“Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.”— Nassim Taleb
“Stay away from it. It’s a mirage, basically. In terms of cryptocurrencies, generally, I can say almost with certainty that they will come to a bad ending.”— Warren Buffett
“There are 3 eras of currency: Commodity based, politically based, and now, math-based.”— Chris Dixon
“Bitcoin is not a currency for a government, it is a global currency for the people.”— Wences Casares
“Bitcoin grabs the headlines, but the real action on digital currencies is at central banks.”— The Economist
“Central banks collectively representing a fifth of the world’s population are likely to issue a retail CBDC in the next three years.”— Bank for International Settlements (BIS)
“I don’t think that bitcoin … is widely used as a transaction mechanism. To the extent it is used I fear it’s often for illicit finance.”— Janet Yellen, U.S. Treasury Secretary
Cryptocurrencies are not money but just a transaction mechanism. They have no proven safe store of value. They are collapsing, for reasons. Luckily, central banks just so happen to be ready to roll out out their CBDCs, which are not money either. CBDCs are only a payment mechanism linked to wonderful fiat currencies, like the US dollar, but they will save the monetary system. Or maybe not.
They are making a real mess of our money. Who is “they”? Why of course, “they” are the smart folks who have managed to reduce the purchasing power of the U.S. dollar since 1913 to a measly 4 cents today – around a 96% devaluation. The Fed in other words (that coincidentally was created in 1913). And “they” are still at it.
Much has recently been written about the rapidly coming introduction of Central Bank Digital Currencies (CBDCs) – globally. Reading these pieces with more care to see if it might be an interesting topic to cover here, I found that there is so much more to this story than CBDCs being just another digital currency, like cryptocurrencies (e.g., Bitcoin). This is a major, and to me very scary, transition.
Digital currencies – digital money – are simply bits and bytes stored in computer databases located in the great wherever. These need electricity to become “real”. Otherwise, they are just inaccessible entries – unreal money that you can’t put in a bag for a rainy day.
Assuming electricity is available, I continue …
You know what real money is, yes?
Two posts from a while back took a closer look at what real money is (here and here). Briefly, real money is a medium of exchange, a unit of measure, and a trusted store of value. All three are necessary. Digital money meets the first two requirements but, as cryptocurrency FTX recently demonstrated, not the third – a trusted store of value.
FTX Trading Ltd., commonly known as FTX, is a bankrupt company that formerly operated a cryptocurrency exchange and crypto hedge fund. The exchange was founded in 2019 and, at its peak in July 2021, had over one million users and was the third-largest cryptocurrency exchange by volume. Bankrupt, thanks to some guy appropriately known as Sam Bankman-Fried, an American suspected fraudster, entrepreneur, investor, and former billionaire. Bankman-Fried was the founder and CEO of the cryptocurrency exchange FTX and cryptocurrency trading firm Alameda Research. Trusted even by such astute investors as Tom Brady and Gisele Bundchen.
“Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem. In terms of value: zero.”— Warren Buffett, Real Investor, via CNBC in February 2020
Nevertheless, cryptocurrencies like Bitcoin have secured a solid place in our monetary zoo as a payment and money transfer mechanism, and for speculation. Also some other popular but mysterious activities, so I read. For the moment, anyway.
Cryptocurrency values are highly variable, and they have no tangible, reliable store of whatever their value may be at any point. Compare them with the U.S. dollar, which has lost only 96% of its purchasing power (aka value) over the last century or so. Crypto is digital – electronic in nature – and so is most non-cash fiat money, like the fiat dollar, most of which resides in a database entry somewhere in the wherever-cloud.
Like our cash deposits in a friendly bank, which promises to pay them back on demand. And meanwhile it lends out at least 90% of our deposits to borrowers who in turn promise to pay the bank back at some point – if they can. Comforting yes?
The money story gets way, way worse, as you might suspect
Governments globally are in a titanic battle for surveillance and control – via digital money. Government’s digital money, aka CBDCs. This requires cryptocurrencies to go away for all practical purposes – effectively, to die. Crypto and CBDCs cannot coexist. Why?
- Crypto is inherently decentralized, anonymous, and limited in quantity.
- CBDCs are fully centralized, essentially public, and unlimited in quantity.
In principle, both could actually coexist, but not with the now pretty openly-stated goals of CBDCs – surveillance and control.
Keep in mind also that CBDCs are not different from government-issued fiat money. CBDCs are fundamentally a payment system, just like cash, and possibly even credit-debit cards. CBDCs, like paper currencies, are not backed by anything other than politicians’ promises and trust-me assurances.
CBDCs remove the privacy and decentralized nature of physical cash. CBDCs are programmable for many purposes whereas physical cash is not.
- Epoch Investment Partners in March 2021 published a helpful overview on what is happening to money today: “Money 3.0: Central Bank Digital Currencies (CBDC)”:
“During the past two years, CBDC has progressed from a bold speculative concept to a seeming inevitability and will soon be a core feature of our financial ecosystem.”
“Catalysts include the rapid decline in cash usage relative to digital payments, and the rise of private digital currencies that operate without any involvement by central banks or financial institutions.”
Epoch offered a nice illustration of both the decrease in use of cash and the huge growth in electronic payments:
Epoch also notes that “… Bitcoin’s purchasing power is wildly unstable; It remains far too volatile to act as a unit of account, store of value or medium of exchange.”
Hmm … looks like somebody wants cryptos to disappear
At the moment, cryptocurrencies serve an important set of purposes. They are privately-owned and decentralized. They allow user-anonymity aka privacy. They are very convenient to use. Transaction fees for the most part are acceptable. These should secure cryptos a permanent place in our monetary zoo, assuming that users don’t care about the tangible, reliable store-of-value attribute of real money (like our dollar).
So, why is crypto doomed?
Simple. Governments and their central banks don’t like competition. They don’t like anonymity, privacy, and decentralized control. They can’t use cryptos for surveillance and control. Cryptos just have to go – rather quickly.
- Ethan Huff writing in Natural News way back in January 2023 kind of tells it like it is: “Controlled demolition of global finance system sees failing cryptos, bank runs and soon, the unveiling of Central Bank Digital Currencies (CBDC)”:
“A couple months back, Genesis Trading announced that it needed at least a $1 billion cash infusion to avoid bankruptcy – this after it was determined that the company had $175 million tied up in an FTX trading account. Parent company DCG initially gave Genesis $140 million while talks surfaced of a possible investment from crypto exchange Binance – though nothing ever materialized on that front.”
“Meanwhile, Genesis Global Capital in November froze customer withdrawals citing ‘unprecedented market dislocation’ following the collapse of FTX.”
“’When we see the collapses in Silverbank, Genesis Trading and FTX what hypothesis can we draw? In my estimation, the crypto marketplace is built on an erratic, capricious and precarious premise that a unit of account that cost them nothing to produce can be touted as a currency and all the while a small apparatchik of crypto exchanges and coin issuers have the ability to manipulate the markets,’ Szymanski warns.”
“This crisis, Szymanski says, will be used as the excuse to phase out fiat currency and replace it with CBDC, which is set for potential rollout this year.”
Probably all just a coincidence, like so much of what’s happening today.
- Belle Carter, also appearing recently in Natural News, paints a bleak picture of the future of Bitcoin and its “altcoin” friends: “Report: 91% of altcoin projects following 2014 crypto collapse are now completely abandoned”:
“… well-known financial analyst and investor Peter Schiff predicted that Bitcoin, which peaked at nearly $69,000 in November 2021, will never cross the $100,000 threshold. He believes that cryptocurrency does not have any intrinsic value, as it has yet to prove itself as a safe store of value or currency.”
“It should be noted that Schiff was right about the cryptocurrency bubble of 2021 when bitcoin rose to an all-time high and then crashed soon after.”
Gets me to wondering just who Sam Bankman-Fried works for
Rather convenient timing for a crypto catastrophe, yes? Just when everything crypto-wise was moving along nicely. Who really needs a digital dollar anyway. And a huge trigger via the almost comically-named Bankman-Fried? At least the perps have a great sense of humor.
Another observation from Epoch Investment Partners:
“Bitcoin, with over a decade of operational success, has demonstrated it is possible for households and businesses to make payments entirely outside the existing financial infrastructure. With little government intervention and a high degree of privacy, the libertarian aspect is a key attraction for many Bitcoin zealots. Further, and similar to gold, it cannot be devalued by central bank printing and roughly 90% of its total supply (21 million coins) has already been mined. With most central banks actively seeking to depreciate their currencies in a ‘lower for longer’ MMT world, it seems entirely reasonable to look for alternative storeholds of wealth.”
“However, Bitcoin faces numerous challenges to broader adoption. For a start, it is a fundamentally speculative asset … . Moreover, compared to established storeholds of wealth, such as gold, real estate, or safe-haven fiat currencies, Bitcoin is exceptionally volatile and its future value faces a much wider range of outcomes … . It is also a poor unit of account and, while inherently difficult to verify, most estimates indicate only 1% or so of BTC transactions come from merchants accepting it as a means of payment. Additionally, as the U.S. Treasury Secretary suggests, it is likely used extensively in the underground economy.”
Bitcoin value volatility and uncertainty is definitely scary when compared with the stability of the dollar – while it depreciates 96% over the past century on its way to zero, probably in the near future.
It seems reasonable to expect more such crypto catastrophes shortly as central banks globally begin to roll out their CBDCs. Cryptos are actually dead-money walking. This effective death is inevitable, and soon.
You will surely be comforted to know that the IMF is on the CBDC case
The International Monetary Fund (IMF) in February 2022 reported via Kristalina Georgieva, IMF Managing Director, Atlantic Council, Washington, DC: “The Future of Money: Gearing up for Central Bank Digital Currency”:
“These are still early days for CBDCs and we don’t quite know how far and how fast they will go. What we know is that central banks are building capacity to harness new technologies—to be ready for what may lie ahead.”
“If CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability, and lower costs than private forms of digital money. That is clearly the case when compared to unbacked crypto assets that are inherently volatile. And even the better managed and regulated stablecoins may not be quite a match against a stable and well‑designed central bank digital currency.”
“We know that the move towards CBDCs is gaining momentum, driven by the ingenuity of Central Banks. All told, around 100 countries are exploring CBDCs at one level or another. Some researching, some testing, and a few already distributing CBDC to the public.”
This leisurely pace of CBDC development is not exactly the full story, as Epoch Investment Partners explains: “Lighting a Fire at the Fed: Facebook isn’t Going After Bitcoin, it’s Going After the Dollar” (about halfway down in this article):
“Frankly, Libra really lit a fire, and was a bit of a wakeup call that this is coming fast and could come in a way that is quite widespread and systemically important fairly quickly.” — Jerome Powell, Federal Reserve Chair
“In addition to the declining role of cash and rising prominence of Bitcoin, the third catalyst for central banks to accelerate their CBDC plans was the 2019 announcement of Facebook’s Libra network. It is difficult to overstate the threat perceived by central bankers who worried a private digital currency could undermine their monetary sovereignty [emphasis added]. Within weeks of the announcement, the Fed’s Jerome Powell warned: Libra raises serious concerns regarding privacy, money laundering, consumer protection, and financial stability.”
“Further, in early 2020 the Bank of Canada (BoC) cautioned: Libra could gain a substantial share of the global payments market and thus establish itself as a global standard for payments. The BoC was especially worried that Facebook’s e-wallet (Calibra) would be integrated with Facebook’s apps, which would give it unprecedented consumer reach. The concern was that, in a scale business like payments, this would allow Libra to build a dominant and insurmountable lead, a truly alarming prospect for any central bank.”
As I may have mentioned, the government doesn’t like competition
Well, what do you know? Turns out that Libra is defunct. Libra, a cryptocurrency created by Facebook, was designed to be a simple, low-fee stablecoin [i.e., a crypto back by “real” money, like the U.S. dollar] to be used around the world. The digital currency was renamed Diem in 2020 and in 2022, was wound down in 2022. From Politico in January 2022:
“Facebook’s cryptocurrency is no more. The Diem Association — a group Facebook spearheaded to launch the Diem stablecoin — said Monday it will sell its intellectual property and assets to the California bank Silvergate, a go-to firm for the crypto industry.”
“The announcement caps a nearly three-year odyssey on the part of Facebook and its partners to launch a digital currency, which was first dubbed Libra in 2019 until its rebranding as Diem in 2020. (Facebook has also since renamed itself as Meta.) Lawmakers and regulators in the United States and Europe ultimately derailed Diem’s ambitions, stoked by fears around how such an offering on the scale of Facebook would impact the financial system and the control central banks assert over money. The so-called stablecoin — a type of cryptocurrency tied to other kinds of assets — never launched.”
“Diem’s backers failed to move the needle even after they assembled a small army of lobbyists, rebranded the project, downplayed Facebook’s involvement and pared down their ambitions for a single digital currency. Many assumed the writing was on the wall after David Marcus, Meta’s point person on Diem, departed the project late last year, as well as other key figures involved.”
Government plans for digital IDs and CBDCs are not hidden
These plans are inherently hard to hide when about 90% of the world’s countries are actively looking into CBCDs. What is hidden – at least to some degree – is the underlying agenda of surveillance and control. A recent post attempted to address this agenda.
Natural News has been posting regular articles warning about this now-obvious agenda. Here are a couple of examples from late November 2022: “Federal Reserve set to introduce privacy-crushing digital currency that can be ‘controlled’ and ‘programmed’ by government bureaucrats.”:
“Now, the government is attempting yet another major authoritarian move: The creation of a ‘digital currency’ with the endgame objective being to control behaviors through ‘programmable’ money that can influence and/or block certain spending habits.”
“’The Federal Reserve Bank of New York’s Innovation Center, or NYIC, announced that it would be launching a 12-week proof-of-concept pilot for a central bank digital currency, or CBDC,’ Coin Telegraph reported this week.”
“The outlet continued: ‘In a Nov. 15 announcement, the New York Fed said the program would explore the feasibility of an ‘interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger’ on a regulated liability network. Banking giants including BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank and Wells Fargo will be participating in the pilot by issuing tokens and settling transactions through simulated central bank reserves.”
Mike Adams in his Natural News site in November 2022 wrote: “Crypto 9/11 is now under way… a “controlled demolition” event to usher in HEAVY regulation”:
“The US government goes to war with unregulated crypto. With these new regulations, the US government will effectively be going to war against whatever crypto exchanges and assets it can’t otherwise control. The timing is impossible to miss, as there is widespread action under way for the government (and attached central banks) to introduce its own digital currency. Known as Central Bank Digital Currency (CBDC), this project would enslave the masses into a financial surveillance system that would track every purchase and could instantly penalize people for dissenting speech. The system could even prevent individuals from spending too much money on food, gasoline or other categories of retail items such as firearms or ammunition.”
“The government hates competition, so it needs a way to take down most of the crypto universe and clear the slate for the launch of its own digital currency system (which likely won’t use blockchain and won’t be decentralized, obviously). The FTX collapse was the perfect ploy to bring in the kind of government regulation that would strongly disincentivize ownership of crypto and cause values across the ecosystem to plunge.”
“After all, if crypto is largely outlawed — at least as currently structured — who’s going to want to buy in?”
But crypto is well-established and will be hard to overcome
It is one thing to warn about the potential for “misuse” of CBDCs by governments and associated financial institutions, but quite another the make the case for just how such nefarious misuse schemes might be implemented. Governments are not known for competence or brilliance. Crypto folks on the other hand have solidly demonstrated both.
So, what if the government introduces a CBDC that actually works (a major and possibly unwarranted assumption)? How will they encourage normal people to use these money substitutes? Crypto has its bad guys, as FTX and Bankman-Fried recently demonstrated, but government has its equivalents in the form of politicians and other incompetents. Who really trusts either of them?
It seems that the crypto guys (generic guys, of course) will turn out to be smart enough to get around whatever our current crop of bureaucrats can come up with. My bet would definitely be on the crypto guys. However, …
The government has enormous power and resources. The crypto guys are fleas on the elephant’s back by comparison. If the government or its power centers decides to apply the CBDC approach aggressively, crypto doesn’t stand a chance.
Or does it?
This post began with a possibly naïve view that government CBDCs will prevail only because government and its helpers are so powerful. Government owns money constitutionally, and if government wants to make money digital, they can do it. Or can they?
To try to answer this question for myself, I recklessly dug into the recently evolved realm of digitized assets, like money, and transaction facilitation using blockchain technology. You know all about this stuff, yes? Well, I did not, so I started digging into this zoo. Definitely a “down the rabbit hole” experience.
What I found was an enormous body of fundamental change in how we manage assets (i.e., things of value) and transactions involving assets. This is way bigger than the comparatively narrow issue of crypto.
What is happening is an enormous transition in many human interactions
Digital money is part of this transition, whether to crypto, or to CBDCs, or to some combination thereof. But it is far, far from the whole story. It may well turn out in the grand scheme of things to be a mere footnote.
Human history is largely about human transactions. Humans, or generic equivalents, acquire assets and have varied needs. These critters invented ways to swap owned assets for things that satisfied such needs. Originally handled through bartering mechanics, human social and economic evolution (or devolution, if you prefer) created endless schemes and mechanisms for improving on bartering’s obvious deficiencies.
Traders came about. Banks came about. Financial advisors came about. Evermore complex but evermore capable.
Bookkeepers’ transaction ledgers and supporting bits of paper worked okay for centuries, but became increasing cumbersome and slow as the world’s pace and transaction volume increased. Thankfully, somebody or somebodies invented the computer, and our creative types immediately began to use it to work on the growing mass of human interactions of a social and financial nature. Bill Gates comes to mind here.
It was inevitable that this evolution would lead to the digitization of, well, almost everything. I’ll bet you know that assets have become asset tokens, which are real only in digital space. Money, considered a tangible and storable asset by ancient folk, is now transitioning to digits stored on computers located wherever. Increasingly worthless paper cash, a former storable asset, is being replaced by digitally tokenized assets like cryptos and CBDCs. Assuming electricity, of course.
This rabbit hole is very deep. It is going to fundamentally change society and human or equivalent interactions. Crypto and CBDCs are sideshows.
Next post will attempt to make some sense of all of this, at least for me. Hopefully, for you also.
It truly seems that cryptocurrencies are “dead”. Government and bank digital CBDC currencies are inevitable. The government everywhere does not like competition, especially where its current agenda of surveillance and control is concerned. While crypto may soon be effectively dead, or murdered, the government and bank CBDCs are not likely to prevail. Why? There is an enormous transition underway in the manner in which humans and equivalents interact socially and economically. The next post attempts to make sense of this happening.
- Consulting giant McKinsey and Company is all over this huge and fundamental transition as you might expect: “CBDC and stablecoins: Early coexistence on an uncertain road”
“Cryptocurrency has been touted for its potential to usher in a new era of financial inclusion and simplified financial services infrastructure globally. To date, however, its high profile has derived more from its status as a potential store of value than as a means of financial exchange. That disconnect is now evolving rapidly with both monetary authorities and private institutions issuing stabilized cryptocurrencies as viable, mainstream payments vehicles.”
“The European Central Bank announced recently it was progressing its ‘digital euro’ project into a more detailed investigation phase. More than four-fifths of the world’s central banks are similarly engaged in pilots or other central bank digital currency (CBDC) activities. Concurrently, multiple private, stabilized cryptocurrencies—commonly known as stablecoins—have emerged outside of state-sponsored channels, as part of efforts designed to enhance liquidity and simplify settlement across the growing crypto ecosystem.”
“Although the endgame of this extensive activity that spans agile fintechs, deep-pocketed incumbents, and (mostly government-appointed) central banks remains far from certain, the potential for significant disruption of established financial processes is clear. Against this backdrop we offer a fact-based primer on the universe of collateralized cryptocurrency, an overview of several possible future scenarios including potential benefits and obstacles, and near-term actions that participants in today’s financial ecosystem may consider in order to position themselves.”
- Investopedia offers a helpful, if rather confusing to me at least, story on the revolutionary technology underlying crypto and much else: “Blockchain Facts: What It Is, How it Works, and how It Can Be Used”:
“What Is a Blockchain? A blockchain is a distributed database or ledger that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.”
“One key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information together in groups, known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled.”
“A database usually structures its data into tables, whereas a blockchain, as its name implies, structures its data into chunks (blocks) that are strung together. This data structure inherently makes an irreversible timeline of data when implemented in a decentralized nature. When a block is filled, it is set in stone and becomes a part of this timeline. Each block in the chain is given an exact timestamp when it is added to the chain.”