LET’S IMAGINE A WORLD where Bitcoin is a Currency — Currencies Bind Nations - 6 Lies of the Bit-coiners - Crypto Scams — De-Dollarisation - [11-26-23]
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BOOM EDITORIAL THIS WEEK
LET’S IMAGINE A WORLD WHERE BITCOIN IS A CURRENCY - Bitcoin is not a currency and never can be but why? Because it does not originate from the demand of The People. Currencies are always an invention based upon such demand. In the world of currencies, supply responds to demand. And that demand is generated by the increasing complexity of settlements in any stable real economy where goods and services are produced and where currencies are required for ease of transactional settlement.
However, for the sake of argument in this week’s editorial, let’s pretend that Bitcoin really is a currency and then compare it to conventional, demand driven currencies.
Bit-coiners love to point out that, “Bitcoin is a deflationary currency” as opposed to fiat currencies that are inflationary. In other words, Bitcoin’s purchasing power should (theoretically) rise as time passes while the purchasing power of conventional currencies would tend to fall.
The rationale for this is a seemingly sound. Bitcoin has a cap on production set at 21million Bitcoins while conventional currencies do not (their money supply can always be theoretically expanded if required in response to demand).
On October 10, 2023 there were 19,509,537 Bitcoins in existence and since the so-called Crypto “currency” has a limit of 21 million, there were 1,490,463 bitcoins left to be rewarded (“mined”). However, then it gets complicated. Investopedia has a good article on the matter of Bitcoin Supply for those interested in the detail.
QUOTE: “New bitcoins are added to the Bitcoin supply approximately every 10 minutes, which is the average amount of time that it takes to create a new block on the Bitcoin blockchain. By design, the number of bitcoins minted per block is reduced by 50% after every 210,000 blocks, or about once every four years.
The total number of bitcoins issued is not expected to reach 21 million. That’s because the Bitcoin network uses bit-shift operators—arithmetic operators that round some decimal points down to the closest smallest integer.
This rounding down may occur when the block reward for producing a new Bitcoin block is divided in half, and the new reward amount is calculated. That reward can be expressed in satoshis, with one satoshi equalling 0.00000001 bitcoins.
Because a satoshi is the smallest unit of measurement in the Bitcoin network, it cannot be split in half. When tasked with splitting a satoshi in half to calculate a new reward amount, the Bitcoin blockchain is programmed—using bit-shift operators—to round down to the nearest whole integer. This systematic rounding down of Bitcoin block rewards in fractions of satoshis is why the total number of bitcoins issued is likely to fall slightly short of 21 million.”
“With the number of new bitcoins issued per block decreasing by half approximately every four years, the final bitcoin (realistically the final satoshi) is not expected to be generated until 2140 (it might be earlier).”
“Although a maximum of 21 million bitcoins can be minted, it’s likely that the number of bitcoins circulating remains substantially below that number. Bitcoin holders can lose access to their bitcoins, such as by losing the private keys to their Bitcoin wallets or passing away without sharing their wallet details. A June 2020 study by the crypto forensics firm Chainalysis estimated that up to 20% of the Bitcoin already issued may be permanently lost”. UNQUOTE
Having explained the subject of Bitcoin supply (which is clearly not generated from demand), let’s return to the comparison scenario where we pretend that Bitcoin is a currency and compare it to national fiat currencies.
Bit-coiners love to assume that the deflationary aspect of Bitcoin makes it a superior form of currency compared to inflationary fiat currencies. They then extrapolate this to say that conventional “fiat” currencies will all inevitably fail and have done so in history. They usually say, “Conventional currencies always eventually collapse in a hyper-inflationary event”, or words to that effect. And they like to use historical examples to “prove” their point. However, the history of money is not perfect by any means so if you are looking for crises, you will find plenty. Human beings and their behaviour had a lot to do with that and the history of money reveals an evolution of good and bad ideas, sometimes re-circulating. As a result, the perfect monetary system for all economic circumstances has arguably not yet evolved.
However, again for the sake of argument, let’s pretend that the Bitcoiners are correct in this assumption.
If all fiat currencies were to “eventually collapse”, then, in such a scenario, we would be left with an imagined monetary Nirvana where this magical, new deflationary “currency” called Bitcoin achieves total dominance in general acceptance for the settlement of all transactions. Utopia beckons?
BITCOIN PANIC BUYING WOULD ERUPT - In such a situation, the citizens would quickly understand en masse that owning more and more Bitcoin of limited supply was an excellent wealth creation strategy as opposed to holding conventional, productive assets such as real property, stocks and bonds. A huge bull market panic would erupt in Bitcoin to the exclusion of all else. Productive assets would be rapidly surrendered in return for Bitcoins which would skyrocket in purchasing power. The effective price of all productive assets would collapse.
More and more assets would have to be surrendered to acquire a single Bitcoin. In other words, a Hyper-deflation of productive assets would occur. As in all such financial panics, the madness would increase to a peak. Eventually, one person or a well organised group of persons could (theoretically) possess all Bitcoins and then be able to purchase the entire world of productive assets. BOOM suspects that some investment bankers would work out this scenario in a heartbeat and compete hard for Bitcoins and the ultimate goal of total control.
Let’s think about this scenario. What would happen to the productive assets as the panic unfolded? Who would own them? The answer is that no-one would want to own them as the quest to buy more and more Bitcoins would supersede any desire to waste time and effort in producing useful goods and services. Eventually, that one person or very small group of persons would own all the purchasing power and the rest of humanity would be left with the stinking, decaying assets which had once been productive. And they would be rendered starving, freezing and miserable.
Thus what would happen next? BOOM can imagine that the multitude would realise very soon that this was their destiny. They would assemble a cache of weapons and organise to arrest or kill the most successful group of speculators. Perhaps they would tear them limb from limb and eat them as happened to the Prime Minister of the Netherlands in 1672? In the BOOM editorial three weeks ago, BOOM explained what happened to the de Witt brothers on that occasion.
The lesson to learn here (which is the lesson of all human history) is that ‘The People’ can get very angry and rise up if they are pushed towards starvation and enslavement by a thoughtless, tyrannical elite.
The unruly mob would then decide to ban Bitcoin ownership immediately, rendering them worthless and would demand that their sovereign or their representative government create another inflationary currency of unlimited supply. A new national or regional fiat currency would be launched, in each nation. It would be issued in sufficient volume to meet the transactional needs of the economy. Money cost and volume controls would be established. History would repeat as per past history QED.
CURRENCIES BIND NATIONS - National currencies are critical to The People and are, arguably, the most important thing that binds them to their nation. When discussing currencies, BOOM often says, “Your currency is your nation and your nation is your currency”. But why? Because it is the most elemental social contract that binds the nation. When everyone agrees to accept a currency as the national currency, they have bound each other to the nation. General acceptance is the bedrock of currency. The other binding elements of nationhood include a common language, a common flag, a generally accepted methodology of government, a generally accepted system of justice and a commonly shared vision of the future.
The People will never accept a deflationary currency with limits to its supply as it would result in the collapse scenario outlined above.
THE LIES OF THE BIT-COINERS
The first Bitcoin lie that Bitcoin promoters use is to call it a “currency” when it is clearly not a currency. Bitcoin was not born through any demand for it from the people. Thus, it cannot be a currency unless such demand becomes manifest in almost everyone at some point in the future.
Bitcoin was (presumably) “invented” by a mysterious Japanese person called Satoshi Nakamoto who has never been identified. However, the Bitcoin Blockchain, released in 2008, has many similarities to a chain of blocks invention from October 1996. The original paper was written by three authors who were all employees of NSA – the National Security Agency of the United States. It was called “How to Make a Mint: The Cryptography of Anonymous Electronic Cash”. The paper outlines a system very much like Bitcoin in which secure financial transactions are possible through the use of a decentralised network. Four things are listed as indispensable in their proposed network: privacy, user identification (protection against impersonation), message integrity (protection against tampering/substitution of transaction information – that is, protection against double-spending), and non-repudiation (protection against later denial of a transaction). The latter feature is typical of a Blockchain ledger. It is also sometimes called immutability which is a unique feature of blockchain ledgers. You can read the paper HERE: ‘How to Make a Mint: The Cryptography of Anonymous Electronic Cash’. The authors were Laurie Law, Susan Sabett, Jerry Solinas, National Security Agency Office of Information Security Research and Technology; Cryptology Division June 18, 1996
The NSA, by the way, is the intelligence agency of the United States Department of Defense. The NSA currently conducts worldwide mass data collection. Are you suspicious yet? In its early days of the 1950’s, due to ultra-secrecy, the other US intelligence agencies referred to the NSA as “No Such Agency”. It is rumoured to have an annual budget in the vicinity of US$15-20bn (or more, much more). On its website, it describes itself as “Generating foreign intelligence insights. Applying cybersecurity expertise. Securing the future.”
The second lie of the Bit-coiners is a linguistic one. Bitcoin was originally called a, “digital currency”. However, this is clearly not an adequate description as all modern currencies are kept as binary entries on digital, computer ledgers except when they are in the form of physical cash so they can all be called “digital currencies”. The terms “pseudo-currency” and “virtual currency” appeared but they were also not sufficient to describe what Bitcoin was all about.
Why is there confusion in terminology? Because people were confused right from the very beginning about what Bitcoin really was and some began using those terms. Thus, the false idea that it was a 'currency' began to circulate. Then some bright spark invented the term “Cryptocurrency” and that has stuck.
Unfortunately, the term Crypto means, “secret, hidden, concealed, not to be admitted”. It can also sometimes translate as false or coded. Cryptology is the science of data communication and storage in secure and usually secret form. It includes both cryptography and cryptanalysis.
However, as far as BOOM is concerned, Bitcoin is a digital commodity asset – it can never be a currency because it is an asset and its origination does not spring from community demand. It is “mined” on computers by “miners” using an algorithm. This is similar to mining Gold, yet another commodity asset which often gets confused with the concepts of currency or money.
In fact, BOOM is inclined to think that Bitcoin was actually invented to create increased global demand for US Dollars and thus to increase the money supply of US Dollars globally. This idea is supported by the fact that the Bitcoin blockchain paper was released in October 2008 titled, "Bitcoin: A Peer-to-Peer Electronic Cash System." This was during the Great Global Financial Crisis (GFC) and more suitably termed the Great Global Crisis of US Banking Solvency.
The third bitcoin lie is that all fiat currencies can (somehow) possibly collapse simultaneously, leaving everyone on Earth suddenly currency-less. This is ridiculous but is now believed to be true by millions of people on Earth, but why? Because they have read that it will “inevitably” happen and are not knowledgeable in money matters. The Internet is chock full of articles outlining the inevitability of this much heralded, future event. The articles usually end with an admonition to “buy gold” or “buy silver” or “buy Bitcoin” as a suitable defence against such a catastrophic event.
The fact is that fiat currencies cannot all collapse simultaneously. Nations can easily abandon their current currency and switch to other alternative currencies and new currencies can also easily be created. Such events have happened frequently in history but the new currency or currency alternative must have the support of the people to the extent of General Acceptance.
Remember, all money is a social contract. Germany, for instance, has used six currencies over the last 100 years. Despite this, it is still the most robust economy in Europe.
The fourth bitcoin lie is that the US Dollar will collapse (sometime in the future) inside the United States with a sudden onset of a Hyperinflation event. This is impossible, but why? Because the US Government certainly does not tolerate the easy circulation of other, alternative currencies inside its borders.
For a Hyperinflation event (currency collapse) to take place in any nation The People must lose all faith in their government and governmental institutions. Only then there must be a readily available alternative currency circulating in sufficient volume for the people to switch to as usage of the unloved national currency collapses.
Such currency collapse events result in super high prices denominated in the collapsing currency. However, simultaneously, those same prices are falling (dramatically) when denominated in the alternative currency. Eventually, everyone works this out and switches currency.
The fifth bitcoin lie concerns the idea that the US Dollar will (someday) collapse outside the borders of the United States. This is also rather ridiculous as the US Dollar makes up approximately 60% of foreign exchange holdings on the ledgers of global central banks. The vast majority of those US Dollars are not exported by the US. They are created offshore by tax-haven banks when they make loans to willing borrowers which are denominated in US Dollars.
Also, there is no suitable alternative currency available in sufficient volume offshore with which to settle global financial transactions. Other currencies such as the Russian ruble, the Chinese Yuan, the Swiss Franc, the British Pound, the Australian Dollar, and the Canadian Dollar combined make up about 20% of the foreign exchange holdings with most comprising tranches of 2-4% of the total. The Euro is the largest volume currency held by central banks after the US Dollar at approximately 20%. But that is insufficient to challenge the all mighty US Dollar as a means for dominant use in global trade and capital settlements.
It’s a volume thing. The US Dollar is simply the most available and therefore the most convenient national currency to use offshore in settlement of capital and trade transactions.
The sixth bitcoin lie (implied) is that Bitcoin will become equal to or greater than a multi-polarity system of national currencies. This is unlikely to happen unless Bitcoin volume and acceptance grows to rival the volumes of fiat currencies. An associated lie is that Bitcoin could be used as the dominant currency for all nations to the exclusion of all other currencies. Such Bitcoin dominance would be similar to the system that is in place now (since 1944) with US Dollar dominance. That single currency, US-dominant system is very much disliked in the world, as a result, the move to multi-polarity has become well established by the BRICS Group of Nations and the Shanghai Cooperation Organisation group of nations. More on this below in the section Titled “DE-DOLLARISATION IN RUSSIA-CHINA TRADE”. Read on.
BITCOIN PRICE EXPRESSED IN TETHER (US DOLLAR STABLECOIN) — FOUR YEARS - The price of Bitcoin (expressed in US Dollars) has been rising since early this year. Since January 9, it has risen from US$17,000 to around $37,700. It has more than doubled. Global geopolitical uncertainty seems to be driving increased interest in this asset.
MORE CRYPTO CRIME — BINANCE FINED - Binance, the world’s largest Crypto exchange, was found guilty last week of violating US laws to prevent money laundering and US sanctions violations. The exchange agreed to pay the government US$4.3bn in fines and fees. The CEO, Changpeng Zhao, plead guilty. He also agreed to step down from his role as head of Binance. He may be given a sentence of up to 10 years in prison. He will learn his fate when the sentence is announced.
The Attorney General Merrick Garland said, “Binance became the world’s largest Crypto exchange in part because of the crimes it committed. Now it is paying one of the largest corporate penalties in US history.”
CRYPTO SCAMS - If you wish to learn more about Crypto Scams, just do a Search for terms such as, “A list of Crypto Scams” or “Cryptocurrency Scams” or “Crypto Crime/s” or “Cryptocurrency Crime/s.” A report released by Chainalysis in January estimated that Crypto Crime amounted to US$20bn during 2022. BOOM quickly found reports of Crypto Crime HERE
G20 NATIONS LOOKING TO INCREASE CONTROLS ON BITCOIN AND CRYPTOS - The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. It was established at the G20 Pittsburgh Summit in 2009 as a successor to the Financial Stability Forum (FSF). The Board includes all G20 major economies, FSF members, and the European Commission. Hosted and funded by the Bank for International Settlements (BIS), the board is based in Basel, Switzerland, and is established as a not-for-profit association under Swiss law. It has been described as, “in effect, a fourth pillar” of the architecture of global economic governance, alongside the International Monetary Fund, World Bank, and the World Trade Organization.
In early September, the G20 group of nations agreed on a synthesis paper on Cryptocurrencies that was produced by the IMF (International Monetary Fund) and the FSB (Financial Stability Board). It included a road map towards a coordinated, comprehensive policy and regulatory framework. The synthesis paper was discussed at the meeting of finance deputies in New Delhi ahead of the Leaders’ Summit that was held on 9th and 10th of September.
After the meeting, a G20 statement was released stating the intention to, “continue to closely monitor the risks of the fast-paced developments in the Crypto-asset ecosystem”.
Note the deliberate use of the term Crypto-asset rather than Cryptocurrency.
It also said — “We endorse the Financial Stability Board’s (FSB’s) high-level recommendations for the regulation, supervision, and oversight of crypto-assets activities and markets and of global stablecoin arrangements.”
The Indian Finance Minister Nirmala Sitharaman said, “I don’t want to get into the debate just now whether crypto will be regulated or banned. The G20 will take a call on that.”
The paper, written by IMF and FSB at the request of the Indian G20 Presidency, contains policy recommendations and standards to help authorities address the macroeconomic and financial stability risks posed by crypto-asset activities and markets, including those associated with stablecoins and those conducted through decentralised finance.
DE-DOLLARISATION IN RUSSIA-CHINA TRADE IS ALMOST COMPLETE. Recently the Russian Economic Development Minister Maksim Reshetnikov was reported as saying, “Our trade is restructuring. If we look at the country’s trade indicators as a whole, 68% of our trade is carried out in rubles and yuan, while 95% of our trade with China is settled in rubles and yuan. The issue of channels [for payments] has been solved.”
This suggests that Russia is now using the US Dollar for settlement in less than 32% of its trades. And that figure may be much less than 32%.
Recent data from the Economic Development Ministry shows that the yuan overtook the dollar in Russia’s import settlements with China in 2022. The Chinese currency has since been used in Russian trade with Mongolia, Taiwan, the Philippines, Malaysia, the United Arab Emirates, Thailand, Japan, Tajikistan, and Singapore.
Reshetnikov also gave his assessment of Russia-China trade turnover, predicting that it could exceed the target of $200bn and reach around $220bn by the end of this year. Trade between China and Russia is rapidly increasing.
This is a signal that the currency Multi-polarity world is slowly but surely occurring which means that US Dollar dominance will (eventually) dissipate. BOOM expects this to happen slowly over the next 50-100 years. It may be less than that in time but it cannot happen quickly because of the huge volume dominance of US offshore Dollars (Eurodollars) as compared to other currencies.
BOOM made the following currency forecasts three months ago, on September 3 – Charts are from Investing.com over four years. “Does this mean that the Russian central bank has drawn a line in the sand at 100? Possibly.” And “BOOM takes the view that the ruble will stabilise around 100 to the US Dollar. “ ……. the Russian ruble compared to the US Dollar has appreciated since then after finding strong resistance at the 100 rubles to the dollar level, just as BOOM expected.
The Chinese yuan has been mildly unstable against the US Dollar over the last four years. BOOM expects it to stabilise around 7 yuan : 1 dollar from here.
BOOM’s QUANTITATIVE BOOSTING FOR THE PEOPLES MONEY EXPLAINED: https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/ AND BOOM’s Perfect Economy: https://boomfinanceandeconomics.wordpress.com/2020/01/18/boom-as-at-19th-january-2020/
In economics, things work until they don’t. Make your own conclusions, do your own research. BOOM does not offer investment advice.
BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy. Watch this short 15-minute video and see how Professor Richard Werner brilliantly explains how global banking systems really work.
In 2014, Richard Werner provided the first empirical evidence that banks create credit out of thin air. They do this whenever they issue a loan or, more specifically, purchase a promissory note. This is a walk-through of exactly how they do it.
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.
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