[Discussion] Cryptocurrency

Cryptocurrency! Either it's going to disrupt everything and usher in a new era of artistic and consumer freedom, or it'll hasten the climate apocalypse while largely benefitting a tiny number of investors. Let's yell about it!

Drazzil wrote:

I've been lurking this forum for a long... LONG time. By chance do you work in finance? You're one of the sharpest people I've had the pleasure to lurk-read. What would you think if SHTF the US government would loot the safe boxes of her citizens to make good the ultra wealthy or refloat the dollar or the stonk market?

Pretending the US dollar lost its reserve currency status? If that would even be possible, given its current status of prettiest pig in the poke?

Well, thank you. I work with computers but have a background in logic and science and many other things. I read a lot.

This question, I don't know enough to answer. For example, I looked at Cyprus, and there were 2 banks that were in danger because they had foolishly speculated on Greek derivatives and such, if I understand it correctly. The Cypriot government said "Hey, you used your depositor's money to speculate, and our economy is crashing because you invested in the crashing Greek economy for a quick buck, so you are responsible for the outcome." To me, this is an issue with the change in regulations back in the Reagan days that let banks become trading houses. But that policy has to be double-sided. Depositors have to know that their money is in danger in those places. And so when you get a bank account in the US, the protection limits are clearly stated, and then there's FDIC protection as well. If you want real protection, you can choose something like a Swiss bank - because obviously you have way over the $100K limit - or a Federal Credit Union, some place that does not also provide brokerage/investment services.

That's a consumer choice. Harsh or not, depositors do need to read the fine print because in many places - US included - they have fewer protections than they might expect.

So in Cyprus, one of the two banks managed to do what Greece did - make a deal with the Germans under EU auspices, and they made their depositors whole over time. The other bank did not. Cyprus was forced into the usual (for the time) IMF austerity program, but at least managed to avoid collapsing entirely. This was not what the government wanted to do at all, but it was part of a failure to modernize their banking system, which attracted many foreign and local depositors with very high interest rates and funded it with real estate and bond speculation (again, as I understand it). It nearly tanked Rossiya Bank, for example.

So this was a case of corrupt bankers and foreign depositors almost taking down a government. Note that the takings were not from safe deposit boxes, nor did they seize anything. They didn't touch insured accounts (holding up to $100K Euro I think) which would have skewed the takings to the very wealthy and foreign/local institutional investors. Also, they ended up taking 47% of the deposits, not all of the cash.

So it was not an arbitrary taking. Many depositors, the smaller ones who were most vulnerable, were fine. And it did prevent further terrible things happening to Cyprus, although it was certainly a rough time. But it was not the end of either Cyprus or Greece (which was actually much worse off but is now in recovery I think).

As Paleo pointed out, if the US goes down that far, you won't care much about your bank deposits. You'll be worried about where your next meal comes from.

And I guess my question is, a country is falling to pieces, infrastructure being damaged all over, desperate people running around with wheelbarrows of cash... Will there even be a calm, dependable high-tech infrastructure to back-end all that crypto? To me, that would be just another happy time for criminals operating in foreign havens to prey on the few remaining rich tech suckers, if they even bother at all. (Are you going to spend your intermittent electricity on a mining rig, or a freezer? Hmmmm...)

Food for thought. Hopefully I have not screwed up the Cyprus stuff too badly.

If you think Greek banks are bad, let me introduce you to China.

So we're going on the record as saying that the US dollar will still be the worlds reserve currency if we have unrest, civil war recession/depression, Republican mismanagement, etc?

Cause thats *really* depressing from where I stand. We need a change, and I would hate to think that we Americans are just stuck.

We're pulling a little off topic here though.

Isn't crypto limited by how many transactions can be processed per second? How could it ever handle being a backstop for fiat money?

That's my understanding as well. Blockchain sucks as an OLTP system.

It's cigarettes, western VHS tapes, and American jeans. Trust me. That 70 year old babushka waiting in line for some doctorskaya kalbasa isn't going to pull out her phone and Apple Pay some BTC for it. She's going to hand the dude at the back of the truck some Marlboros.

Drazzil wrote:

So we're going on the record as saying that the US dollar will still be the worlds reserve currency if we have unrest, civil war recession/depression, Republican mismanagement, etc?

Cause thats *really* depressing from where I stand. We need a change, and I would hate to think that we Americans are just stuck.

Ironically, the greater the instability, the more attractive an American reserve currency is as capital flees to the only remaining safe haven.

T bills, for instance, are up.

Paleocon wrote:
Drazzil wrote:

So we're going on the record as saying that the US dollar will still be the worlds reserve currency if we have unrest, civil war recession/depression, Republican mismanagement, etc?

Cause thats *really* depressing from where I stand. We need a change, and I would hate to think that we Americans are just stuck.

Ironically, the greater the instability, the more attractive an American reserve currency is as capital flees to the only remaining safe haven.

T bills, for instance, are up.

*facepalm* Not you. The situation is f*cked. We're truly in hell.

The markets crave stability in government. They are less picky about what government *does*, as long as it’s stable and generally free market in function…

The reserve currency of the world is simply the one that most countries hold as their major medium of foreign exchange. The Pound Sterling preceded the US Dollar in this role, and there were about 4 major currencies held as reserves going back over a thousand years.

The interesting thing about the dollar is that while it had become the world’s reserve, the Bretton Woods Agreement *declared* it to be the world’s reserve. A bit of a globalization twist. The US gets to give itself low market rate loans because of this.

Now, what happens if the world changes? The textbook definition would be that when another currency is held in more volume than the US dollar, it would be the new reserve. Of course that would seem to need to be “ratified” by another Bretton Woods Agreement, but it could just happen and over a few years would be widely accepted as such.

But the ultimate fallback is precious metals. That’s what countries would go to if the world’s economy contracted so much that they could reasonably put them back in circulation internationally (not for citizens). But at that point, things will be absolutely f*cking terrible and finance will not be on the mind of the average citizen. At all.

The things to worry about are events like years-long recessions/depressions; the US or other major tier one countries falling into authoritarianism; secession of states in the US; and of course climate changes kicking off social and economic problems that pop up suddenly on regional scales.

In capitalism, we have an economic system that can survive even dictatorships. I’m not sure it’s a good thing but it’s what we’ve got.

Stocking up on Toilet Paper and Cigarettes.

TheGameguru wrote:

Stocking up on Toilet Paper and Cigarettes.

Is that your new cryptocurrency, or are you selling this pic as an NFT?

IMAGE(https://pbs.twimg.com/media/ETgW92RWoAEYWus?format=jpg&name=medium)

I recently had a conversation with a PhD economist from a federal financial regulatory agency and we got on the subject of T-bills. She made the observation that not only is the US national debt not a problem, the US is in the odd position of not being able to pay down the debt (or significantly reduce the budget deficit) without doing significant damage to the global economy. The reason being is that US sovereign debt is so much the actual instrument of global commerce that reducing its availability would have a disruptively deflationary effect on global markets as that instrument would become less available. It was, she asserts, for this reason that Clinton didn't turn the budget surplus into debt repayments. So great is the confidence in American debt that it actually defines a global understanding of money, commerce, and value. Gold itself is measured in units of American debt, not the other way around. Precious metals are nothing more than banal commodities to be sold for the dollar.

Crypto will not present a competitor to this. Crypto is nothing more than Amway for Incels.

Paleocon wrote:

Precious metals are nothing more than banal commodities to be sold for the dollar.

This right here ought to be bolded and written in all caps.

You know when people say the dollar is the world’s reserve currency, its hyperbole right? A reserve currency is just a currency that a central bank keeps as reserves to support that country’s foreign trade. The dollar is the current largest one at about 60% of FX reserves (I was lazy so just looked up on Wikipedia). It’s not the only currency that is used as a reserve. The euro is the next biggest one at 20% by the way.

The dollar’s position is based on a couple things (I have deleted a longer comment about large economy, no capital controls and oil pricing) and most of them aren’t going away.

One of the biggest reasons why. Bitcoin will never be the world’s largest reserve currency is the Triffin paradox. If you want to be the largest reserve currency you have to have enough liquidity in currency out in the world to support third parties trade. So Kenya and Thailand have to have dollars when they trade with New Zealand and Peru. The only way you can have that is by running a trade deficit. Bitcoin isn’t even able to provide enough liquidity in the crypto economy to support trade. That’s why Tether and other stable coins exist to provide the liquidity.

So I would love to hear a description for how a Bitcoin based global trade system would work that isn’t just the 19th century’s gold based mercantilism leftovers warmed up.

edit: that usage of the US government debt to. underpin global trade that paleocon mentions is the liquidity Triffin is talking about. When you run a trade deficit, rather than paying with goods, you pay with future financial claims (ie debt).

International agreements to use the dollar as trade currency are hyperbole? It’s also around 60% of the amount of foreign currency held by governments around the world. So in both diplomatic and economic senses - in reality, in other worlds - it is literally the world’s most-used reserve currency.

Basically the US economy and specifically the dollar is probably to big to fail, as far as the world/corporations are concerned.

Which is why I don't think the US will ever see a second civil war. Corporate/world interest would shut that noise down super fast.

It's also why I think a relatively peaceful and stable break up of the US could be managed in a way that would satisfy the global economic system, so long as California and NY are able to keep doing their thing.

Robear wrote:

International agreements to use the dollar as trade currency are hyperbole? It’s also around 60% of the amount of foreign currency held by governments around the world. So in both diplomatic and economic senses - in reality, in other worlds - it is literally the world’s most-used reserve currency.

I did say it was 60% of the fx held by central banks was dollars. ^_^ My point is the dollar is the largest reserve currency because it currently is the most convenient/practical but it is not the only reserve currency. When people use the definite article for something, they are generally making the statements that it’s the only one that matters.

I am not sure what agreements you are talking about to use the dollar as trade currency you are referring to? There is a lot of Bretton Woods machinery still around but now defunct, but afaik there is nothing that forces two countries to carry out their trade in dollars if they don’t want to?

I don’t think any currency is practically going to surpass the dollar, but it’s not impossible and it tends to happen slowly rather than with a big break. Though since global trade is quite new and there really only Sterling that has had such a role before.

The euro is mostly a currency used within the eu so the designation as an international reserve currency is a bit stretchy. The eu is a fuzzy area between international and domestic. Counting trade between members as “international” is technically correct but not exactly accurately descriptive.

As for trade in other currencies other than the dollar, it usually happens when one or both sides lack access to dollars. South Korea, for instance, has a few Russian T-72 tanks because Russia didn’t have actual cash to pay its debts. And from recent reports, Putin is shipping actual gold to pay for sh*t he needs as well.

A 60% stake of global commerce is about as dominant a position as any currency has ever managed. Even trade between Korea and Japan or turkey and Iraq is conducted in dollars.

Sure I don’t disagree with any of that. I am just saying the dollar’s position isn’t god given. If the dollar ceases to be the top dog it probably would be a slow shift away as new contracts are specified in whatever that currency is. No time for the fantasy of Bitcoin to kick in.

Holdings by EU central banks of Euros aren’t included as fx reserves. Nor for that matter are dollar holdings by the Fed. The People’s Bank of China has 65% dollars and 20% euros so I think the broad trends are there. With dollar massively dominant and euros much less.

Looks like Putin’s love affair with crypto is over

Paleocon wrote:

Looks like Putin’s love affair with crypto is over

I would argue that this law indicates quite the opposite. He's doing what he always does, removing the competition.

I thought I had typed out a long comment but who knows where it went.

In short, the problem with cryptocurrency is that it is a completely new asset class where the value, in most cases, is not tethered to wealth concepts. Even with national currencies, whilst you can create money out of nothing, there is nevertheless an abstracted value based on a country's wealth and ability to repay its debts (this is an oversimplifcation but the point being that currencies have fundamentals they are tied to).

Whereas with crypto - not only are there dozens of new coins released week to week - the coins come into existence through a mining or similar process. In other words, with crypto it's just printing new forms of money.

I think the main point about the USD is that global commerce uses it as a common form of equivalent exchange, in the same way gold and silver were used for foreign trade. It's because of a perception that it is stable and there's enough of it to facilitate trade (whereas there's not as much precious metals available for this purpose). There is a general expectation that US debt will increase over time in a fairly predictable and stable trend.

USD will be used less and less as and when another foreign power becomes strong enough to dictate terms of trade. For example, very recently, China settled an iron ore shipment purchase in CNY - not USD - for the first time - with one of the world's largest miners, BHP. That's not to say we will see everyone flock to CNY as the preferred currency for trade - it will be a slow transition. CNY has its own problems being pegged to the USD and subject to the government's controls. If and when CNY is free floating, then we may see a faster pivot to its adoption for global trade - but [edit] it won't be any time soon. It seems China has its own macroeconomic problems to deal with due to the supersized contraction in construction (their housing bubble had to pop eventually) and consumption due to the pandemic lockdowns.

In short, I am still sceptical about cryptocurrency. I can understand the benefits a distributed ledger was intended to achieve, but its volatility shows that it is not mature as an asset class (perhaps it never will reach that point) to see it challenge foreign currencies.

I wonder whats going to happen when it becomes more and more apparent that the US has lost its f'ing mind.

You can really push a populace so far (at least I'd hope) before major instability develops and the US becomes a less attractive place to invest.

That said if you asked me even five years ago about what the American public was willing to tolerate out of its government before it took to the streets;

I'd never have bet "anything at all up to watching you or your family literally die" would be among the answers.

Stupid me. Stupid, stupid me. Makes me almost question my accrlerationist tendancies. If Americans are willing to die rather then vote/petition/protest/organize to overthrow a tyrannical (let's just call this what it is, shall we?) government...

Then the best we can hope for is a generational fight to soften the worst of the rough edges for people until we all go extinct from apathy.

And crypto does not fulfill it's true promise of making currency more secure, but rather a cesspool of pump and dump schemes with the poor and destitute hoping, much as in the lottery, that they can buy, hold and sell a currency before it hits its dump phase.

I am often entertained by YouTube videos of crypto bros calling out different rug pull schemes.

The rug pull is always the end goal. The trick is figuring out how to get out before the rug is gone.

Paleocon wrote:

I am often entertained by YouTube videos of crypto bros calling out different rug pull schemes.

The rug pull is always the end goal. The trick is figuring out how to get out before the rug is gone.

Buahahaha. Yeah blockchain could be so much more then what it is if only...

The more and more I look around my country and planet the more I root for the end of the human species. I am *really* trying to see some redeeming features in the human race and keep coming up short.

I have no kids, no friends and no family. Let's get this over with already.

Since crypto has been shown, constantly, to be vulnerable to “pump and dump” along with other scams, I’d argue that it actually has *no* promise of making currency more secure. At least not in anything like its current forms.

It is the monetary version of a libertarian government. It’s got ideals, whether you admire them or not, but every time someone puts them into practice it fails in utterly predictable ways. Still, because it’s idealistic in origin, people just shout down the failure. “Next time it’ll be better, we promise!”

Narrator: “Next time was not, in fact, better.”

Robear wrote:

Since crypto has been shown, constantly, to be vulnerable to “pump and dump” along with other scams, I’d argue that it actually has *no* promise of making currency more secure. At least not in anything like its current forms.

It is the monetary version of a libertarian government. It’s got ideals, whether you admire them or not, but every time someone puts them into practice it fails in utterly predictable ways. Still, because it’s idealistic in origin, people just shout down the failure. “Next time it’ll be better, we promise!”

Narrator: “Next time was not, in fact, better.”

Good point.

The idea that the dollar, or the US itself, will suddenly collapse in the next 5, 10, or 20 years is utter fantasy.