold kind of comes out as a natural process. Gold has been mined historically with not too much environmental damage. It’s pulled out of the ground by small-timers all the time.

          What’s caused damage is some of the modern methods, using mercury to extract it, and the hydraulic mining of the past.

        • Maximus Minimus
          Feb 7, 2018 at 9:05 pm

          Alex,

          Gold extraction isn’t done by mercury, but diluted cyanide in insulated ponds (which could leak), which is not to say it is environmentally friendly.
          And even so called gentle extraction, which is done with machinery using quite a bit of fuel, and destruction of river beds, isn’t so gentle.
          However, emulate the effort with cryptos is just plain stupid.

      • Chris
        Feb 11, 2018 at 5:33 pm

        hmm… Lets see… Microsoft Windows has value, Linux and Mac OSX have value, Android and iOS have value…. I can’t touch or hold any of the above pieces of software technology, but you better believe that it’s AS EVERY BIT valuable as one can imagine. In fact, this WHOLE blog would be impossible without such technologies. The nay-sayers about crypto are going to @!$% a brick in the future when they realize that crypto IS the solution to the banks and government corruption. It’s the answer to to endless control and manipulation to average joe guy! And when most people here catch a clue that sending value in the form of crypto IS VALUABLE, then most here would already have realized that they missed the boat on a massive technological advancement, this time concerning money! No different then those who mocked the internet back in the 90’s. Hey, they didn’t know what they were looking at.

        The storage problem with crypto will be solved. The Bitcoin volatility problem will solve itself as it’s value drastically increases.

        My only concern, is that Govt introduces it’s OWN crypto…. then it’s game over for privacy!

        And news flash, US Dollars are the preferred choice of money laundering in the WORLD…. Wish the author would have mentioned that!

    • Javert Chip
      Feb 7, 2018 at 6:07 pm

      Gabor

      You knew Bitcoin et al. were created out of thin air (or less), and now you think pointing that out is “[an] entirely negative view”?

    • John
      Feb 7, 2018 at 8:29 pm

      Grow up a little. Do you really think that the powers that be that pressed down the dollar value of gold and silver, would not be able to do the same with crypto digital currency or tokens?

      That is the message that the maniacs in this market don’t seem to get very well. They think their technology matters over the powers and I mean the powers that be.

      If they’re not in on it they will control it if they’re in on it they will exploit it and you could then get lucky?

      and who knows, they may actually control everything in crypto land but the cheerleaders have lied from day one about everything you can do and what it is and how it’s so different.

      It’s Technology with a bunch of cheerleaders continually in your face giving you hyperbolic medicine to constantly be looking at it and wanting to spend more money to get rich quick without thinking about any reality.

      Doesn’t that seem like a recipe for failure?

  7. Top-GUN
    Feb 7, 2018 at 6:26 am

    That’s a good line “Authorities need to ensure commercial banks do not facilitate unscrupulous behavior.”
    If memory serves Wolf had an article about the Royal Bank of Scotland yesterday and some of their unscrupulous behavior and forging thousands of signatures..
    https://wolfstreet.com/2018/02/06/bailed-out-rbs-systemically-forged-customer-signatures-whistle-blowers/

    • walter map
      Feb 7, 2018 at 8:43 am

      “Authorities need to ensure commercial banks do not facilitate unscrupulous behavior.”

      Within limits, I’m sure.

      Even unscrupulous behavior needs certain boundaries. Otherwise somebody will end up burning down civilization and ruling over the ashes. And you know how those guys are.

  8. Enrique
    Feb 7, 2018 at 6:28 am

    Hi, I’m Mr. Government, and I want to regulate/co-opt your “currency”:

    1) For the “protection” of our citizens (presumably from themselves)
    2) To fight corruption (pot/kettle black, but still)
    3) To fight the drug trade
    4) To ensure confidence in our own fiat currency
    5) Because of the environmental aspect (gets a huge constituency on board right there)
    6) because I want to set up my own, “safer” version (call it E-Coin, perhaps)
    7) To guard against “meddling” from pesky Russians in our “democracy” (because “Russians”)
    8) Because Facebook/google/etc etc etc work hand in glove with me in most things and without an internet there is no game at all for your game (thus, critically, I very easily CAN regulate you)
    9) Because all the stakeholders in the current power structure are in this basket and all you crypto-stackers are in that basket
    10) Because I’m evil as all hell and want to control access to wealth.
    11) How the %$#@ am I supposed to TAX your crypto? E-coin, OTOH…

    Could probably add 20 more reasons without getting too redundant here. Dead scam walking, at least in this form. Let me know when E-coin gets rolled out and I’ll have a look……

  9. RD Blakeslee
    Feb 7, 2018 at 7:26 am

    “In particular, central banks and financial authorities should pay special attention to two aspects. First, to the ties linking cryptocurrencies to real currencies, …”

    “Real currencies” really aren’t.

    https://blogs.cfainstitute.org/investor/2013/03/13/president-nixon-the-man-who-sold-the-world-fiat-money/

    People who live in glass houses (etc.) ….

    The cryptos are merely the latest (and in some ways the worst) fiat money.

    • Frederick
      Feb 7, 2018 at 7:33 am

      The ONLY “real” money is Gold PERIOD

      • walter map
        Feb 7, 2018 at 9:03 am

        Gold doesn’t work for racketeering. It simply isn’t amenable to profitable financial machinations. For that you really need to get into quatloos.

      • Kent
        Feb 7, 2018 at 11:48 am

        Gold is the only money you can’t actually buy anything with.

        • Frederick
          Feb 7, 2018 at 1:33 pm

          Not true Donald Trump sold an apartment in Trump Tower for gold once If the seller agrees you could buy in scallop shells

        • Dan
          Feb 11, 2018 at 4:18 pm

          Xau.to goldmoney … P.S. more and more cryto are being backed by gold, can you imagine a currency backed by gold?

  10. Kathleen Smith
    Feb 7, 2018 at 7:49 am

    Wrong — can’t dilute bitcoin — fork has some software of original bitcoin but is brand new coin. If you own bitcoin and it forks you still have your original bitcoin and you now get the new bitcoin made from the fork. In addition there is enough information out there about bitcoin and Satoshi that people who are interested will quickly learn the difference between what Bitcoin is and represents and what all this spin off are.

    • Nat
      Feb 7, 2018 at 2:08 pm

      While his concern may (or may not) be wrong and unfounded you don’t seem to understand what he is saying. What he is claiming is that cryptocurrencies are increasingly flowing and exchanging in aggregate as if they were one single giant currency. If this process continues and they reach a point where they function more or less like one single currency, then it doesn’t matter that all the forks and other currencies represent separate and unique coins, they have all economically effectively become a single giant crypto coin entity and are being rapidly debased with every fork, and even every non-fork ICO.

      Again, maybe his is 100% wrong, but he is saying something very different then what you are addressing. Any counter argument would have to be along the lines that cryptocurrencies are not effectively economically merging into a single entity. That may be true, but if he is right and it is not true then it really doesn’t matter the details on how the forks and ICOs work the net-crypto conglomerate entity will be debased and collapse.

    • ru82
      Feb 7, 2018 at 8:21 pm

      “In addition there is enough information out there about bitcoin and Satoshi that people who are interested will quickly learn the difference between what Bitcoin is and represents and what all this spin off are.”

      Not making fun of your comment and what you say is true for some people which I believe will be the minority of Bitcoin owners. I know some 20 year old adults and if the Kardasian are not part of it news….they will have no clue about what Bitcoin represents or the differences.

  11. Bill
    Feb 7, 2018 at 7:59 am

    CFTC Chairman Christopher Giancarlo testified before a Senate banking committee yesterday that “We owe it to this new generation to respect their enthusiasm for virtual currencies, with a thoughtful and balanced response, and not a dismissive one.” Many appear to believe that there are abuses surrounding investments in this very powerful emerging technology and that some regulation would be a good thing. But many also believe that the crypto technology emerged in part as a response to the horrendous abuses in the supposedly so well regulated traditional financial markets that continue unfairly to damage the lives of so many worldwide.

  12. Silly Me
    Feb 7, 2018 at 8:01 am

    Cryptos, if manipulated by those who can create money (and as such, have access to virtually unlimited resources ), seem to serve as a good tool to make some of that money disappear in order to prevent total systemic collapse.

  13. Silly Me
    Feb 7, 2018 at 8:02 am

    Expect a lot of fluctuations. :)

  14. walter map
    Feb 7, 2018 at 8:40 am

    Cryptocurrencies = prosecution futures.

    Never underestimate the depths people will go to in order to get what they want, from petty cheats to elaborate institutionalised scams to categories of bondage to genocide for profit.

    Macroeconomic and financial theory will always be mistaken until it recognizes and treats modern economies for what they are, collections of rackets that know no morals, no decency, and no mercy. An accurate textbook would organize the machinations of avarice into a cogent conceptual framework.

    In the grand scheme of things, Bitcoin wannabes aren’t the worst rackets you’ve seen, and they can’t really compete with the established rackets anyway, at least not yet. In time AI technologies will eventually be able to overcome the inefficiencies and limitations of mere humans and usher in an era of surpassing rapacity.

    They’re working on it. The race is on to see who will get there first.

    • Setarcos
      Feb 7, 2018 at 9:59 am

      AI is like any tool, it can create or destroy. Markets, to the extent that they are free, are based in trust. Trust is the only truly effective check on greed, i.e. people will not trade with you very long if you are corrupt …unless they are forced. That force, whether a law or a gun, is rooted in something much worst that greed. Make markets free again.

      • walter map
        Feb 7, 2018 at 2:50 pm

        “people will not trade with you very long if you are corrupt”

        You’re kidding, right? How many millions of victims of the TBTF banks have come back for more? Hint: millions.

        • Michael Fiorillo
          Feb 7, 2018 at 4:41 pm

          No, the check on greed is a comparatively equal balance of power among the parties involved, whether among individuals, groups, institutions or nations. That power can be based on access to information, the use of state institutions and/or brute force, or all of them.

          Trust among concerned individuals can be a lubricant and emollient, but the underlying dynamics are based on power.

        • Michael Fiorillo
          Feb 7, 2018 at 4:43 pm

          Whoops, the above directed at Setarcos, not walter map.

        • Setarcos
          Feb 7, 2018 at 6:17 pm

          Read what I wrote more carefully. And consider what led to the TBTF banks in the first place.

      • Michael Fiorillo
        Feb 7, 2018 at 8:07 pm

        I read it carefully the first time, and the tell was your final statement: “Make the markets free again.”

        Spoken like a true free market fundamentalist, with the naive (or disingenuous, depending on who’s speaking) assumption that market relations can ever be separated from power relations.

        That’s why back in the day, and still among heterodox economic thinkers, it was called Political Economy. It’s past time to bring the term back into common use.

        • Setarcos
          Feb 8, 2018 at 10:43 am

          Michael, totally agree with you regarding a balance of power. Notice that I used the word “force” in my comment, i.e. unequal power, via a law or a gun. I also think we might agree that trust is a long term counterbalance to greed, not a quick fix. Scoundrels always lose, but sometimes it takes a while. A law or gun is much faster counterbalance, but a price is also paid for the expedience. And assuming you like checks on greed that don’t involve guns, you are actually placing trust in those who make laws as the counterbalance. Now who is being naive?

        • Setarcos
          Feb 8, 2018 at 10:55 am

          Also, “make markets free” is my suggestion. (My alternative suggestion is a benevolent dictator.) Many nowadays prefer to place their trust in those who make laws as the best counterbalance to greed.

          When those who make the laws overcome the same flaws of human nature that you see in the capitalists, I will be the first to agree with you.

    • B--
      Feb 7, 2018 at 10:19 am

      AI will always be subjected to, and reflective of, the myriad flaws, fallacies, psychoses and associated mental illnesses extant in the minds of its programmers. As such, AI is dangerous pipedream.

      • Michael Fiorillo
        Feb 7, 2018 at 8:16 pm

        Cathy O’Neill, a mathematician and data scientist who writes the excellent “Mathbabe” blog, has correctly said that algorithms are opinions (and by implication, interests) embedded in code.

        That’s what makes AI so terrifying, that those opinions and interests will become irresistible and beyond the impact of ordinary people, since, as Lawrence Lessig has said, “Code Is Law.”

    • Tom T
      Feb 7, 2018 at 2:37 pm

      Mr. Map, Sir,

      Your comment, like a dart, propelled by obvious intellect through an uncertain atmosphere, centers the bulls-eye. Cogent, concise, predictive, insight. Thank you, Sir.

      And thank you Wolf, for your efforts in providing this venue. Extremely valuable.

      • walter map
        Feb 7, 2018 at 2:46 pm

        You’re welcome.

  15. Mike R.
    Feb 7, 2018 at 8:53 am

    For all the reasons listed in the article AND because sovereigns will not allow another form of money to gain traction (think gold), cryptos are a lost cause.

    Exciting, interesting, but a lost cause.

  16. Setarcos
    Feb 7, 2018 at 8:56 am

    If Bitcoin is a good thing, it will be killed. If it is a bad thing, it will be co-opted.

    • Javert Chip
      Feb 7, 2018 at 6:13 pm

      Setarcos

      Option #3: collected like pet rocks.

  17. raxadian
    Feb 7, 2018 at 9:02 am

    At the very least Monero should be banned since is the one all those “literally killing your phone’ malware uses.

  18. Prairies
    Feb 7, 2018 at 9:50 am

    Crypto news was so bat shit crazy yesterday. I saw this article, makes sense to hear someone see a bubble burst and point at it and say “look a bubble.” After the bubble bursts, where were these guys last year?

    I also saw 2 other reports, yin and yang – Van-Peterson predicting Bitcoin bouncing back to $100,000 a coin (wtf) and Nouriel Roubini — whoever he is, saying the value will plummet to 0.

    I am going to go find a tulip, at least I can feel a tulip.

    • Frederick
      Feb 7, 2018 at 11:30 am

      Nouriel Roubini is an Iranian born doomsday practitioner I thought everyone knew who he is

    • ru82
      Feb 7, 2018 at 8:13 pm

      It has been an interesting side show….

  19. Paulo
    Feb 7, 2018 at 10:54 am

    I read this article and as the arguments unfolded I substituted the word, ‘Cash’ for Bitcoin. I can see the same arguments being used for total control of us aphid milk-cow taxpayers. Mind you, I don’t own any Bitcoin and never will.

    Somewhat ironic I don’t trust/like digital currency as I post this comment and do banking online. :-). I still like cash, though. I remember my father-in-law telling me 40 years ago, “Get that mortgage paid off and you won’t believe how much money you have. You’ll always have $100 in your wallet”. This was in 1974. He was right and cash is right. Bitcoin is…________.

  20. Edward
    Feb 7, 2018 at 11:17 am

    underlying is some fantastic tech advancements that do not consume the kind of cpu power usage bitcoin and some others require. I recommend the Hidden Forces Podcast so you can educate yourself.

  21. Tom Kauser
    Feb 7, 2018 at 11:31 am

    Can’t eat it or ……….. What use is it!

  22. clarkster1
    Feb 7, 2018 at 11:41 am

    hey i got some monopoly money to throw in the pot

  23. Feb 7, 2018 at 11:43 am

    This isn’t digital money we already have that, about 80% of all money is digital. This is digital barter, barter is slower and more volatile but it works while the pricing mechanisms have been broken by central bank policies (dollar hegemony). China tells its people they can’t invest the money they make in America – capital controls – US corporations made a lot of money (see NYSE, see NYSE go up!) on cheap labor in China. Americans want those jobs back, okay, you get those jobs back at Chinese wages. We are in a deflationary trend where money simply disappears. See the Great Depression. Bitcoin is the barter we must resort to, to work around one form or prohibition or another. and the monetary tariff taxes which governments are running. We defend a woman’s right to earn equal pay, but nothing about equal pay for foreign labor of any gender.

  24. lenert
    Feb 7, 2018 at 12:50 pm

    The engraving on antique state bank notes and private scrip is quite lovely.

  25. stan
    Feb 7, 2018 at 1:17 pm

    “I don’t trust or believe in money I can’t hold in my hand”

    Right on alex in san jose . Money is something real in space and time that can be presented as payment. It is a symbol of the promise.

    All these people using their smart phones and debit cards for payment may be surprised one day when it doesn’t work. And they have nothing physical to prove they have the money, because the money is not physical and is only an accounting system controlled by the central bank. And who controls the accounting system? Not me. Not you.

    As a kid, the first rule of playing monopoly was the banker must do all transactions in full view of all players. No secret banking. Amazing that we allow secret banking in the real world, when we wouldn’t trust our friends in a board game with fake money.

    Great discussion here.

    • Michael Fiorillo
      Feb 7, 2018 at 2:34 pm

      Indeed, while it’s gonna hurt, I look forward to the bewilderment and panic of digital utopians when The Revenge Of The Physical World takes place…

      • Brian M
        Feb 7, 2018 at 8:55 pm

        Physical money is not real, either. It represents promises as much as digital. Ask Venezuelans how much their Bolivar notes are worth.

        Even gold, which is the fallback “money” is still based on a (admittedly long standing) symbolic value. Does it have any intrinsic use or value?

  26. Jason
    Feb 7, 2018 at 2:32 pm

    It’s interesting how the article states that financial authorities need to act to ‘safe guard money’s real value’…..really. That’s what they do?

  27. Feb 7, 2018 at 2:46 pm

    however it is presented, money can only be a unit of energy exchange

    You pay me to wash your car, I expend energy in doing so

    I take your money and use it to buy food—and so on’ money is passed hand to hand in an endless energy exchange.

    of itself, money has no intrinsic value, therefore bitcoin can have no actual value. It is worth only what current mania says it’s worth, which has no bearing on reality.

    Unfortunately the vast majority see money as having a self contained value. It hasn’t, but when bitcoin pops like the bubble it is. millions are going to demand the return of cash that never was
    This explains it more fully:
    https://extranewsfeed.com/bitcoin-24b3efd58ec

    • Javert Chip
      Feb 7, 2018 at 8:35 pm

      Well, unless you’re buying someone’s land.

    • Brian M
      Feb 7, 2018 at 9:06 pm

      oops. I should have read down thread, Norman. You say more eloquently and completely what I said. I don’t understand the…fetish??? …
      for “physical money”. It’s all symbolic of underlying reality.

  28. MASTER OF UNIVERSE
    Feb 7, 2018 at 3:10 pm

    The Bank For International Settlements, and Wolfstreet, completely neglects to inform the reader that Cryptocurrencies are not dissimilar to the Dark Pool Derivatives Universe which is systemically risky in and of itself, has also been characterized as ‘Financial weapons of mass destruction’ by the Oracle of Omaha, and characterized as ‘dark’, and lacking in regulatory oversight by Dr. Brooksley Born when she warned a Congressional Committee that the ‘money of the American people was at risk’ due to the ministrations of the very same Central Planners that the Bank for International Settlements, & Wolfstreet, are now defending as the only capable arbiters of Commercial Finance in a cybernetically dependent world that is wholly reliant upon innovation in the Finance Industry due to ROI thermodynamic diminishing returns.

    Wolf & the BIS wonk are disingenuous at best IMO.

    Cryptocurrency is most assuredly here to stay no matter how long the Central Banking Oligopolists want to monkey hammer it to death.

    MOU

    • Rates
      Feb 7, 2018 at 3:22 pm

      I am pretty sure Wolf is against derivatives as well. Leaving that aside, I can assure you, derivatives or no derivatives, crypto or no crypto, the money of American people will NEVER be at risk, because …. it’s already gone. American greed took care of that decades ago. We are running deficits beyond what’s necessary i.e. we have no money.

      Having money? What a quaint idea.

      • MASTER OF UNIVERSE
        Feb 7, 2018 at 3:34 pm

        I was raised by a Chartered Accountant, and he used to say the same thing about money because he barely had any either, Rates.

        I fully appreciate your sentiment, and agree wholeheartedly.

        MOU

    • Feb 7, 2018 at 8:00 pm

      MOU,

      Just for the fun of it, here’s one on my pieces on derivatives, titled:

      “$500 Trillion in Derivatives ‘Remain an Important Asset Class’: Hilariously, the New York Fed.”

      With this subtitle:

      “Oh, and the unintended consequences of trying to regulate a monster.”

      https://wolfstreet.com/2017/05/13/500-trillion-derivatives-important-asset-class-new-york-fed/

      But you know, each article is limited to one topic to keep it trim and readable.

      • MASTER OF UNIVERSE
        Feb 8, 2018 at 12:22 pm

        I read the article on derivatives, and it’s a good article on the derivatives conundrum to be sure, but why can’t we view Crypto forking and the distributed network in the same light as Collateralized Debt Obligations Squared? Synthetic CDOs are a forked bet not unlike a Crypto fork bet. The Synthetic CDOs are essentially mark-to-model bets whereby the hypothesized ‘model’ is tenuous at best with respect to counterparty wash trades and expectations of payouts proposed on the long bets. In brief, both Crypto & Derivatives bets are hypothesized based on perceived expectations of Alpha bets that are built on shifting substrates. When the substrates shift the CDO Squared Synthetic bets turn to Beta bets instead of Alpha bets, and expectations turn to be no better qualitatively, or quantitatively, than hypothesized Crypto fork bets.

        Risk travels to those that are least able to understand it, and that’s why distributed ledger Blockchain Tech & ICOs have manifested out of the current finance milieu that is not so sure how to extricate the world from the systemic risk buildup in the Dark Pool Derivatives Universe that Buffett & Born warned all of us about way back when.

        Methinks the banks will sweep risk under any public carpet they can find under the sun. The Derivatives Universe is deflating, and distributed blockchain tech is taking up the lag & slack on the irrationality, exuberance, and animal spirits, that central banking has systematically neglected to maintain.

        If we adopted a Venn Diagram to highlight risk across the system we would find that risk is traveling towards irrational betting spaces, and the risk direction is distributed to the most irrational Greater Fools that are confounded by risk prone animal spirits.

        Experienced managers of money make safe bets and foist risk off onto those that are least able to understand it by constantly searching for Greater Fools.

        We understand risk because all of us analyse it every single day by reading blogs like this one. We share our understanding of risk every day. We are careful with risk because all of us know what a small mistake can cost. The masses that don’t understand risk like Dr. Brooksley Born are dependent upon regulatory oversight that has been missing from Wall Street since Greenspan’s interventionist ‘put’ was instituted, and the regulatory framework of Glass-Steagall was deinstitutionalized with Gramm-Leach Bliley Act, and then Dodd-Frank.

        Regulating monsters is a regulator’s job.

        MOU

  29. Patrick
    Feb 7, 2018 at 4:23 pm

    I’ve put my top altcoins in offline storage until the day that Japan eventually enters hyperinflation and her citizens can’t exit the Yen fast enough. It will be then that that T.I.N.A. begins to apply to crypto as well.

  30. Night-Train
    Feb 7, 2018 at 7:06 pm

    BTW, I have a stash of magic beans that I will trade for any of that old fiat money that anyone wants to rid themselves of.

  31. Christoph Weise
    Feb 8, 2018 at 8:59 am

    Unfortunately this guy from the BIS, an organization with disputable reputation, has a point: The credibility and validity of bitcoin has been already corrupted by forking. A better choice are cryptos which are designed to never do that.

  32. Kenny Logoffs
    Feb 8, 2018 at 2:37 pm

    I don’t get it.

    The ‘price’ of BTC is irrelevant for now.

    While you buy in with fiat and simultaneously spend, there is little risk.
    Or even if you buy say £100 worth to use over a few months on random stuff, chances are you’re not gonna go broke or lose out significantly.
    I’d say the recent action is over.

    The benefits are that the process is essentially digital cash.
    No charge backs, no bank watching and mining data, no credit to enslave you, just a small fee to miners.

    What buggered it all up was speculation, big spreads, and miners fees and wait times on transactions between people exchanging value for fairly worthless purposes (ie no exchange of goods/services, just exchanges of fiat in/out)

    BTC crashing down to £200 would do the ecosystem good.
    Back to being used for what it was designed for.

    Back to focussing on improving it’s use as a means of exchanging earned wealth for goods/services.

    The fundamental concept is way better than any banks could operate because they’re over regulated and as such are cumbersome and expensive saps on your economic activity.

    Cutting them out of the loop is a virtuous goal that will be an appealing and popular thing.

    I still think btc provides the best structure for doing that as it moves forwards and adapts without the negative motivation of greed driving it.

  33. Feb 9, 2018 at 2:22 pm

    What a joke of an article. Bitcoin can be transferred peer to peer by anyone with a cellphone to any part of the globe in less than 10 minutes. 10 years in the internet didn’t really provide much value other than the bones for future technological growth. This will be no different. Further, Central Banks are the real ponzi scheme creating money out of thin air. Looking as our national debt hits $21,000,000,000,000. Crypto is the future, crypto backed by gold is the real future.

    • Feb 9, 2018 at 4:05 pm

      What a joke of a statement: “Bitcoin can be transferred peer to peer by anyone with a cellphone to any part of the globe in less than 10 minutes.”

      No, but even in Africa, US dollars and local currencies can be transferred via cellphone from customer to street vendor instantaneously. In China it is now standard practice to pay via cellphone between two parties, instantaneously. Bitcoin isn’t even in contention, nor are any of the other cryptos.

      • Bek
        Feb 10, 2018 at 11:37 am

        Correct digital currency already exists. But bitcoin crypto is first digital currency technology that solved the “double spend” problem.
        No longer a “trust” based intermediary is needed.

        And the environmental impact? Do you know how much emotional and human energy can be freed up and saved by moving to a “trustless” system.

  34. JustNobody
    Feb 9, 2018 at 3:32 pm

    As far as currency goes Fiat currency is also a Ponzi scheme. Last man holding will get burnt. The dollar will collapse, when is the question. It should have already.

    As for this crypto a lot of people think this is the future. So let me put my two cents in and tell you why it’s unsustainable. If every money transaction in the world was done through block chain we would not be able to supply the electricity it would take to sustain it. Any 5th grader should be able to figure that out. Look what it uses now with a few hundred billion in market cap. And these are just trades taken place. People are not using it as a actual exchange for purchasing goods. Two it’s totally stupid your getting taxed everytime you use it. With commissions and transaction fees. First you have to pay money to deposit money in the exchange, then you have to pay a commission to buy it, then you have to pay money to withdrawal it from the exchange, then you have to pay a transaction fee to send it from your wallet. What a racket.

    Gold is the only true form of money. Thousands of years of it’s use is proof. The dollars days are numbered believe it or don’t.

    • bitcoin
      Feb 11, 2018 at 8:57 am

      Well your right, and I’m not found of crypto’s myself, albeit I’m a software engineer, but the US dollar these days, with no interest from banks, and fee’s from hell, its really no much difference.

      The gatekeepers of bitcoin ( core-et-al ) are covering up all the problems, and yes your right, everything they promised is a lie, but the bankers are bigger liars, thus the essential truth is where does the naive go not to the bankers nor the crypto liars.

      Probably at the end of the day it goes back to holding personal gold, and just watching the show.

      Certainly FIAT & crypto are backed by professional liars and the men behind the curtains with the greatest interest in protecting their racket.

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