The Screed Against Crypto

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by Forbes

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The Screed Against Crypto

This year's Economic Report of the President, which the White House put out this month, contains a new chapter: a 35-page screed against cryptocurrency. It proceeds: "This chapter primarily examines crypto assets, whose proponents have been relearning the lessons from previous financial crises the hard way."

"Crypto assets." The report's own chart indicates that Bitcoin dominates these assets, in terms of market capitalization. With Ether, it is the majority of these assets. Yet the chapter lightly considers either of these king cryptos, confining itself largely to stablecoins and other "crypto assets" coming in Bitcoin's wake.

Making Bitcoin the issue would have been tough for this chapter, which asserts: "Crypto assets have gained substantial popularity in recent years -- particularly since the beginning of the COVID-19 pandemic in 2020." In the event, however, "at the beginning of the COVID-19 pandemic" Bitcoin fell sharply. It picked up slowly over 2020 until the last months. Then it appreciated sharply and far more than any other notable crypto. Indeed, the chart shows that by early 2021, Bitcoin, topped off with Ether, nearly squeezed out everything else in total crypto market cap. This is to say nothing of the highly substantial history of Bitcoin prior to 2020.

The chapter, therefore, is about a small corner of the crypto phenomenon, while saying it's about the whole. The main point is that crypto assets are associated with all sorts of bad things, "fraudsters" for example. Crypto assets lack "fundamental value." They "cause risks for financial markets, investors, and customers." They "are largely speculative investment vehicles and are not an effective alternative to fiat currency."

The reasons crypto came about, according to the report, are several. Crypto was to ease the payments process, diversify financial authority, and promote "financial inclusion." The reason the Federal Reserve came about, back in the early 20 century, is a topic too. The pre-Fed Panic of 1907 "helped government policymakers realize that when faced with a crisis, the financial system, as then constituted, would rely on a privileged group of individuals seeking to maximize their own profits rather than on institutions that had an obligation to protect the public's interest. This realization helped" -- un-weighty repetitious word, "helped" -- "lead to the creation of the Federal Reserve -- the centralized entity that first aimed to serve as the lender of last resort and, over time, also obtained the exclusive power to issue U.S. dollar notes and manage the Nation's monetary policy."

The point avoided throughout the chapter is the basic reason crypto, Bitcoin to be specific, came about in 2008, via the Satoshi Nakamoto whitepaper. This was to reestablish a semblance of a classical monetary form. Through all of history, money issuers respected the independent arbiters of nature. Gold limited in supply by geology. Almighty ancient Rome coined in gold. People respected gold, bending the will of the emperor. As the economist Robert Mundell used to point out, long after Rome was gone in the Middle Ages, only Byzantium coined gold, because people saw that polity as the successor to Rome, and Byzantium gold was the only final money in the world. The global population wanted sovereigns to submit to an outside monetary standard.

When the United States went off the gold standard in 1971, it flouted this longstanding preference. Sure enough, a decade of ultra-inflation ensued. Consumer prices went up 8 percent per year. Our enraging inflation last year was 7 percent. It was 8 percent for ten years straight 1971-81. After the President Ronald Reagan reforms in the early 1980s, inflation stabilized at 2-4 percent until the surge of 2022. There was chronic currency depreciation against goods and services, even in the long post-Reagan era, such was anathema prior to 1971 and before that, the Federal Reserve.

Bitcoin came about after four decades of the United States' not doing anything to restore a classical monetary form having abrogated gold. Satoshi's offering was an approximation, a homage, a simulacrum of that form. Bitcoin was limited in absolute supply, like gold. The next increment of Bitcoin was difficult to extract compared to previously, like gold. Bitcoin was clunky as a payments mechanism, like gold, suggesting that redeemable instruments -- other more liquid cryptos -- could be based on Bitcoin, as the dollar had long been based on gold.

These central issues, the very raison d'etre of Bitcoin and hence the whole "crypto asset" phenomenon, went untreated in the special section of the Economic Report of the President. This indicates that Bitcoin scares and flummoxes the authorities. They cannot deal with Bitcoin as it actually is.

The last portion of the crypto chapter hails "Central Bank Digital Currencies" (CBDC's) as the option of choice among cryptos. The feds are making their case for CBDC's, in this report, by faking their way through accounting for Bitcoin. Bitcoin shows that the people want outside-the-government money. The report says that cryptos show the need for ever more intense government money via CBDC's. The logic is backward, evasive, and embarrassing. In terms of power, the idea that the minders of the fiat currency which Bitcoin first challenged in 2008 are up to a popular existential threat on the order of, at this point, the whole crypto universe finds no support in this latest rearguard release from the Biden White House.

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