"... on their perceived trustworthiness. In which case, what is the point? Why should an industry that at best has simply reinvented conventional banking have any fundamental value? Furthermore, trust in conventional financial institutions rests in part on validation by Uncle Sam: The government supervises banks, regulates the risks they can take and guarantees many deposits, while crypto operates largely without oversight. So investors must rely on the honesty and competence of entrepreneurs; when they offer exceptionally good deals, investors must believe not just in their competence but in their genius. How has that been working out?"
Writes Paul Krugman in "Is This the End Game for Crypto?" (NYT).
Comments need to address the substance of the argument.
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So if one no longer trusts the United States government, they are on an even footing.
Well ... he's right, isn't he? The appeal of crypto is the blockchain, something impervious to manipulation and fraud.
But didn't people put their faith in a human, someone with the correct beliefs and priorities, who then scammed them?
If I'm understanding the latest to-do, then Krugman is (gulp) correct. Why reinvent the wheel if you're going to make it into the same system with the same faults.
Why should an industry that at best has simply reinvented conventional banking have any fundamental value?
The fact that Krugman writes this sentence shows he is completely ignorant of how Crypto works and the projects going on in the space.
Most of the people critical of Cryto are this stupid and ignorant.
Furthermore, trust in conventional financial institutions rests in part on validation by Uncle Sam: The government supervises banks, regulates the risks they can take and guarantees many deposits, while crypto operates largely without oversight.
Of course our banks and our regulators have a stellar record of honesty and integrity in the current system. There hasn't been any fraudulent crap or people having their savings wiped out by crashes caused by failures in the system.
It is clear that Krugman lives in lala land.
So investors must rely on the honesty and competence of entrepreneurs; when they offer exceptionally good deals, investors must believe not just in their competence but in their genius. How has that been working out?"
Quite well for me. But then again our strategy has been to look at the market as if there are giant forces that are trying to grind down the middle class and are engineering huge shocks to the financial system and destroy everything but the Dollar.
And in general it has been better than having your investments in the NYSE this year. You can try to ignore what inflation is doing but that is what Krugman is all about.
"... on their perceived trustworthiness. In which case, what is the point?
Better than the perceived trustworthiness of the Government Regime.
Krugman conveniently leaves out that Ginsler, SEC chief, and SBF were family friends and working together.
SBF and many congresspeople had many meetings. He was helping our government craft the regulations they want to impose.
Additionaly CZ, the CEO of Binance and the person who killed FTX with one tweet, killed FTX because they were working with the government behind the industry's back to regulate FTX's competition and leave FTX on top.
So no, I do not think the government and the regime stepping in are the answer.
In fact I trust the decentralized system that destroyed FTX much more than the corrupt system it was working with.
MikeR said...
So if one no longer trusts the United States government, they are on an even footing.
This is exactly right.
So then you get to weight the differences between a Centralized system and a Decentralized one.
In the centralized system you have to trust obviously corrupt people like Ginsler.
In the decentralized system you have to trust yourself.
The fall of FTX took down a bunch of people who did no due diligence and invested their money in projects they knew little about.
Just like the people who are ignorant about crypto criticizing it ignorantly cause problems the fanbois and celebrities that fuel over exuberant bullshit cause problems.
The difference is these things happen out in the open. When Terra Luna was taken down we knew that it was a wallet associated with Coinbase that took the loans from the Luna Guard and used that loan to drive the price of Luna/BTC down to the point where Luna would depeg.
We are watching the wallet that "hacked" the remaining FTX user accounts convert it all into Eth right now.
Kate said...
If I'm understanding the latest to-do, then Krugman is (gulp) correct. Why reinvent the wheel if you're going to make it into the same system with the same faults.
You don't understand the latest to-do.
Krugman is a liar who is lying. He has always been a lying liar.
You are falling prey to the Gell-Mann effect. He lied about other things and lies constantly. The NYT's is a dishonest publication and you should assume everything printed there is a lie.
At best it is going to use half truths to create a lie that preys on reader ignorance just like he did with this story.
Blockchain can work. Investing, however, whether it is in SEC regulated securities or through a financial advisor, or with crypto, is a matter of confidence in that system and trust. Our finely regulated monetary system has blown up multiple times and frankly, we're headed to another one, almost a repeat of the mortgage blow up of 2008. And get this, it'll be for similar reasons.
The SBFs of the world do not just live in crypto. My word- we've had a few centuries of people in the regulated world scamming millions before SBF was even an idea in his dad's groin.
The point of blockchain is that it is self-checking, and there are multiple eyes on it, from many directions. If it's not right, it'll be found and cut out. What's going on now is that this is a new industry and it has attracted, not surprisingly, many many hucksters. FTX had nothing behind it, as do many still operating crypto concepts out there. Due diligence, doing your homework, your research still applies to the unregulated markets just as it does to the regulated markets. There are those who looked at SBF and his FTX operation and asked the right questions and ran in the other direction.
But these days, as in days past, there are too many eager to look like geniuses, make quick gobs of money, and jump in without doing any homework. More than that, we live today in a world where virtue signaling IS a commodity. People trade in it, make entire careers out of it. And as SBF himself has stated, it's meaningless. It's nothing. And it's so easy to fool Western Society with a great virtue signal. Hell, it doesn't even have to be great. It can be obvious and still work.
The problem is not the crypto world, which will survive and will become our way of doing business within my time here. But there will be a massive- and needed- filtering out of the crap. That's starting now.
I know the future of crypto is secure because Paul Krugman thinks it won't happen. That makes it almost a sure thing that it will.
Words I never thought I would say, Paul Krugman is correct.
Originally, bitcoin was going to be a replacement for "fiat" currencies because they were designed so that there would be limited supply of them. It was an attempt to return to the gold standard without using gold. Everyone would use their phones to pay for things using bitcoins because merchants would happily accept them.
What actually happened was that there wasn't a limited supply of crypto currencies because anybody could create their own and crypto currencies did not get widespread adoption as a means of exchange. Instead, it became a speculative investment vehicle with no inherent value whatsoever. Just because something is rare doesn't make it valuable. You can buy magic swords and other paraphernalia on online games for actual cash, an economist wrote a paper about it, back in the nineties, I believe. Crypto has the same relationship to actual money as a magic sword in an online game has to money. That is, people will pay for it. So people are willing to pay actual money for something that doesn't exist in the real world so surprise, surprise; shady people show up and start scamming the suckers.
But, you say, fiat currencies are mostly just ones and zeros in financial institutions' computers. Actual cash is a small amount of the currency that is in circulation. And anyway it doesn't have inherent value either. And that is both true and a problem, but pointing out the issues with fiat currencies doesn't fix the issues with crypto.
Krugman is correct in the main (like a broken calendar). But while I (currently) trust the dollar, I doubt legislators being able to control crypto in an honest, transparent way.
President Reagan's speechwriter Peggy Noonan was asked to do some writing for Enron Corporation. She tried to get them to explain exactly what it was that Enron did for a living. She never could understand what they were talking about and so declined. She figured she wasn't smart enough to swim in the same seas as these titans of finance.
I've always felt the same way about crypto.
For once I agree with Krugman. While gold is a physical item and simple to understand, anything from paper to credit to blockchain is an abstract social arrangement based on trust. The value of gold indeed rises and falls, but it remains physical and detached.
The next time your car breaks down in a small farm town without Internet you'll find out what crypto is worth in hard times: $0.
In which case, what is the point? Why should an industry that at best has simply reinvented conventional banking have any fundamental value? Furthermore, trust in conventional financial institutions rests in part on validation by Uncle Sam: The government supervises banks, regulates the risks they can take and guarantees many deposits, while crypto operates largely without oversight.
The point, and fundamental value, is precisely the fact that crypto isn't supervised and regulated by the government. It is an attempt to prevent the government from monitoring and eventually confiscating, wealth. It is no more risky than banks were prior to FDR's New Deal.
Krugman in correct. No doubt about it. Clarity.
.. on their perceived trustworthiness
Can't We ALL Agree?
That a fat nerd wearing shorts, and sultry wood nymph; Both of which are addicted to amphetamines..
Are THE DEFINITION of perceived trustworthiness?
I thought the beauty of crypto was that you could buy illegal drugs on the dark web and God knows fed ex will deliver, no questions asked.
Are the Good Times really gone?
Crypto is secure by design. The firms that set up as intermediaries aren't crypto but a facade that they figured the market wanted between the user and the crypto.
Whether crypto has any value as money is a crowd phenomenon, aside from any fraud.
It's money if you'd accept it back (in another transaction) as money. Hence counterfeit money isn't money.
It's not the same system - at all!
Bankman-Fried has family and friends that go waaaaaay back in Democrat Party fundraising. They know where the bodies are buried.
Thanks to our banking laws, the narco-states, cartels, and crooked political parties need a place to conduct their transactions. Thievery of this type just comes with the territory as it always has. In the past, crooked bankers took their slice.
Crypto is a criminal money-laundering operation. Nothing more. Normal, regular people are not using Crypto as a checking account. That's why Bankman-Fried is still walking around in Bermuda a free man. He knows nobody is going to investigate him, or he'll just start releasing the records. NOBODY wants that.
Well yes, FTX had most or all of the same weaknesses as the traditional banking system because, fundamentally, it relies on people exercising judgment and care. But that isn't crypto.... His analysis fundamentally misses the mark. Crypto isn't a financial ecosystem.
It's not the same system - at all!
Bankman-Fried has family and friends that go waaaaaay back in Democrat Party fundraising. They know where the bodies are buried.
Thanks to our banking laws, the narco-states, cartels, and crooked political parties need a place to conduct their transactions. Thievery of this type just comes with the territory as it always has. In the past, crooked bankers took their slice.
Crypto is a criminal money-laundering operation. Nothing more. Normal, regular people are not using Crypto as a checking account. That's why Bankman-Fried is still walking around in Bermuda a free man. He knows nobody is going to investigate him, or he'll just start releasing the records. NOBODY wants that.
Of importance in understanding the discussion is separating Bitcoin from the various derivations of crypto-currency, which are reliant on the trustworthiness of the individuals that developed the block chain. If you don't understand this and don't address it; then the rest of the commentary is from ignorance. If you understand why Bitcoin is different, then you know the mechanism of trust built into it. The derivations require manipulation of the procedural trust built into Bitcoin, and those manipulations by their nature devalue the trust. Once devalued, the only way to regain a level of trust would be to have regulation similar to other corporations, markets and banks, because at that point, the derivations are operating as such. Bitcoin is not operated in this manner.
This is not to suggest anyone should just trust Bitcoin and invest in it. Rather they should learn its history and in so doing, they'll understand crypto-currency and the dangers of the derivations. It is very similar to the 2008 housing crisis when the already high-risk loans were made worse with derivatives as ways of spreading the risk. The derivatives were worse than just loaning your money to a known individual you considered at risk to paying back the investment. At least directly, you could make your own assessment of the risk being taken.
Finally, what SBF did was illegal under so many existing laws, that the story of FTX doesn't advance the argument for crypto-currency. There are so many other cases of poorly managed crypto-currency or outright fraud. FTX is a different type of fraud. It pretended to be a trading market for all sorts of crypto-currency. It then pretended to be doing other things it never really was doing. There was no system of internal controls. If you had a business that operated like FTX, it would have been taken down by any reasonable tax audit.
"In the decentralized system you have to trust yourself. "
Any yob with a heartbeat can carry around cash in his wallet; that cash depreciates over time. Sophisticated users can keep crypto in their "wallet" and if all goes according to plan, it's proof against depreciation.
Crypto can be used for payments in some circumstances, or converted to cash. Since savings accounts pay no interest and charge fees, crypto has a reason to exist, and so it must. It seems highly improbable to me, though, with a deep background in network surveillance, that the ownership of crypto currencies can really be hidden from governments. The NSA probably has servers right now dedicated to counting crypto transactions, and identifying the user associated with the IP, even if only as "chatter."
It is very unusual for me to agree with Krugman, but as far as the quoted section goes he is basically correct.
The legitimate banking and payments system works pretty well as long as you don't do something incredibly stupid like borrow way more than you afford or invest for more than you can afford in risky things.
To the extent the crypto system enables people to borrow way more than they can afford or invest more than they can afford to lose in speculative investments, then it's a more complex, more opaque way of doing the same old thing.
Enigma: "anything from paper to credit to blockchain is an abstract social arrangement based on trust"
So crypto is and isn't like "fiat" currencies. The way the arrangement works differs, but the abstract social part and the trust are essential in both cases. I'm agnostic on whether crypto can truly achieve that.
As others have noted, the exchanges aren't crypto, so inferring from the FTX implosion that crypto is "just like" regular banking, only worse, is false. It is true that the arrangement for regular state-managed currencies has some traditional trust-building safeguards, but these are by no means fail-safe, as recurrent crises and poorly managed "transitory" inflation show. Massive problems are accumulating in public finance, sustainable only until they are not.
But the Enigma formula misses power as a variable. Which arrangement is acceptable as a basis for exchange throughout society depends first and foremost on political choice backed by state power. In principle, crypto is not the-same-by-other-means but an actual rival concept. How can the rival prevail, or even survive, when the actual great powers mean to crush it, as I suspect they will?
Before investing in your own hadron collider, it is important to do due diligence. You should have a working knowledge of quantum mechanics and subatomic particles and be situated in an area of the country where utility rates are stable and low. Then after mastering the intricacies of hadron collider investing, you can move on to the more challenging field of cryptocurrency speculation.
I lost my money in a prudent, responsible manner. I invested in triple A bond funds. They've fared much better than cryptocurrencies. Some have lost less than 15% of their pre Biden value. In the long run we are all dead. Broke too.
Crypto's not that different from legal currency. Crypto's problem was not having an army and a police force.
The lesson is the same as the lesson from other financial breakdowns, recent and down through the ages. Financial markets need regulation.
But they don't necessarily need Elizabeth Warren.
In principle a pure and transparent crypto-currency could work without regulation and "trust." The creator would get rich by creating a viable medium of exchange at low cost and selling it for a much higher price. Either it's like bitcoin and not tied to anything tangible, or it can be tied to something like the dollar, with the creator holding 100% reserves (say in T-bills) to back it up.
The problem is that the creators introduced leverage and less than full backing with reserves (sometimes lying about it). Then the crypto becomes subject to runs and failures, just like banks in the 1930s (or investment banks in 2008). Of course Krugman believes that more government regulation will solve every problem, but as others have pointed out, regulators create more problems than they solve.
The next time your car breaks down in a small farm town without Internet you'll find out what crypto is worth in hard times: $0.
Which is the same value it will have if the dollar collapses. Checking coindesk right now shows that a bitcoin can be purchased for over $16,600 dollars. What will a bitcoin's value be if dollars become worthless? I suppose you could value them using some other country's currency, maybe China's? Oh, wait they have outlawed crypto. As will every other government the second they perceive it as a threat to their sovereignty.
Normal, regular people are not using Crypto as a checking account.
Exactly, if you can't easily and routinely use it to buy eggs, bread, and milk at the grocery then it isn't really a currency in any conventional sense.
You can't discuss crypto without discussing the progressive collapse of the banking system.
We have seen too many accounts seized by the government without due process, and pressure put on banks to cut off services and credit to people and industries deemed "wrong" by the powers that be (ex. gun stores, fossil fuels, etc.).
That Krugman seems oblivious to this issue is only because he supports it.
Take any economic advice from Krugman, Yellan, Warren or Bidenm, you're an idiot.
Crypto isn't failing -- we're failing it. (Paraphrasing Temujin, who borrows the logic of American communist sympathizers)
&
"Most of the people critical of Cryto are this stupid and ignorant." (Achilles)
These are the two remaining arguments for this predatory set of pyramid schemes that are falling apart one after another.
The more interesting question is what this shows us about the tenuousness of our financial system and currency, and the underlying economic theories that drive it (as if we needed more evidence).
Historically, and presently, governments have manipulated currency for their own ends, more or less all the time, no matter if it was metal or paper or entries in ledgers. Government oversight is not a panacea. Quis custodiet ipsos custodes?
I would like to point out that the number of magic swords in any online game that has them is limited and a player has to invest time (going on quests or otherwise) to get one. If the game used blockchain to keep track of the swords and prevent more from being created (prevent inflation) how would that be different from crypto?
Dumb question:
Gold can be held by an individual in physical form or you can own gold held by an exchange for convenience of buying and selling. The latter case is based on trust. The former, not so much.
Does crypto work like that? Can you buy, sell and hold crypto as an individual so your crypto assets are not based on trusting an institution?
There is actually a market for professional gamers to go on quests with people to help guarantee that they will be able to collect valuable loot. I am not making this up.
https://skycoach.gg/wow-boost/products/mythic-15-26-dungeons-118
With a magic sword you can have some fun. I look forward to the day I can go to the grocery and use my magic sword.
Most of these exchanges (all of them?) offer a fraud right up front as their main product- that one can benefit from future appreciation of the underlying cryto-currencies without suffering any losses because one has purchased the exchange's intermediary and proprietary "stable"-coins that allow one to cash out at any time without a loss.
If you want to benefit from a crypto-currency future, just get yourself an e-wallet and buy some and hold them personally as a non-expiring option on the future. Nothing wrong with that, and plenty of ways to do that. The downside is that you may lose the entire value of the investment, but that is always the downside no matter the promises being made to you.
The problem with blockchain is not technical, it can technically deliver what is promised, the problem is that there are extremely powerful forces who do not want it to succeed.
Let's take a use case, for instance, that I have heard bandied about, medical records. You could, in theory, keep complete control over all of your medical records, for instance your *vaccination* records, and provide them, on a need to know basis, to your doctors, leaving out any middleman.
A) The great unwashed will not be able to manage this without consumer friendly "records banks."
B) The government and the WEF *DO NOT WANT* and will have means to defeat it.
Getting back to bitcoin, you can't just set yourself up as a data carrier and lay fiber across the ocean, you have to have a license, and that license will contain a clause that *requires* you to co-operate with law enforcement, even abusive law enforcement who are on a political vendetta. So I just don't see how it is possible to avoid having the transactions traced. Encryption is full of back doors, possibly even back doors inserted after deployment by government hackers. Encryption algorithms, at least when I was in the industry, are routinely broken. If you can get to a "dark web" server, so can Johnny Jackboot, who can set up checkpoints, a.k.a. taps, on the way in and out and piece together what happened.
Yes, you can (and not a dumb question). Obviously, you can't hold in physical form, but you can purchase it and then take it "off the grid." I am talking mainly/only about BTC.
Dumb question:
Gold can be held by an individual in physical form or you can own gold held by an exchange for convenience of buying and selling. The latter case is based on trust. The former, not so much.
Does crypto work like that? Can you buy, sell and hold crypto as an individual so your crypto assets are not based on trusting an institution?
No system of exchange, whether wampum, gold, dollars, or bitcoin, is exempt from the necessity of trustworthiness. Some systems of exchange are relatively opaque with respect to the regulatory state. People who wish to reliably exchange value outside the view of the state need to have a non-state enforcement mechanism. The problem for them is that the state, as ordinarily conceived, has a monopoly on the legitimate use of force. Without an army, how can you deter fraud and force? Culture works for only a little while, until the bad people figure out the score.
So I think Krugman is essentially right.
@Bob Boyd
You can use a crypto wallet to have "physical" custody of your bitcoins or whatever crypto currency you have. And theoretically, you could use that wallet to pay someone for something, but first you have to find somebody who accepts crypto.
https://www.forbes.com/advisor/investing/cryptocurrency/best-crypto-wallets/
Daniel 12: you could not have misread what I wrote more thoroughly. That's not at all what I said.
But thanks for stopping by.
You can also mine your own bitcoins, but it can cost you more in electricity than the bitcoins are worth.
https://www.youtube.com/watch?v=Cc-Hbklizzk
Bob Boyd
Yes.
Daniel12 said...
Crypto isn't failing -- we're failing it. (Paraphrasing Temujin, who borrows the logic of American communist sympathizers)
&
"Most of the people critical of Cryto are this stupid and ignorant." (Achilles)
You want to give the Government and the SEC more power and live under their rule. This is stupid.
It wasn't Gensler and the SEC that discovered this fraud even though Gensler and the SEC were supposed to regulate FTX. The SEC is at this moment trying to regulate Crypto and it is arresting people and fining people in the crypto space daily. It is taking people to court.
It was the decentralized community that discovered and outed the fraud.
Gensler and the SEC were working hand in glove personally with FTX and Fried. Fried was friends and had captured the people you want to pass regulations on crypto.
You can't make this shit up. You are just an idiot.
What Krugman and the Government are mad about is that the decentralized community outed their fraud and corruption.
But people like you do not understand even the basics of what you are talking about and you settle back into their walled gardens because you are afraid.
On reading this from Krugman, I think it probable that he was invested in FTX.
Temujin, you said this:
"The problem is not the crypto world, which will survive and will become our way of doing business within my time here. But there will be a massive- and needed- filtering out of the crap. That's starting now." I just paraphrased it. When we filter the crap, there will be nothing remaining.
Achilles, if you read what comes after the quote you pulled from me, you'll see I agree about the broader problems of the financial system. Crypto is not the answer. Quite the opposite -- the way it "outs" their fraud and corruption is by being fraudulent and corrupt.
The difference is these things happen out in the open.
Only for limited values of "these things." For instance, no one knew that SBF had stolen client deposits from FTX to prop up Alameda, his other company. No one knew that FTX had only a skeletal accounting staff and no internal controls. Last I heard, there's still at least a billion dollars completely missing.
Certainly, regulation can go too far in the other direction, but requirements of transparency and disclosure can make meaningful due diligence possible, exposing and deterring problems like these.
We are watching the wallet that "hacked" the remaining FTX user accounts convert it all into Eth right now.
Any time a bank gets robbed, we know that anonymous people are out there spending the money.
Sorry, but based on my priors, I would tend to believe the opposite of whatever Krugman says. He opined that the internet would have no impact, was wrong about 2008 crash, you name it. If he is right this time it is random.
In other news, GRINDR IPO going v. well. Now that space has opened up, perhaps MLB can do a deal for next season to put GRINDR on umpire uniforms. But might require approval from bankruptcy court.
SEC power to arrest? Might be a con.
It was the decentralized community that discovered and outed the fraud.
Hardly. The fraud came to light after FTX collapsed, when it couldn't cover CZ's redemption without triggering a run.
As to trusting the banks and government: in 2008 we had a crash caused by the gov and lots of people lost everything. Currently we have inflation caused by the gov. Gov interference has put corps like gun dealers out of business and legal pot shops still can't bank. So, trust is in short supply all around.
As I understand it, FTX was not crypto per se but an exchange.
"In the past, crooked bankers took their slice."
In the past?
Thanks for answering, guys.
Follow up dumb question:
Does that mean Krugman is wrong?
Thanks for the link, Ron. Very interesting.
Actually this event highlights the stability of a portion of crypto (bitcoin) and its minimal impact on the traditional banking sector. This has turned out to be a massive stress test on the crypto sector and bitcoin prices have not been impacted much. Also, the traditional banking world has shown no impact on the fraud.
Not sure why folks are all down on crypto. If you are holding onto cash which version do you prefer? USD, CAN, Yen, Euro, gold... Bitcoin is just another option. It may have more demand side risk but the supply side risk is fixed by the algorithm.
Bob Boyd said...
Dumb question:
Gold can be held by an individual in physical form or you can own gold held by an exchange for convenience of buying and selling. The latter case is based on trust. The former, not so much.
Does crypto work like that? Can you buy, sell and hold crypto as an individual so your crypto assets are not based on trusting an institution?
There are systems being built to do this. I could point you to several projects that are working on point of sale systems.
This is not a simple problem. It requires high transaction rates and it requires absolute security.
I am estimating that the first point of sale application for the Cardano blockchain is about 2-5 years out.
There are other applications that are closer to release but they are on blockchains that will not be able to handle the transaction speeds required and they are not going to be as secure and the general public requires.
But in 5ish years you will be able to carry around a physical wallet like a thumb drive or use a cell phone to purchase goods from a point of sale vendor. These transactions will be completely anonymous and they will be untraceable. They will be able to handle the complexity of your current standard point of sale transaction and there will be no identity theft outside of stealing your seed phrase.
A virtual indelible fingerprint to trace transactions, a ponzi energy and profit scheme, backed by the full faith and credit of a distributed minority.
Beyond fraud and wishful thinking, the biggest driver of what we’ve seen the past 10 years and what we’re seeing today is interest rates. With rates at the historically unprecedented 0% (or negative in Europe) all investors were (quite deliberately) incented to seek out risk, and the time value of money was temporarily 0. So assets, including if not especially ones that didn’t generate cash flow, got very inflated values—an asset bubble. Now that rates are back to normal, asset prices are coming back down. Assets with no cash flow like crypto and tech stocks are getting crushed. Assets with cash flow, like bonds, are coming down but since they generate true returns not as much as assets that don’t. The rates we saw for the past 10 years were the lowest in history (going back hundreds if not thousands of years). A huge policy mistake in reaction to prior policy mistakes. I await our newest policy mistakes!
But, you say, fiat currencies are mostly just ones and zeros in financial institutions' computers.
I think that's why conventional currency trading is so difficult. With an investment like a business, there are underlying fundamentals that one can examine. With the euro or the yen, the fundamentals are so generalized or so attenuated as to be highly unpredictable. With crypto, you don't even have that.
And as others have pointed out, crypto hasn't really made the jump to being a currency yet; the need just isn't there. The number of people who want to build a parallel currency out of concern that the government will seize conventional wealth is quite small. The people who want to use it for illicit transactions are keeping quiet.
For most people, it seems like ownership of crypto is partly a prepper stash (like food and batteries in case of calamity), and partly a commodity/collectible investment, like grain futures or artwork. It might go up in value but it's not readily spendable. Maybe that will change if inflation persists in conventional currency; more businesses might find it attractive to offer to deal in Bitcoin.
Does that mean Krugman is wrong?
I don't really care if Krugman is right or not. I just don't think that crypto is viable in the long run because control of the money supply is what governments are all about. It doesn't matter if you have a POS system in place for bitcoin in 5 years whose transactions are completely untraceable if the government makes it illegal to use that system. Grocery store CEOs aren't going to go to jail for 30 years because of their libertarian sensibilities.
this event highlights the stability of a portion of crypto (bitcoin)
Bitcoin has lost 2/3 of its value vs. the dollar this year. Whatever one buys it for, stability is not it.
You will have to explain this theory of how bitcoin could be untraceable.
Excessive regulation creates systems that can't address user's needs so workarounds appear. Hedge Funds and SPACs replace heavily regulated and tax unfriendly mutual funds and publicly traded capital funds. I can think of three egregious scandals off the top of my head.
Banking is the same. The current banking system is starving it's depositors of returns and not doing a great job for its stockholders. It is doing what the government tells them to do. The result is dangerous levels of consolidation and attempts to use it to suppress dissent. Naturally people are seeking alternatives.
Daniel12 said...
Temujin, you said this:
"The problem is not the crypto world, which will survive and will become our way of doing business within my time here. But there will be a massive- and needed- filtering out of the crap. That's starting now."
I just paraphrased it. When we filter the crap, there will be nothing remaining.
No, you presented what he said dishonestly. That is not paraphrasing. That is straw man fallacy.
Achilles, if you read what comes after the quote you pulled from me, you'll see I agree about the broader problems of the financial system. Crypto is not the answer. Quite the opposite -- the way it "outs" their fraud and corruption is by being fraudulent and corrupt.
There is fraud and corruption in every system. Nothing is perfect. You are comparing the Crypto world to a fantasy of yours that does not exist.
The difference is the crypto world is decentralized and much more transparent than your current system run by the banks and the fed and senator Warren and the rest of the corrupt shitheads in DC who are insider trading as we speak.
Our decentralized system outed the corruption that FTX and their Government/SEC partners were trying to push.
You cannot deal with what actually happened which is why you never respond to the things we actually say.
Yancey Ward said...
On reading this from Krugman, I think it probable that he was invested in FTX.
He is a corrupt toady of the Regime.
It would be a good guess that he invested in the Regime's favorite Crypto exchange.
This article is just sour grapes on the part of a failing Regime.
Decentralized finance is going to happen. More and more people are seeing through the corruption of this centralized government controlled bullshit.
Very provincial. Financial institutions certainly exist snd in fact thrive outside of the supervision of the US government. Look at Swiss banks. Like all Democrats, Paul Krugman cannot imagine anything that is not over regulated by US bureaucrats.
"Bitcoin has lost 2/3 of its value vs. the dollar this year. Whatever one buys it for, stability is not it."
This bubble keeps bursting, but then there keeps being more to burst. The question is why has Bitcoin ONLY lost 2/3s of it's value. The answer is not because of it's durable intrinsic value.
He's not wrong. Fiat currency, whether government issued or privately issued, is all about the faith in the currency. It's only value is the fact that other people will take it. If that faith is shaken, it can become worthless overnight, no matter who issues it.
This would probably be a better argument to make if we were currently not suffering through high inflation, record debt, a government imposed energy crisis. and a senile figurehead running the show. Government backed currency can fail just as easily. That's the flaw in his argument: Krugman thinks this is a crypto only problem. American currency has failed in the past and it can fail again.
Gold can be held by an individual in physical form or you can own gold held by an exchange for convenience of buying and selling. The latter case is based on trust. The former, not so much.
Agree. Because there is not enough gold to back gold investments. Whereas crypto is finite.
Krugman, like most of us generalists, confuses crypto coins with the exchange and hedge funds speculating on same. I can see the distinction, but would argue that the exchanges are being created to broaden the market for (and hence drive up the value of) all crypto currencies. Thus all of SBF entities were simply meme investment vehicles, though of course many of the individual investors who thought they were simply depositing amounts to be held or invested in crypto coins didn't understand this. The complete lack of any record keeping or back office should be sufficient to show that at least SBF's entities were nothing but a ponzi scheme from the get-go.
Whether crypto itself should continue to be a permissible investment for US investors seems to me to present different issues than the SBF fraud. Basically, why allow a currency whose main true economic function is driven by players whose interest is in concealing illegal activities (e.g., drug dealing, kidnapping, unreported taxable income) by preventing tracking that fiat currencies entail? What volume of the crypto coin mined over the last 10 years is tied to such transactions? What volume of trades on the exchanges are simply wash transaction designed to convert illegally obtained crypto into fiat currency?
You keep calling "my system" the system I am saying is fundamentally broken and built on a foundation of rot.
I just don't think crypto is the answer. Maybe in theory. But in practice it was instantly taken over and heavily consolidated by a pretty small set of people and turned into a pyramid scheme. 70 of Bitcoin investors have lost money. 2% of owners hold 70% of bitcoins! That's actually down a bit, following the massive ad campaign (Superbowl!) to pump the price and hook fish to buy -- which is why so many have lost money. Then there are the shitcoins that are complete pump and dumps, and all the illegality, and and and...
And my point to Temujin is that watching all this happen, you've got to ask if it's maybe something that crypto enables even more effectively and efficiently than dollars. If you're saying well it's the people failing it, if we peel them off the theory is still fine -- I'm not ready to be that charitable.
I have a hard understanding (1) what exactly FTX did to make money (2) who gave them money (3) how much actual $$ was "Lost".
If they were given dollars which were translated into Cryto and then these peoplw with Cryto locked out of their accounts I can understand. If they used false Financials to persuade people that their cryto currency was "Safe", I understand that too. These two things, are similar to bank fraud.
But were they acting as an investment fund too? were people expecting them to invest their "cryto" in other things? Its all very mysterious.
I'll keep on reading Zero Hedge to figure it out.. As for Krugman, he's a propagandist not a thinker. Like Tom Freidman, he'll not telling you the truth, he's telling you a story and pushing the "party line". Imagine reading an "Expert" in USSR Pravda circa 1947 - that what you're getting with Krugman and friedman.
The lack of regulation is a problem. But if people know the risks, the problem is self-correcting. The problem is when Government lets Banks/investment funds gamble and commit financial fraud, and then bails them out, because they are "Too big to Fail" or because the regulators are in bed with the fraudsters (Or banksters).
Bankman Fried not only was big buddies with a number of D politicans. And the NYT. He was friends with the head of the SEC. Funny dat.
People in The Bahamas are snapping pics of SBF around town. OMG, this one's funny. I am kind of amazed that he hasn't experienced a "botched robbery" where nothing was taken, yet.
https://twitter.com/readytrader01/status/1593703082763984896
Tom T. said...
this event highlights the stability of a portion of crypto (bitcoin)
Bitcoin has lost 2/3 of its value vs. the dollar this year. Whatever one buys it for, stability is not it.
Bitcoin lost value. People who bought it for speculation and panicked lost money.
People who have invested in it for years and have the same amount lost nothing.
Warren Buffet called the Stock Market a mechanism to transfer wealth from people without patience to people with patience.
The Dollar is control by Joe Biden and Janet Yellen and Jerome Powell.
It is going to zero.
You can keep your dollars. Nobody minds if you do that.
But the only thing I ask is that you leave the crypto world alone. We do not want your corrupt overlords in here. We are fine taking care of ourselves.
Daniel 12 said: "And my point to Temujin is that watching all this happen, you've got to ask if it's maybe something that crypto enables even more effectively and efficiently than dollars. If you're saying well it's the people failing it, if we peel them off the theory is still fine -- I'm not ready to be that charitable."
My point is that it will be a system that will work. It works now, but in small ways, for a few people. The industry needs to be shaken out, and that is happening. People didn't 'fail it'. Crooked people come in, as they do everywhere, and fuck it up for everyone. Those people cannot exist long on a con and so they will be exposed and shaken out. Cons are not new. They're still doing it daily in our regulated financial systems that are considered smart and proper today. Those systems are held up by...faith. By the confidence of the people using it. How else could the US dollar, based from a country so far in debt it's next 3 generations will not be able to pay back, be the global currency?
Crypto will become a part of everyday life in the not too distant future. People fucked it up, but there are enough smart and decent people trying to make it work.
The only other future is a world currency that is not the US Dollar, but some sort of Global (think: UN) Dollar, reducing the value of the US Dollar immediately to bring 'equity' to the worlds financial markets. There are many in this world working toward that. If you believe in individual freedom at all, you'd better hope the crypto people get their game straight before the WEF/Davos people do.
Paul Krugman.
Snort. Has that clown ever been correct in his predictions? On anything?
Tom T. said...
For most people, it seems like ownership of crypto is partly a prepper stash (like food and batteries in case of calamity), and partly a commodity/collectible investment, like grain futures or artwork. It might go up in value but it's not readily spendable. Maybe that will change if inflation persists in conventional currency; more businesses might find it attractive to offer to deal in Bitcoin.
It wont be Bitcoin. Bitcoin is a proof of work chain. It is expensive and slow. Transaction rates are way too low, take too long, and cost too much energy. Bitcoin will generally be the reserve store of wealth. Entities will use it to back loans and other assets they create like stable coins.
Bitcoin will be used the same way Treasuries are used by banks and corporations as reserves.
If you want to look at the proof of stake chains that are going to be the future I would recommend Binance Smart Chain, Cardano, or Polkadot.
BSC is an EVM clone and I don't think the Ethereum network on it's own has a future. The key to BSC is that it is attached to the Binance Exchange which is massive and makes billions of dollars. It is run by people who are very careful, well known, and haven't been caught doing naughty things yet. BSC is stable because Binance is monolithic and stable and smart enough to avoid short term stupidity.
Polka Dot and Cardano are both founded by people that developed the EVM/Ethereum block chain and left to do better things. They are both 3rd generation blockchains but also both relatively young in development. They are built on functional programming foundations which is why Banks all use Fortran.
Part of the problem with Crypto is that it has many tribes in itself. I have most of my assets on the Cardano blockchain. I used to have more on BSC but I ahve moved off that for now. There are point of sale apps, ZK rollups, and several lending protocols in development.
Cardano is as different from Ethereum as Bitcoin is to the US banking system. Ethereum is built off an object oriented platform called solidity. They are just fundamentally not the same thing in function. They use a lot of the same jargon but there the similarities end. Bitcoin has the Lightning Network which is a chain but again that is where any similarities end.
The more you learn about it the more you will see how the visions are different.
I am on the Cardano network because they are very committed to the vision of Decentralized Finance. I am going to be a stake pool operator fairly soon which means I run a node on the network. I can download the open source software and help the network process transactions.
I have to set up a secure server and maintain internet access. They have set up the system so a person can run a node on a Rasperry Pi. There are millions of nodes. No dictator or tyrant can shut them down without watching every person on every computer in their country.
On the chain there are 2 main types of wallets. Hardware and software. I can use a computer and enter a seed phrase for one of my wallets anywhere in the world. As long as I have my seed phrase I can use my wallet. The wallet has no name or address attached to it. When you create a smart contract there is no central server they can watch.
The Cardano Blockchain uses the UTxO smart contract model. It is all open source. All of the Decentralized Applications, DApps for short use open source code. The Stakepool node software is open source.
I am in the discord channels with the developers of many really cool applications that are going to come out shortly. You can ask them questions and you can get information from these companies any time. Based on their responsiveness and honesty you can have much more information than you get before you invest in a stock on the NYSE or Nasdaq.
When we research a company we get to read their Tokenomics. We see their business plan and what they have to offer. We can find the exact market cap of a company within a few hours usually. If we can't we don't invest in it. I can go on their discord and I can query the Devs and the Founders. I can weed out the bullshit artists pretty quick this way.
All of these companies release on a test net. You can create a testnet wallet and get testnet tokens and go test their service. Liquid Finance just opened up their testnet. They will announce their launch soon. We know how many of their tokens are out, how many they are going to release, what the emissions rates are, what you can use them for.
We are into World Mobile or WMT quite a bit. They are creating a decentralized Cell Phone network. They are allowing people like us to buy an "Air Node" and sell our own cell phone service. We buy the equipment, load the open source software and sell mobile service to wherever our tower is located. It will eventually be like ATT without the funneling of all your calls and texts to a federal CIA server in Utah.
I don't give financial advice of course. But the future of decentralized finance is not far off
And really most people who don't like corrupt government shitheads should look forward to it. If you were reluctantly agreeing with Krugman because he sounded smart and honest for once take heart.
He is still a lying sack of shit and he is totally wrong here.
rcocean said...
But were they acting as an investment fund too? were people expecting them to invest their "cryto" in other things? Its all very mysterious.
This is an entertaining primer that was linked to by someone here that I liked.
This is from a Finance lawyer who isn't into crypto. He shows this from the perspective of someone without any deep crypto understanding but knows finance.
Basically FTX created tokens, FTT, that did not confer ownership or provide any benefit because if they did the SEC would arrest them. The FTT token is back by the FTX exchange agreement to buy them back with income from trade fees.
They then used these tokens that they transferred to a company called alameda research owned and started by the same people. They also took user deposits on the exchange and gave them to alameda research, then used those funds to invest in other things that did not work out.
FTX was also getting very large deposits from Ukraine and then donating money to democrats and republicans in the most obvious money laundering operation in history.
Achilles goes cryptobro TED talk like it's two bubble bursts ago.
Temujin goes Davos one world currency.
I mean...
Daniel12 said...
Achilles goes cryptobro TED talk like it's two bubble bursts ago.
Temujin goes Davos one world currency.
I mean...
Some people might want to learn new things.
Other people might want to keep posting out of ignorance and look stupid posting dumb shit.
Choices.
Binance just started an ad campaign with Ronaldo. The cycle begins anew.
The bookie ran off with his bettors funds.
In the gambling world, rough justice would have persuaded him not to do that.
Yeah, ranting about Ukraine as a comment on this post hardly makes one look stupid.
In other news, what was Twitter trading at yesterday?
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