In a piece titled “Cryptocurrency: Don’t Blame the Medium for the Scam,” libertarian Counterpunch contributor Thomas Knapp wholly misunderstands the nature of money and cryptocurrency.
Lots of money went to lobbyists to game government regulatory efforts. Lots of money went to Democratic and Republican campaigns and politicians. Lots of money went to expensive homes in the Bahamas. And so on and so forth. Maybe all that will come out in the wash. None of it looks very good.
And, believe it or not, none of it has anything whatsoever to do with cryptocurrency — Bitcoin, Ether, etc. — as such.
Yes, the allure of cryptocurrency was used to attract investors and customers.
Yes, cryptocurrency was among the media of exchange used in the alleged scams.
Question 1: How many scams throughout history have been perpetrated using the allure of dollars and using dollars as the medium of exchange?
Question 2: How many times has the dollar itself been blamed for, and tanked in value because of, those scams?
These questions are loony. Answer one – Whether cryptocurrencies or telephone psychics or male enhancement pills, real dollars are always the point, and on the OTHER side of the equation is the fraud. Answer two – none, the dollar is fine and the scams tanked, just like with crypto.
Robert Hockett said on Macro N Cheese: “The idea that a money could be private is just a complete and total absurdity. And the idea that it ought to be that way is also an absurdity.”
First of all, in a tone that libertarians like Knapp should appreciate, let us explain what money really is. The currency issuer (dollars, pounds, yen, etc.) has the authority to use violence within their territory, The money they create has zero inherent use other than the forgiveness of their own tax, enforceable by legalized violence, and every other use exists because of this core circuit of creation and deletion of something limitless. Call it an IOU. “I” is the issuer, the government, and what they owe you, the only thing they redeem the IOU for, is the right to live within their society.
They give these tickets out in exchange for provisioning the government, with everything from war machines to highways to social workers, and we accept the tickets in exchange for real things because of the threat of legal violence. The threat comes first, the spending next, and the actual collection of taxes later. Each step is separate from the others, meaning that when the money is being created, we don’t really know when or how much of it will eventually be deleted by taxation.
To quote Clint Ballinger on Macro N Cheese:
“Modern money for 5000 years has been something that extinguishes a liability. And the reason I mentioned cryptos, that’s always been the problem with cryptos. It doesn’t inherently extinguish any kind of liability. So it can always go back to zero. Whereas if you can extinguish a liability, then the thing is what we commonly call money. So that’s fundamental. And one of the ways we keep our thing that we call money functioning is we impose an ongoing liability. In other words, some kind of tax. So that’s key.”
The IOU is something the public must obtain in order to avoid being subject to the penalties associated with taxation. Government comes knocking on the door to take our stuff away or lock us up, unless we have their brand of freedom tickets. I (the government) O (owe) U (the citizens), the right to own property or license a business or buy a passport, or to have a job, and not be subjected to our prisons or property seizures.
A monetarily sovereign nation’s debt (ours, theirs) is not something that has to be repaid, it is the IOU’s outstanding, that the government has promised to receive in exchange for forgoing it’s assumed right of violence towards its constituents.
Knapp repeats the libertarian mantra: “The Federal Reserve has been scamming you for more than 100 years by inflating/debasing government-issued money at will. That dollar bill in your pocket buys about 1/28th of what it would have bought in 1914.”
Touché, in that they do scam us. They have come to prop up and maintain the aptly named, FIRE sector (Finance, Insurance, Real Estate). But to then blame central banking’s failures on the Fed’s very existence, is to blame environmental degradation on the existence of the EPA, or the opioid epidemic on the FDA and CDC, rather than on the revolving doors that water down the very purposes of these institutions to within the tolerances of the capital class.
The environment is worse now than when Nixon created the EPA. Does that mean it would be better without an EPA? The dollar is worth less, would we be better off without a central bank? The answer in both instances should be obvious.
Further, in drawing a largely arbitrary line at the creation of the Fed, Knapp and other Gold/Crypto bugs ignore the even larger depreciation of the dollar before that point. After all, if only those bureaucratic do-gooders had the sense to leave child labor alone, our stuff might cost less. “Might” being the key word, as it is not regulation, but an absence of regulation, that allows for monopoly price setting.
The revolving doors between government and industry ensure that regulations remain inadequate, and crypto is no exception. There have been hundreds of failed or disappeared crypto exchanges over the past few years, and thousands of failed altcoins, and bitcoin itself is a rollercoaster that has repeatedly plummeted by more than 80%. The recent FTX collapse is nothing new, it is just the biggest, so far. The crypto fiasco will likely, unfortunately, continue until the whole scheme implodes, leaving only waste and destruction where once were people’s hopes and dreams. Sam Bankman-Fried and his coconspirators at the helm of FTX paid a lot of money to both sides of the duopoly for the opportunity to rip us off. They are now facing campaign finance law violations in addition to their financial crimes. Are we expecting any adequate regulation for crypto from our dork riddled, earth marauding, people plundering congress? Would even less regulation have helped? This tragedy is not an aberration, crypto will prove rotten all the way through to the foundation, just another financial sector shenanigan.
Robert Hocket recently joked with Steve Grumbine:
“That happened, as I mentioned before, with junk bonds, it also happened then with subprime mortgage loans and associated products about 10-15 years after that, and now it’s of course happening in crypto. And the irony is that in every one of these cases there is a clue in the name of the product in question that ought to warn you, right? If it’s called a junk bond, there is a reason for that word junk being used. And if it’s called a subprime mortgage-loan or subprime mortgage-based product there is a reason for that subprime term. And sort of similarly with cryptocurrency, right, of crypto assets as they call them, which is one of the most ironical names for this kind of product. But if the word crypto comes into it then that’s a pretty good tip off that there’s something nontransparent about it, that there’s something opaque and occluded and difficult to understand about it, and that’s a pretty good hint that one should proceed with caution, if one is going to proceed into this territory.”
FTX was a lot like an old-fashioned bank run, pre-FDIC. Except FTX was not a bank, and its customers were not protected. News of mismanagement spread like wildfire following the collapse of the Binance merger, and customers tried to withdraw en masse. It was to no avail, as everything had already been pilfered.
Cryptocurrency as it currently exists is not money. Real money’s circuit of creation and deletion by an ever-present authority ensures its widespread acceptance, its spendability, i.e., liquidity. Cash and credit are the most liquid money, a treasury security less so, and something like the value of your home the least liquid because, hint, not money.
Crypto is at best called an asset, but a strange one at that. Lacking money’s state sovereignty and tax-liability-effectuated liquidity, the option to pay for something in crypto is a trade. Two farmers can trade hay for hogs, two gamers can trade some hardware for some software, but the value of each is weighed in money. It matters not to the gamer how many bales of hay their computer is worth, or to the farmer how many hard drives per hog, and crypto’s value too exists within an isolated sphere. Somebody might be willing to trade you something for it, or you can sell it for dollars, but only inside the sphere.
Liquidity crisis is a term readers may be familiar with. It begins to explain what happened with previous bubbles such as in stocks or housing, and the broader risk crypto poses. Assets, such as property (or crypto), can be subject to speculation. The expectation of rising prices causes an investment influx, which itself raises prices. Then an expectation of falling prices causes an investment exodus, the sudden lack of buyers means prices nosedive until new buyers are found. People and institutions with access to speculation-sized fortunes are willing to inject their liquidity as prices rise, then, for whatever reason, the tide turns, and investors will not or cannot supply the same level of cash and credit, and the asset’s price tumbles.
Speculation is unproductive investment, money spent to gamble that a future shortage of something (such as housing) will allow for rising prices to return profit. Real estate prices, for example, with Wall Street now buying about one out of seven homes, have risen dramatically in the past few years. Now, with central banks raising interest rates, home purchases are slowing, unemployment will rise, and house prices are forecast to crumble. To real people living real lives in those homes, this instability can present a devastating destruction of their wealth. Working people lose life savings, while Wall Street gets bailed out and begins anew the cycle elsewhere. Crisis after crisis, and so little changes. However, it’s the price, not the house, that crumbles.
Speculation in housing needs to stop, it destroys lives, but housing itself is something of real value. Crypto is at best compared to a virtual casino. Maybe you’ll make some money, maybe you’ll lose some, but in the end, when it falls, it turns out it is no more useful than an unplugged video poker machine. A video poker machine where more than a million people lost billions of unprotected dollars when debaucherous liar Bankman-Fried tripped over the cord. Dean Baker quipped: “Sam Bankman-Fried was so committed to his philosophy of effective philanthropy that he was prepared to make himself appear to be the epitome of a despicable human being, and spend many years in prison, all to teach us that finance is a wasteful cesspool that needs to be reined in for the good of humanity. And, the place to start is his particular corner of the cesspool: crypto.”
Brett Scott, author of Cloudmoney: Cash, Cards, Crypto and the War for our Wallets, on his most recent Macro N Cheese appearance, explains:
“So, there’s a very strange thing going on in libertarian thought about this imagined apolitical money form…
“And what’s really happened in Bitcoin is that this apparently apolitical money form has been totally dominated and taken over by the actual monetary system, despite all the pretenses to things like bitcoin being this escape from the system. Really what it has become is an object traded in the normal US dollar system.
“And, obviously, it’s a big political critique to be had here because in leftwing circles like, say, the MMT community, people don’t deny the violent underpinning of state foundations, but people will argue, say, what we got to do is we got to find ways to steer that and push it in a positive direction. We don’t engage in this fantasy that somehow you can have a society that has no governance processes and that’s somehow going to be a peaceful society.
“Whereas in these Bitcoin circles that exist in this fantasy world, this imagined nonviolent apolitical thing somehow exists. And I guess maybe the last thing I’ll say is that, again, going back to the point I started with is, if you are stuck in this global economy, which feels like a storm that buffets you, there’s a certain kind of existential emptiness that accompanies that experience.
“You just go to work every day. You’re supposed to buy stuff and you don’t really know why and so on. I often feel like the crypto movements are people within that situation seeking some kind of excitement and meaning in an economy that often doesn’t generate or allow for that meaning to exist. So, I often feel there’s a big fantasy element in crypto.
“All these men imagining themselves on a crusade when, clearly, they’re just trading it for US dollars. This is very obvious. But the fantasy that goes along with it, this fantasy of liberation. And so there’s something, in a way, quite sad about it, but also can be kind of interesting.”
The technology is certainly interesting, and could harbor multiple future uses, but the applications, so far, are sad, sad, and sad. Whether one’s motivations in entering crypto were personal or political, it is sad to see working people lose. Even sadder are the divisions, the dissonance, the echo chambers of nonsense that mean we are bound to keep losing. The ruling class is organized, powerful, and entrenched. They have scattered humankind to the four winds. Crypto is not an oasis where the majority can finally thrive. It will prove to be a mirage, a trap, an ambush, where real people are baited in, harvested for all their worth, eaten alive by the new generation of the same old monsters.