BitCON…it’s all in the narrative

Tuesday, 2 May 2023 — Gold Coast

[9 min read]

Dear Reader,

Word choice has a subliminal, yet powerful influence over our collective thinking.

Peers in the British Empire knew this when they bestowed upon each other the honorific title of ‘The Right Honourable’.

The tradition carried over to Australian politics.

With members of federal and state parliaments being referred to as ‘The Honourable’.

According to the Merriam-Webster Dictionary, the definition of ‘honourable’ is:

‘…deserving of respect or high regard’.

A meeting of politicians who satisfy this definition could be held in a telephone box.

The more fitting title for the (vast majority of the) political class would be ‘The mostly wrong and Dishonourable’.

But for the sake of community confidence, the protocol of deception is retained.

Speaking of deception, let’s get to the topic of today’s Daily Reckoning Australia…the BitCON…no that’s not a spelling mistake.

The fraudsters who set-up the crypto scam were very clever in their word choice…cryptocurrency.

According to the Merriam-Webster Dictionary, the definition of ‘currency’ is:

‘…circulation as a medium of exchange’.

This stuff was not and NEVER, EVER will be a medium of exchange.

Yes, a couple of fourth or fifth world countries (run by despots) tried to introduce BitCON as a medium of exchange, but even their poorly educated citizens were smart enough to figure out this stuff is useless in the real world…where, like it or not, love it or loathe it, fiat currency is the only medium of exchange.

Yes, in the real world, the fiat money game is rigged.

A bunch of ‘The mostly wrong and Dishonourable’ elected and unelected officials stack the deck in favour of themselves and their political benefactors.

However, if you want to buy groceries, pay taxes, make a loan repayment, fill up your car, pay your power bill etc. — all the things we do in the real world — you need a medium of exchange the government agencies and service providers will accept.

Cryptos ain’t it.

The more apt description of what crypto is can be found in Wikipedia under…‘Gambling Chip’:

‘Money is exchanged for tokens in a casino at the casino cage, at the gaming tables, or at a cashier station. The tokens are interchangeable with money at the casino. Generally they have no value outside of the casino, but certain businesses (such as taxis or waiters—especially for tips) in gambling towns may honor them informally.’

You can see why calling it what it is, ‘Crypto Gambling Chip’, kind of takes the (unwarranted) legitimacy inferred by ‘cryptocurrency’.

But a gambling chip it is.

You trade fiat (Australian, US, Canadian dollars, euro, pounds, yen, etc.) for tokens. The tokens ONLY have value within the ‘casino’…maybe a pizza shop or café might accept payment, but nothing of real-life consequence (other than ransomware, drug deals, or terrorism) can be exchanged for this stuff.

If you want to cash out, you have to go to the cashier and get the folding stuff your nation State recognises as a medium of exchange.

And, in the US, with the failures of Silvergate Bank and Signature Bank, finding a cashier (bank) is getting a little harder.

Not to mention this ‘helpful guide’ issued by the Fed and other US regulators to US banks:

If you’re a US bank and want to stay on the good side of the regulators, it would be wise to steer a wide berth around anything to do with cryptos.

Bitcoin is the latest in a long list of failed experiments

While Bitcoin captured the imaginations of those wanting to be freed from the shackles of the centralised money system controlled by corrupt officials, it’s only the latest in a long line of ‘alternative currency’ experiments that started back in the 1970s.

To quote from Finn Brunton’s 2019 book, Digital Cash: The Unknown History of the Anarchists, Utopians, and Technologists Who Created Cryptocurrency:

‘…you now have a history of digital cash, utopian computing projects, and the precursors of contemporary cryptocurrencies in mind: the earliest experiments with “objects made in new ways,” blinded e-cash, the CryptoCredits of BlackNet; hashcash and bit gold, RPOW and b-money; Extropian idea coupons and thornes and hayek note sketches; libertarian coinage and certificates and digital gold currencies; and, finally, the initial version of Bitcoin and its chains of digital signatures. You have a sense of the challenge of creating different kinds of digital media objects that can prove, certify, and authenticate themselves…’

What do all these ‘currency’ iterations have in common?

They all failed…and, yes, that includes Bitcoin.

Why?

Because Bitcoin [BTC] and Ethereum [ETH] cannot be applied commercially.

In September 2022, Molly White, a software engineer, researcher, and a writer, gave a guest lecture at the University of Texas at Austin, titled:

To quote from the lecture (emphasis added):

‘There’s a pretty long list of cons when it comes to blockchains. They’re really slow. They’re really, really slow. Bitcoin does, I think it’s seven transactions per second. Which is nothing compared to Visa or very similar systems. Ethereum’s a little faster, but not much. And so when you’re talking about using this at the web scale, you start to run into problems with speed. It’s also very expensive.’

This is why, after more than a decade, cryptos are nothing more than gambling chips, being used in a…

Rigged casino

When ‘Scam’ Bankman-Fried and his FTX exchange imploded last year, this left only one crypto casino standing…Changpeng Zhao’s (CZ to his mates) Binance.

In January 2023, CoinDesk alerted us to just how much market share Binance now has:

According to the article (emphasis added):

‘Binance’s market share of bitcoin (BTC) trading volume rose to 92% by the end of 2022, according to Arcane Research.

‘The exchange’s market share was just 45% at the start of last year, but the elimination of trading fees in June, not to mention the collapse of rival FTX in November, served to push users to Binance, which is the world’s largest crypto exchange by trading volume.

‘“No matter how you look at it in terms of trading activity, Binance is the crypto market,” Arcane wrote. “After lifting trading fees for its BTC spot pairs this summer, Binance completely overtook all market share in the spot market.”’

‘Binance is the crypto market’…thank Heavens the company has impeccable ethics and business practices…

Just kidding.

On 27 March 2023, the US Commodity Futures Trading Commission (CFTC) issued this Press Release:

Here are a couple of screenshots from the CFTC legal action:

CZ is being accused of rigging the game by using approximately 300 ‘house accounts’.

Naturally, he pleads ‘not guilty’.

The CFTC accusations continue (emphasis added):

‘…does not sufficiently contest the presence of possible sources of fraud and manipulation in the bitcoin spot market generally that the Commission has raised in previous orders. Such possible sources have included (1) “wash” trading, (2) persons with a dominant position in bitcoin manipulating bitcoin pricing, (3) hacking of the bitcoin network and trading platforms, (4) malicious control of the bitcoin network, (5) trading based on material, non-public information, including the dissemination of false and misleading information, (6) manipulative activity involving the purported “stablecoin” Tether (USDT), and (7) fraud and manipulation at bitcoin trading platforms.’

Maybe, just maybe, the exhaustive discovery process the CFTC conducted prior to launching legal action was a case of ‘misunderstanding the facts’.

But given the history of scams, pump, and dumps, ‘wash’ trading and the not-so-honest characters attracted to this casino, you have to think ‘where there’s smoke, there could be fire’.

Yes, I know the BitCON price has been going up, so why worry?

Well, the question is ‘why is the price going UP’?

As reported in Almost Daily Grant’s on 11 April 2023 (emphasis added):

‘Bitcoin logged a bullish milestone today, blowing past the $30,000 mark for the first time since June of last year. The pre-eminent digital ducat has now nearly doubled in the year-to-date, while enjoying a snappy 50% advance from its mid-March lows despite the demise of key industry cogs like Signature Bank and Silvergate.

‘Digital intelligence platform Santiment identifies another potential driver. Yesterday, the top 11 largest bitcoin transactions all featured 2,000 tokens moving from existing on-exchange addresses to brand new off-exchange ones, with that combined tally of 22,000 bitcoins equivalent to just over $700 million at current prices. Eight of those trades took place at precisely 17:28 UTC (1:28 EDT), with the other three occurring 57 minutes later. “This is certainly not normal behavior,” the Santiment team concludes.’

I’m not sure how much more evidence is needed to convince the crypto faithful that their utopian dream is a sham and scam.

The list of failures, frauds and fines is extensive:

Quadriga CX
Bitfinex
Tether
Celsius
Luna
Three Arrows Capital
Voyager
FTX

In the wake of the blatant fraudulent behaviour, US lawmakers and regulators (Department of Justice, Securities Exchange Commission (SEC), CFTC, and the New York Attorney General) are stepping up enforcement efforts.

I know the true believers will say ‘yes, that just proves the system is rigged’.

Maybe it is. But it is no less rigged or centralised than the Crypto Casino.
Where the power to set the price and print tokens is held in the hands of a few powerful whales.

Everything the cult members hate about fiat is in existence in cryptos.

But there are TWO HUGE differences.

Firstly, fiat is the medium of exchange needed to function in the real world.

Secondly, if a bank holding your fiat money collapses, there’s a government guarantee to fall back on. Whereas if your crypto exchange fails or is hacked or the operator shuts up shop and heads to Montenegro with your coins, you got diddly squat.

And…

Finally some good news for crypto lovers

This is the last article I intend to write on this rubbish.

If, after all the data that’s out there and the news coverage of the SBF and others is not enough for the lights to go on and to motivate you to get out while you can, then nothing is going to convince you.

However, I do make one request.

When the whole thing fails, like all the previous experiments have, DO NOT go off to the regulators claiming to be a victim or lobby your ‘mostly wrong and dishonourable’ member of parliament to ‘do something, anything, to make you whole again’.

Regards,

Vern Gowdie,
Editor, The Daily Reckoning Australia

Dear Reader,

‘In America, all the restraint, inhibition, and modesty of the Old Republic has been blown away by the prevailing winds of the new empire. In its place has emerged a vainglorious system of conceit, deceit, debt and delusion.’

Empire of Debt,

by Bill Bonner and Addison Wiggin

In our opinion, we have clearly reached a turning point. Trouble is that the authorities may not turn. They need to turn away from money-printing, deficits, and expensive overseas meddling. Typically, the ruling class can’t do it. These things increase their wealth and power; they don’t want to give them up. Instead, they use tricks, disguises, and brute force to keep the racket going…all the way to the disastrous end.

Will this time be different? We’ll see…

A tear in the fabric

In the great boom 2009–22, anything seemed possible. Money grew on trees. And trees all got the Fed’s Miracle-Gro. It could be used to pay for pointless wars…‘investments’ that didn’t pay off…deficits…zombies — you name it.

No more. Inflation changes everything. It raises prices. And higher prices make consumers unhappy…and make voters restless. The ‘social fabric’ wrinkles…then rips.

Here’s the latest from Bloomberg: ‘More Young Adults Are Living Paycheck to Paycheck in the US’:

‘The share of young people who struggle to cover everyday bills jumped from a year ago, while that of seniors living paycheck to paycheck leveled off, according to a report.

‘Almost two-thirds of adult Gen Zs — people who are 26 and younger — were living paycheck to paycheck in March, an 8-percentage-point increase from a year earlier.’

We have previously seen how inflation damages the middle class. The poor have their inflation-adjusted handouts. The rich have their inflation-boosted financial assets. The middle class has neither. All it has is its time — which it sells by the hour.

Inflation depreciates time. Long-term investments aren’t made. Long-term bonds get marked down. And real wages per hour have been falling for the last two years.

Others’ expense

Meanwhile, inflation increases house prices. But a home is not a financial asset. Families can’t ‘cash out’; they have to live somewhere. All they can do is borrow against the ‘equity’. And then they are trapped; they will need low interest rates to refinance — or lose their homes.

In countries with severe inflation, the middle class gets squeezed so hard it vanishes. Venezuela…Argentina…Zimbabwe — as inflation rates go up, the middle class sinks into poverty. That’s why democracy is incompatible with inflation. The many poor are dependent on government handouts; they are easily bamboozled and bribed. And the elite get to be good at it. They become ‘extractive’, that is, they use their skills and power to make themselves rich at others’ expense.

An honest democracy needs a free, informed middle class. It needs a yeoman class — people who own their own farms and houses…who pay the taxes…who are ready to protect the homeland…and vote independently.

So, look what’s happening. Statistica reports: ‘America’s Middle Class Is Shrinking’:

‘While middle class Americans remain the biggest income group by number of people, the same can't be said of the aggregate income earned by them. From 1970 to 2021, the share of U.S. aggregate income earned by the middle class shrunk massively, from formerly 62 percent to just 42 percent. During the same time, aggregate earnings by high income Americans increased from 29 percent to 50 percent…’

The disappearance of the middle class corresponds with another of the great conceits we can no longer afford: an empire. We wrote a book about it almost two decades ago: Empire of Debt, we called it.

The book, written with Addison Wiggin, was a best-seller. We were right about a number of things. So, the publisher, John Wiley & Sons, has asked for an update.

Our book was written in 2005. Then, US debt was US$13 trillion, 60% of GDP. Today, it’s US$32 trillion, 120% of GDP.

Stumblin’ and bumblin’

One of the features of the Roman Empire was that it destroyed the middle class — the people whose blood, sweat, and taxes had built the empire. It was these people who picked up their fathers’ swords and defended Rome when it seemed ready to fall to Hannibal, for example. It was they who filled the ranks after the disastrous battle of Cannae, 216 BC, in which Rome lost 50,000–70,000 soldiers…and again, after three entire legions were massacred in the Teutoburg Forest in 9AD.

And how did the empire reward them? It brought in thousands of slaves. And soon, the small freeholders couldn’t compete with huge latifundia, farmed by slaves. And then, the government inflated their money and raised taxes. They sold their daughters to keep up. And then, they sold themselves into slavery.

But at least the empire was profitable!

The gist of our book is that though the US has been in the empire racket for more than 100 years, it has never gotten the hang of it. It extends its power…it offers protection to nations who obey, war, and sanctions to those who don’t. The trouble is, it loses the wars…and loses money on the whole enterprise.

The idea of an empire is that you conquer…steal…and then demand tribute. It’s supposed to be at least self-financing…and usually profitable. But the US stumbles and bumbles. It has the expense of conquering…then the expense of governing…and the extra cost of ‘building a democracy’. But where’s the pay-off? Where are the slaves? The booty? The tribute?

What is going on? And what does it mean for America’s middle class?

Tune in tomorrow…

Regards,

Bill Bonner,
For The Daily Reckoning Australia