No, I don’t think Charles Hugh Smith is God but I’ve been reading his blog every day since before I started reading TBP. Damn, that’s a looong time. Back in 07′(?) Admin was sending anyone who could breath a CD explaining why Ron Paul was the smart choice in 08′.
Anywho, CHS sounds pretty logical about his thoughts on why bitcoin ain’t goin nowhere.
October 23, 2017
Those who see governments banning ownership of bitcoin are ignoring the political power and influence of those who are snapping up most of the bitcoin.
To really understand an asset, we have to examine not just the asset itself but who owns it, and who can afford to own it. These attributes will illuminate the political and financial power wielded by the owners of the asset class.
And once we know what sort of political/financial power is in the hands of those owning the asset class, we can predict the limits of political restrictions that can be imposed on that ownership.
As an example, consider home ownership, i.e. ownership of a principal residence. Home ownership topped out in 2004, when over 69% of all households “owned” a residence. (Owned is in quotes because many of these households had no actual equity in the house once the housing bubble popped.)
The rate of home ownership has declined to 63%, which is still roughly two-thirds of all households. Clearly, homeowners constitute a powerful political force. Any politico seeking to impose restrictions or additional taxes on homeowners has to be careful not to rouse this super-majority into political action.
But raw numbers of owners of an asset class are only one measure of political power. Since ours is a pay-to-play form of representational democracy in which wealth buys political influence via campaign contributions, philanthro-capitalism, revolving doors between political office and lucrative corporate positions, etc., wealth casts the votes that count.
I am always amused when essayists claim “the government” will do whatever benefits the government most. While this is broadly true, this ignores the reality that wealthy individuals and corporations own the processes of governance.
More accurately, we can say that government will do whatever benefits those who control the levers of power most, which is quite different than claiming that the government acts solely to further its own interests. More specifically, it furthers what those at the top of the wealth-power pyramid have set as the government’s interests.
Which brings us to the interesting question, will governments ban bitcoin as a threat to their power? A great many observers claim that yes, governments will ban bitcoin because it represents a threat to their control of the fiat currencies they issue.
But since government will do whatever most benefits those who control the levers of power, the question becomes, does bitcoin benefit those holding the levers of power? If the answer is yes, then we can predict government will not ban bitcoin (and other cryptocurrencies) because those with the final say will nix any proposal to ban bitcoin.
We can also predict that any restrictions that are imposed will likely be aimed at collecting capital gains taxes on gains made in cryptocurrencies rather than banning ownership.
Since the wealthy already pay the lion’s share of federal income taxes (payroll taxes are of course paid by employees and employers), their over-riding interests are wealth preservation and capital appreciation, with lowering their tax burdens playing third fiddle in the grand scheme of maintaining their wealth and power.
Indeed, paying taxes inoculates them to some degree from social disorder and political revolt.
I was struck by this quote from the recent Zero Hedge article A Look Inside The Secret Swiss Bunker Where The Ultra Rich Hide Their Bitcoins:
Xapo was founded by Argentinian entrepreneur and current CEO Wences Casares, whom Quartz describes as “patient zero” of bitcoin among Silicon Valley’s elite.Cesares reportedly gave Bill Gates and Reed Hoffman their first bitcoins.
Their first bitcoins. That suggests the billionaires have added to their initial gifts of BTC.
The appeal to the wealthy is obvious: any investment denominated in fiat currencies can be devalued overnight by devaluations of the currency via diktat or currency crisis. Bitcoin has the advantage of being decentralized and independent of centrally-issued currencies.
I submit that not only are the wealthy the likeliest buyers of bitcoin for this reason, they are the only group that can afford to buy a bunch of bitcoin as a hedge or speculative investment. Lance Roberts of Real Investment Advicerecently produced some charts based on the Federal Reserve’s 2016 Survey of Consumer Finances (SCF) report– Fed Admits The Failure Of Prosperity For The Bottom 90%.
Put another way: how many families can afford to buy a bunch of bitcoin?
Here is a chart of median value of family financial assets: note that this is far below the 2000 peak and the housing bubble of 2006-07:
Here is mean family financial assets broken out by income category: note that virtually all the gains have accrued to the top 10%, whose net worth soared from $1.5 million in 2009 to over $2.2 million in 2016, a gain of $700,000.
The Fed’s 2016 Survey of Consumer Finances is a treasure trove of insights into wealth and income inequality in the U.S. Here are the highlights: Changes in U.S. Family Finances from 2013 to 2016.
As you’d expect, the report starts off on a rosy note: GDP rose by 2.2% a year, unemployment declined to 5%, and the median family income rose 10% between 2013 and 2016.
Blah blah blah. Meanwhile, on page 10, it’s revealed that the top 1% receives 24% of all income, and the families between 90% and 99% receive 26.5%, for a total of 50.5% of all income flowing to the top 10%.
The top 1% owns 38.6% of all wealth, and the families between 90% and 99% own 38.5%, so the top 10% owns 77% of total wealth.
On page 13, we find that the total median net worth of all families between 40% and 60% went from $57,000 to $88,000, a gain of $21,000, while the median net worth of families in the 60% to 80% bracket rose from $166,000 to $170,000, a grand total of $4,000.
Meanwhile, back in La-La Land, the median net worth of the top 10% soared by $468,000, from $1.16 million to $1.62 million.
Which family has the wherewithal to buy a bunch of bitcoin at $5,900 each as a hedge or investment, the one that gained $4,000 in net worth, the one that gained $21,000 in net worth or the one that gained $468,000?
You see the point: the likely buyers of enough bitcoin to count are the politically powerful financial elite. If any politico was foolish enough to propose banning bitcoin, a few friendly phone calls from major financial backers would be made to impress upon the politico the importance of blockchain technology and cryptocurrencies to the U.S. economy.
Heck, the financial backer might just suggest that all future campaign contributions to the politico will be made in bitcoin to drive the point home.
My vision of cryptocurrency, laid out in my book A Radically Beneficial World: Automation, Technology & Creating Jobs for All, is of a truly decentralized currency that directly funds work that addresses scarcities in localized community economies. The reality of existing cryptocurrencies is that they are probably being snapped up for buy-and-hold storage by the wealthy.
Those who see governments banning ownership of bitcoin are ignoring the political power and influence of those who are buying enough bitcoin to matter.
I’ve told a number of liberals (Registered Democrats) about how Obama’s financial policies screwed the poor, middle class, and even the blacks.
They either get angry, go stone-faced, or says it’s a lie(in which case I happily provide the ammo).
If you can’t touch it, feel it, smell it and protect it with a gun, it’s not yours and it never was.
does that include stocks and bonds?
Maybe not but it doesn’t matter. If you recall during the housing bust/foreclosure heyday there was the issue that mortgages had two parts. The mortgage agreement and the promissory note. As the mortgages were assigned and sliced and diced into securities the banks set up a clearing house to register the mortgages but when the mortgagee went to court to foreclose on a property they couldn’t produce the promissory note.
This had the potential to be a huge problem along with ‘robosigning’ of the foreclosure documents but the courts allowed the banks simply claim the promissory note had been lost and that the ‘rights’ to the mortgage did not have to be signed by the originating financial entity.
Does that include social security, Medicare, Medicaid, even your own money in the bank? Even your paid off home with mortgage deed in hand you will still owe land taxes annually and the politicos can jack your rate so high that they kick you out for non payment. The only thing stopping them is the 2nd amendment and widespread ownership.
How about your heart?
Admin should look into this:
https://www.extremetech.com/computing/257786-browser-cryptocurrency-mining-exploding-across-web
Maybe even start a new cryptocurrency… TBPcoinz?
Actually, I thought today’s ” Of Two Minds” blog was one of CHS’s poorest. There is little internal logic to it. Being able to hide ‘money’ electronically is all that is ‘new’ about crypto currencies and how secure that really is is open to debate. The debacle at Mt. Gox was not exactly confidence building.
One can also hide wealth in the form of small stones or rare coins but, unless you are willing to barter or sell them at a heavy discount, they have to be converted into fiat or digital form to be deposited into a bank account and bankable assets are what one must have to make wealth tangible.
Cryptos threaten to replace fiat currency. Argentinians, for example, embrace the idea and even poor ones manage to buy a little. You don’t have to buy an entire BC inasmuch as they go out eight decimal places.
The current dollar system is an electronic currency, although it is exceedingly corrupt (far worse then most people understand) and built on ancient computer code. Fortran I think. Very little is in paper money, 1% maybe.
A lot of people are looking for a way out. The blockchain SEEMS to be a way out. Bitcoin is just the most popular cryptocurrency at the moment.
In my opinion, I still consider stacking gold and silver is the best way to go for now with a little bit saved in several cryptocurrencies.
Well…NO. Bitcoin is not money. You can’t buy toilet paper with it. For now you can turn it into money so you can buy toilet paper, but on the day that somebody decides that you can’t turn it into money, then you can’t buy toilet paper.
Bitcoin is just American Express Travelers Cheques. People use it to move their money out of one country and into another. It is rubles first, then it is bitcoin, and then it is canadian dollars. Until it is canadian dollars it can’t be used to buy toilet paper. Seeing as it is simply a transfer device for real money, kinda like a suitcase but one that can’t be opened or searched, it in and of itself has no real value. As long as the rubles are changed into canadian dollars it really does not matter what the cost of the intermediary (bitcoin) is so the person moving the real money can afford to pay anything that he wants. It really does not matter. So one day a russian oligarch moves two billion into bitcoin and the value of bitcoin skyrockets. The next day he dumps two billion in bitcoin and the value of bitcoin plummets. Sure, go invest in digital bits. But don’t come bitching when they disappear up your asshole.
Seems like a good point. People are getting caught up in it though and that can make all the difference, no?
My sister is all giddy about her bitcoin. Talking about transferring her kids to private school after doubling and tripling her investment. If (I don’t know why they ever would though) government declares it money…holee fuk, watch out.
Bitcoin makes absolutely zero sense. Seems the millenials have their head up their proverbial confused asses. They are mistaking a transfer of asset device as currency! Take PayPal for instance, it is a service and they collect a fee for the service. You give PayPal yo money and they take some as a fee for service and guarantee the remained goes to the right party across the land you dealt with in a business transaction. That makes sense. Now I can do business with a dude in China. WHereas bitcoin says hey, we will give you say 100 bitcoin for your current currency that equals $1,000 (a ten to one ratio) and the thingy you want to buy (another currency) costs “x” and then we will reconvert from bitcoin into that currency….we don’t charge anything, makes no fuckin sense. But somehow someone somewhere makes the currency exchange rate go higher and higher making the transactions cost more and more! Why not simply go from one currency into another as has been done for thousands of years. Let me JP make it real clear, yesterday it was a 10/1 ratio and today it’s a 20/1. So people believe the ratio will go to 30/1 tomorrow so they exchange their currency at 20/1 today and do nothing, just sit and own bitcoin and hope one day in the future they can re-exchange it back into their currency for say 50/1. I saw a benefit for crumbling nations…when Venezuela was starting to crumble I suggested it’s citizens move into bitcoin as a safe haven. I see that as an opportunity but why not just convert to US dollars etc. it’s would be safer in bitcoin you cannot get robbed…..there is no set limit of supply and no inventory like gold so why the fuck is the exchange rate, i.e. Bitcoin price going up? Makes zero sense and I see it as a means of wealth destruction when govts want to or need to threaten and keep in line the very wealthy. Push them into it and then threaten to shut it down. Power is everything remember…..bitcoins days of distrust are forthcoming, but not until they get enough fat cows herded into the slaughtering arena.
When I first thought of buying bitcoin it was at 50 cents. A $100 investment would be worth $1,200,000 now. Damn!!
Not one person in 10,000 has the faintest glimmer of a clue that money need not be a coercive territorial (i.e. State) monopoly. Not one in 100,000 understands that until and unless the idea that that monopoly is necessary is utterly eradicated, any “difference” between the “government” and “those at the top of the wealth-power pyramid” is irrelevant to the point of absurdity.
I saw an article on ‘blockchain’ and the amount of electricity it consumes ( a lot ) because of the computer processing it consumes to make it ‘secure’.
This morning I read of Chinese advances in quantum computing. This might make ‘blockchain’ less costly but my hunch is it will make if less secure first. The first guy with a quantum computer able to hack into ‘blockchain’ will do it!
CHS might be on to something here. Would be nice to know how much of the .1% are invested in bitcoin. Stacking gold, silver and lead.
Dance Macabre Group,
Diogenes
I’ll repeat:
1) Bitcoin is nerd art. Every bitcoin is a unique snowflake…
2) Bitcoin is not untraceable. In fact, it is getting more easily traced all the time. The only real circumstance where it is untraceable is where you never use it: never buy it, never sell it, never receive it, never give it away.
3) Bitcoin benefits from an enormous inflow of criminal proceeds. Europol recently estimated that cyber crime is more profitable than the drug trade, worldwide. Whatever the actual amount of cyber crime, it is huge and a huge percentage of it is denominated in bitcoin.
4) Bitcoin is anti-fiat by central banker. It is fiat by software programmer. Is Greenspan more corruptible than Tinder?
5) Even after the recent surge in cryptocurrency valuations, overall cryptocurrency worth is around $170B with $100B being bitcoin. Sounds like a lot until you consider that even a $1B worth of bitcoin transaction would dramatically alter the price up or down. Highly illiquid, easily manipulated, what’s not to like?