"If crypto is not the answer to our money problems, what is?" Good FT article

To be honest I am gobsmacked and disappointed at bitcoin’s resilience. I suppose though that it is not specifically bitcoin and that all the other suspects are also getting a reprieve. Roubini, please when will Tether go belly up as you promised?
 
The Bitcoin experiment turned 14 years old about a week ago. Price was around $16.5. The next having is in 15 months. 91.72% of supply (~19.25m) is now in circulation.

A nice rally of 20% over 3 days as a friendly reminder to everyone that bitcoin is still bitcoin, and rumours of its death have been greatly exaggerated.

Special thanks for this rally go out to @Cameo for creating a "Short Bitcoin" thread, and David McWilliams for his latest podcast yesterday dancing on bitcoin's (empty) grave. We couldn't have found a bottom without ye.

Seriously though, while things have settled down a bit after the FTX blow up, there's still evidence that all that needs to fail has not yet failed. The Winklevii twins of Gemini exchange and Barry Silbert of DCG (who own a lot of crypto related stuff, including GBTC) are having quite a public feud on twitter about money owed https://www.cnbc.com/2023/01/11/cam...silbert-are-in-a-bitter-battle-in-crypto.html
 
Duke of Marmalade said:
To be honest I am gobsmacked and disappointed at bitcoin’s resilience. I suppose though that it is not specifically bitcoin and that all the other suspects are also getting a reprieve.
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The alt-coins always seem to be more resiliant than expected in terms of staying alive. For example Bitcoin Cash, the failed bitcoin fork from 2017 is still limping along and trading at over 100 a coin. Who is still bidding to buy it at 100 5 years after the fact? I've no idea. Some will fail completely, some will limp along but never regain their highs.

Duke of Marmalade said:
Roubini, please when will Tether go belly up as you promised?
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I've still no opinion on this except that I'm not touching it with a barge pole, and amusement that the one thing being pointed to as a critical point of failure is still fine, while so much else in the 'industry' went up flames.
 
Duke of Marmalade said:
A question for you my dear @tecate. What are the chances of bitcoin being still above 20 k on say April 1st? I still go 50%.
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Your claim was that it had no more than a 50% chance of ever seeing $20k ever again.

As for me, I've already said there are likely two scenarios here:
1. It's bottomed here already.
2. It's still has a trip down to $10k to make.

Whichever of those two courses plays out, bitcoin is going to be just fine and continue on its path.
 
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It was always going to take a very long time for Bitcoin to play out. Once you have so many with so much to lose, these mini rallies allow some to cut their losses, others will remain delusional and be left holding the bomb. It will always be passed around once there are enough people who still believe they are holding lottery tickets, a group that is hopefully diminishing slightly everyday. Maybe it wont go right down to zero and It might still be passed around collectors in 50 years time as a novelty piece of history, but it will not be a functioning currency.
 
lol
 
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This post from Nobel-winning economist Paul Krugman rivals comments made when the Fax Machine was at its peak level of influence. In a previous tweet Krugman had told us that Venmo was all anyone ever needed, and bitcoin would only be needed to buy "drugs or assassinations".
The question is, has Paul ordered a hit or has he fallen off the wagon?

https://twitter.com/x/status/1633472068355346437
 
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Today bitcoin reached the point where 92% of bitcoin eventual supply is now in circulation. Price has rallied 33% this week to almost $27k. The next halving is in just over a year. We are entering the last 12 month period where supply will increase by more than 1%.

We have had other threads talking about the banking failures in the US this week. It's a bit of a mixed bag for bitcoin as I see it. Silvergate going down is bad for bitcoin businesses as it was the bank many of them used. Is it a real problem, or will some other bank(s) just fill the gap? I don't know. I guess the big boys like Coinbase are fine regardless.

The other banks running into trouble is the type of thing that leads people on the path to bitcoin. It probably will take time for them to get to the end of that path, but starting to question whether your money is safe in the bank, or even why the day-to-day usage of digital money is tied at the hip to fractional reserve banking, are the kinds of questions that lead you to the rabbit hole.

Banking problems/failures cause people to become more interested in self sovereign money.

While companies are unlikely to go full-Saylor shoving their whole treasury (and beyond, via leverage) into bitcoin, many of them may consider that having a certain amount in bitcoin is worth the volatility risk because it has no counter party risk. That's the 'custody' aspect.

But maybe you are not concerned about the custody aspect. Because the FDIC limit suddenly no longer seems to apply. You believe the gov/fed is always just going to inject liquidity (money printer: brrrrrrrr) to protect depositors in the case of bank failures/runs. That just further dilutes the dollar though, which is further upward pressure on the bitcoin price as measured in dollars.

I've been involved in, and thinking about, Bitcoin for many years now, and it has become rarer for me to have what I consider to be original thoughts about it in recent years. But lately I've had two.

Firstly, I know a lot of people have trouble with the somewhat circular nature of how bitcoin can be money - it can be money if people use it as money, but if in the future no one uses it as money it will not be money, in fact in that case I believe it will cease to exist. This is kind of true of anything used as money, but I understand the argument that at least in the case of gold, you can use it for non-monetary uses, or in the case of fiat the government will force usage of it as money. So you have some kind of floor, somewhere, that you don't have with bitcoin.

What occurred to me this week is that the concept of banks is also circular. A bank is only a bank as long as everyone doesn't try to withdraw at once. People don't withdraw only because they don't think other people will withdraw. And there's some kind of parallel with bitcoin here if you consider selling bitcoin as the equivalent of withdrawing from a bank. I don't need to sell my bitcoin if I don't think other people will.

What differs is what happens when there is a run. With a bank, it's fractional reserve, so a run can mean it reaches a point where it runs out of liquidity and fails. With bitcoin, selling causes the price to reduce. The big difference here is that bitcoin price reducing can act as a catalyst for demand. The lower the price goes the greater the potential upside for a buyer. For a proper failure you would need an actual systemic problem like all mining to halt or some external reason that people are not willing to buy 'cheap' bitcoin (e.g. it has been surpassed by a competitor), but my point is bitcoin solves the "bank run" case naturally through pricing. Cool.

The second thought relates to bitcoin versus potentially infinite other cryptocurrency competitors. I found what I think is a real world example of how much the first-mover advantage and network effects matter. I recently made the common case bitcoiners make to someone about why gold became the most popular form of naturally occurring money. They then suggested that platinum would surely be just as useful to use as money as gold, since it seems to share all the same advantages gold has.

I was a bit stumped at first, as I had not realised platinum would be as suitable, but sure enough it seems it's pretty similar to gold. I went in search of the answer myself and found an article by Peter Schiff (ughh) about this. The crux of it is platinum was not discovered until 1735 by which point gold was already established and had a large network effect. This makes perfect sense of course, it's not enough to be as good, or even slightly better, you need to bring something significantly new to the table to overcome an existing network effect.

An additional thought is that it seems we are at much greater risk of bank runs than previously due to the speed and ease of communication on the internet. Word spreads fast on twitter and social media, as we saw with what happened with SVB in only 24 hours.
 
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@DazedInPontoon a well argued piece, though not one that I would fully agree with. I do 100% agree with the gold/platinum analogy and the network effect. I don't even know the price range of say Ethereum or Ripple - there is only one crypto so far as I am concerned and henceforth I will drop the "10,000 kopykat" slur.
Why do we have bank runs and do we need them? First thing to note is that these are not runs on the currency, far from it, they are a flight to safer fiat assets and certainly not to bitcoin. Bank runs happen because banks are used as intermediaries in fiat money supply. These days it certainly doesn't have to be that way and much thought is being given to Central Bank Digital Currency. The technology is there but the real problem is that the banks' role in the money supply performs a hugely collateral benefit for society - maturity and risk transformation.
We have a situation where money has zero duration and a very low default risk. Yet through the marvels of fractional reserve banking (the work of Satan according to the cultists) the money supply is backing long term and risky investment. If Central Banks took 100% ownership of the money supply through CBDC who would finance industry and house mortgages? The Central Bank itself providing this funding would raise all sorts of ideological and moral hazard issues.
The current bounce in bitcoin as a result of the bank runs is totally to be expected and I am kicking myself for not cashing in on my initial puzzlement at the 10% knee-jerk fall. The sellers in the bitcoin/dollar market are by definition the faithful - they hold bitcoin. I suggest that the vast majority of btc/$ transactions are not to put down a deposit on a house or to buy a packet of fags - they are because the parties think the price is right, in other words the transaction is speculative, some more crudely so than others. Now even the High Priests warn that there is a non-negligible chance that their hero will go to zero. This nagging doubt is always a selling force amongst the faithful - recent shenanigans will have dampened that selling force, hence the price spike; I doubt it is because it attracted new converts.
So I don't agree with you entirely that falling prices will always activate corrective buying pressure. There is undoubtedly an element of that; the view of $70k in the rear view mirror has kept the show on the road at a surprising steady pace around $20k. But it is just a matter of time before another sharp decline (maybe not the next) will trigger a stampede for the exits amongst the faithful.
 
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No problem with fractional reserve banking (in either fiat or bitcoin) as long as it's optional. Those who want to should be allowed take on the counter-party risk of leaving their money in a fractional reserve bank for a cut of the interest on the loans the banks make, but maybe we would be better off with the option of not doing that too. Maybe it'll come to the fiat world via a CBDC.
Duke of Marmalade said:
...they are because the parties think the price is right, in other words the transaction is speculative, some more crudely so than others.
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agreed, and the biggest difference can be the time frame. On one end of the scale you've day traders and market makers and on the other you've Saylor just accumulating and never selling. But over time I think more and more coin moves to strong hands who won't sell because of short term factors, as evidenced by the amount of coin we can see on the blockchain not moving at all in a year for example.
Duke of Marmalade said:
But it is just a matter of time before another sharp decline (maybe not the next) will trigger a stampede for the exits amongst the faithful.
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The way I see it, the major declines of this cycle ended 9 months ago when we hit 16k last June. Everything since then is volatility in an essentially sideways market. All the weak hands have had the events needed to induce them to sell, and have done so. The halving alone can provide enough narrative to start a positive feedback loop for the next bull market in the next year or two, but an increase in fiat liquidity due to interest rate hikes ending, the war in Ukraine ending or continued problems in legacy finance can all help too, if they happen in that timeframe.

I can probably make a whole 'nother long winded post about whether the cult is growing or shrinking and why people sell leading to the volatility we see.
 
DazedInPontoon said:
No problem with fractional reserve banking (in either fiat or bitcoin) as long as it's optional.
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Actually pondering this more, FRB is simply a natural process and I note your observation that bitcoin is no "protection" against FRB at all despite its demonization by the cultists.
FRB is simply the natural process by which the narrow base of money multiplies itself through banking whether that narrow base is gold, CBDC or even bitcoin. These days the narrow base is in fact CBDC but these are limited to the licensed banks. The debate on CBDC is whether everybody should have access to CBDC albeit such a decision would also need considerable infrastructural upgrade to CB systems.
If everybody got paid in CBDC, banks would still offer interest bearing deposits and we get into the natural spiral of what is money supply, M1, M2, M3 or some broader aggregate of near money? It is just a natural process which has the great benefit of maturity transformation but the downside of possible bank runs.
 
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Duke of Marmalade said:
I note your observation that bitcoin is no "protection" against FRB at all despite its demonization by the cultists.
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I want to clarify this. Celsius for example took bitcoin deposits and did FRB using it as the base. However this did not create more bitcoin on the blockchain. It created a debt of bitcoin to those depositors in Celsius's own balance sheet and it's worth pointing out here that gold and bitcoin for example are not debt based money, 'owning' a paper balance that someone owes you is not the same as having literal custody of it yourself. Not your keys, not your coins, and all that.

The people who deposited their bitcoin to Celsius had no protection, but I had the *choice* to do that or to custody it myself. Celsius failed, and my bitcoin were not at risk because I'm the only one with access to them.

That's not to say that Celsius may have no impact at all on me. Firstly the depositors to Celsius may have been considering that they actually owned bitcoin (they didn't, they were owed bitcoin), which can be considered some kind of dilution of the supply which affects the price negatively. Secondly the fallout from it (and other companies like FTX) failing can also be seen to negatively affect the price, in the short term at least, and perhaps at most. But since I have a long term time horizon with my bitcoin holdings these issues don't bother me that much, just as Mt Gox failing almost a decade ago did not.

People must learn that being owed bitcoin is not the same as owning it and that counter-party risk is a real risk, and some businesses will fail.

As for the CBDCs, I've no idea what that world looks like, but it's worth considering that it may be very different since the possibilities for monetary policy balloon into all kinds of things we've never seen before.
 
I am not disagreeing with any of that. The monetary base of the fiat system are commercial bank reserves with the Central Bank and notes and coins. And of course that monetary base is completely within the control of the CB, to contract or expand as it sees fit and as it did so spectacularly through QE. A major rationale for bitcoin was to fix the supply of the monetary base. I fundamentally disagree that this is a good thing for a modern economy but that is different rabbit hole. The point for this topic is that this has absolutely nothing to do with FRB.
FRB is the natural process by which intermediaries (banks) can multiply the supply of what is acceptable as a medium of exchange. If bitcoin became acceptable generally as money then the natural process would result in trusted intermediary promises of bitcoin becoming money as well. Fixing the supply of bitcoin does not prevent this happening at all. I agree that with bitcoin punters have access to the monetary base whereas currently with fiat they do not except through notes and coins, and some do resort to the mattress. That might change with CBDC.
FRB is a complete red herring in the contest between fiat and bitcoin.
 
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I don't know if it's necessarily true for a couple of reasons. Firstly because bitcoin is natively digital there's less reason to take on the counter party risk of using an intermediary, just use bitcoin directly. I mean I already effectively "mattress" far far more bitcoin than I would feel comfortable doing with fiat cash. Secondly it changes what happens when there's a need for bailouts of those intermediaries since you can't effectively just turn on the money printer and dilute everyone else to cover the shortfall.
 
DazedInPontoon said:
I don't know if it's necessarily true for a couple of reasons. Firstly because bitcoin is natively digital there's less reason to take on the counter party risk of using an intermediary, just use bitcoin directly.
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Okay...I accept that bitcoin does not have a requirement for custody in the way that notes and coins and before them gold does. CBDC would of course remove the need for custody. The other reason that fractional reserve banking naturally evolved was the willingness of borrowers to pay interest rates. The trusted intermediary could entice depositors through the interest rate and thus create more money through the fractional reserve process.
DazedInPontoon said:
Secondly it changes what happens when there's a need for bailouts of those intermediaries since you can't effectively just turn on the money printer and dilute everyone else to cover the shortfall.
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Sure, that is a claimed raison d'être for bitcoin but that does not justify championing bitcoin against the wicked FRB as some cultists do. That is championing its fixed supply nature.
 
The challenge is real - it will curb development in the US for a while but it won't kill it. Someone, I think it was someone who really thinks about this stuff objectively here and isn't bitter and twisted in any way about it, anyway he suggested that the US is done with crypto. That's inaccurate. The Biden Administration is driving the clampdown but on the other side of the isle in the US, it's the conservatives who are showing themselves to be the progressive ones where crypto is concerned. The GOP will fix this in due course. They vehemently oppose what's going on right now and are pushing back against it. It won't be shut down completely - there are still banking options - they're just more difficult to come by. Otherwise, they'll drive it into shadow banking and as usual, users will suffer. Bitcoin will make full use of jurisdictional arbitrage while the US sorts itself out. On Friday, it emerged that Coinbase was looking to float an offshore entity.

It's interesting to see that develop. Nobody here acknowledges that there are issues within the conventional system that need to be addressed and can be improved upon but eventually things come to a head. It's interesting to see people explore solutions when those solutions are staring them in the face but everyone comes to that eureka moment at their own pace.

9 months of rate hikes and tightening have been undone. Someone here declared some months ago that it was over for crypto, that the era of cheap money was over. The point is that the conventional system is broken. It will never be over. In the space of days, the Fed balance sheet has expanded again. Here's Lagarde explaining her detailed plan on how the ECB will rein in that balance sheet.
Here's Yellen indirectly confirming that there's no other way but for them to have to put a blanket guarantee in place beyond the $250K limit.

There's a lot of nonsense that's being put out here about fractional reserve banking. Let's clarify a few things.

- As with so many things that have been discussed here, its inaccurate to claim that anyone here has suggested that fractional reserve banking is 'wicked' or anything else. What some of us have pointed out is that everything comes with advantages and disadvantages. Anyone who is being honest in this discussion will acknowledge that none of these banks would have failed had they not employed fractional reserve banking. To not acknowledge that is dishonest.
- Next up, settlement processes are speeding up. The reaction of depositors is also speeding up. Therefore, these runs are happening at lightening pace and will only get faster. In the case of digital assets, settlements are in real time. A number of smart people in the industry long since flagged that in no way should regular banks bank crypto - simply because they're accustomed to having some time to fix things based on the cumbersome settlement process in TradFi. They won't get that opportunity when it comes to digital assets.

Custodia Bank applied to the Fed for a master account on the basis that it would act as a fully reserved bank (as per SPDI bank regulation in the state of Wyoming). Not only was it going to be fully reserved but 108% reserved. The Federal Reserve denied it on the basis that it was too risky! Custodia is currently suing the Fed for its actions in this regard.

- As we've seen so many times in the past 6 years, some folks can only deal with black or white and no center ground. Bitcoin doesn't have to be a takeover of the system at the expense of what already exists (despite what someone here might tell you). But it provides optionality...and when was optionality ever bad? A point is being made that we have to have fractionally reserved banking - but at what cost and in what circumstances? Is it appropriate relative to digital assets? Is it appropriate in an environment of real time payments in the US? (The Fed is introducing real time payments via FedNow later in the year). Is it appropriate that the Fed has set the reserve level at zero?

I'll sign off with a pertinent post from Izabella - who just a couple of years ago was a strong opponent of Bitcoin while working at the FT (now with Politico).

https://twitter.com/x/status/1636817775401267200
 
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I am very confused. I had bought into the argument that bitcoin had dispensed with the need for custody. And here we have Custodia specialising in just that - being a custodian for bitcoin
I see Caitlin "1% inflation" Long is behind the risky custodian. I am still pondering how she argued bitcoin inflation was running at 1% p.a. when the price of a latte in bitcoin had risen 250% year on year.:mad:
Anyway there must be a suspicion amongst true cultists that some bitcoin holders are just there for the spin, hoping to make a few bob. Caitlin and Custodia who have taken the pledge against the satanic practice of FRB are true practising cultists and an example to them all.
 
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Bitcoin provides optionality - you have the option to self custody or not as the case may be. Custodia is looking to deal with the institutional world - and they're not going to self custody. They will only deal with a qualified/regulated custodian.
I'm not going to get into your disingenuous smear of her reference to the inflation rate of the bitcoin monetary system - done and dusted.
The dishonesty continues with your "satanic practice of fractional reserve banking" jibe....all the while you're refusing to acknowledge that the recent bank failures would not have happened if it wasn't for the use of fractional reserves.
People speculate on a whole host of things. That doesn't mean that there isn't something innovative at the core of them.
 
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This is utter baloney. Banking means lending deposits i.e. FRB - it is what banking is all about. Custody is a different activity. There is no reason whatsoever why someone taking bitcoin deposits can't lend them. The cult may have taken the pledge against lending bitcoin deposits but bitcoin itself is entirely innocent of any such exclusion.
Bitcoin has a fixed supply. That certainly sets it apart from fiat. But everything else that fiat can do, including FRB, I am sure bitcoin can do.
 
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