Whither Bitcoin?
Does crypto live up to the hype? Not really. But neither is it a failure, as some of its detractors claim. Wall Street has a stake in its carefully managed survival.
Bitcoin took a big tumble in early May, prompting the now familiar litany that crypto was discredited, that Bitcoin was just a Ponzi scheme, that it needed to be more heavily regulated — or even banned outright. Naturally, the Bitcoin faithful clung to their familiar dogma: HODL… hold, never sell. Ever.
For those in neither camps, it’s clear now that Bitcoin and crypto in general is a risk asset like most others. When markets surge, the value goes up, when nerves fray and confidence falls, the price drops, sometimes precipitously, as it we have seen once again:
That BTC serves as some kind of safe haven, as some adepts argue, is clearly not (yet) the case. Also, by now we all know that markets are manipulated. Here’s an insider complaining recently that the gold price is kept artificially low: “Gold price is manipulated by the Fed, suspects mining tycoon Frank Giustra”. Gold has a market capitalization around 20x that of Bitcoin, hence it is not just likely but highly probably the BTC exchange rate is manipulated, especially given that the major exchanges in the US are owned by a little known entity, Digital Currency Group, established and operated by the major Wall Street players.
Hence the fervently held belief that the marketcap of BTC could eventually reach that of gold, making us all gazillionaires, is a far-fetched one, likewise the utopian fantasy that Bitcoin will liberate us from the tyranny of Central Banks; for better or worse the latter aren’t going away any time soon.
Despite all this it would be a mistake to think that Wall Street and high finance are somehow against Bitcoin and crypto. They aren’t. They just want to control it. In a recent discussion of crypto on the economics podcast, Rogue News, the loquacious host, pseudonymous “V”, self-styled “guerrilla economist”, expressed his conviction that the big players were manipulating the price of BTC, engineering these gut-wrenching drops, to undermine public confidence in crypto as investment. Not that they themselves aren’t all-in, it’s just that they want us to be investing through their vehicles, their EFT's and such, that they are beginning to roll out. See for example “Fidelity Brings Bitcoin To Retirement Accounts”.
In other words, they want to financialize Bitcoin. As V says, the big players are “yield starved”. Crypto and commodities are basically the only options available to them these days. This would also explain some of the obstacles the popular exchanges throw up to “slow” retail crypto trade through their portals. Most of the Bitcoin in circulation is owned by “whales”, the major holders. Generating market turbulence would presumably enable the big players to flush out the remaining small holders, the individual investors.
In a podcast last year, V recalled his experiences at the early Bitcoin conferences, which he described as idealistic affairs imbued with the open-source ethos. More recently he stopped attending, the idealism is gone, it’s now just guys who “just want to make a quick buck”. Invest in crypto, V said, but don’t harbor any illusions. Oh, and pay your capital gains taxes. The block chain is visible to all, including the IRS.
The "yield-starved" hypothesis is very good. Wall Street endlessly creates synthetic vehicles, either for sale or for themselves, and the vehicles are always fragile. They want them to be buffered long enough to generate returns. This is similar to what they're doing with those crackpot social development bonds.
Thank you Colin, clear, concise, no hyperbole.