Digital currencies were hammered this past week on fears of a China crackdown. For the first time in six month, Bitcoin slumps below the $7,000 mark.
The recent tumble is being attributed to China’s recent announcement that it will crack down on crypto trading. A statement by the People’s Bank of China on Friday warned it was increasing “supervision and control to combat virtual currency transactions.”
“Investors should be careful not to mix blockchain technology with virtual currency,” the central bank said, warning of the many risks of cryptocurrency trading.
There has also been speculation in recent months that China is preparing to launch a state-run digital currency, though the PBoC denied such a report earlier this year.
Warning Shot
This is precisely one of the things I have warned about on numerous occasions.
If and when central banks crack down on digital currencies it will be lights out.
People keep asking me what can central banks do. The question should not come up as the answer is obvious: ban transactions in Bitcoin.
If the US banned bitcoin transactions, people would still have their digital coins, but they would effectively be worthless. One could not buy anything with bitcoin other than barter transactions. There would be no way to get money in or out, at least in the US.
Look at the problems Iran is having with its oil.
Similar things would happen to Bitcoin.
We are not at that stage yet, and I hope we never get there. But China just fired a warning shot.
If Central Banks Feel Threatened
If central banks feel threatened, they will shut down cryptos.
I do not believe the Fed feels threatened yet.
By its statements and actions, China does feel threatened. What’s the concern?
Capital Flight
People can get money out of China by converting to Bitcoin, then going to Hong Kong, Japan, or the US and cashing out.
China wants to put an end to capital flight via Bitcoin.
Thus, people are playing with fire here.
Technical Support Levels
Bitcoin is right at technical support. If this level breaks, and I believe it will, the next support is at or near the $3500 level or so.
If that level breaks, and ultimately I believe it will, look for a plunge to the $2000 level.
King Dollar
As a key aside, that China has to resort to capital flight controls is telling. Forget the Yuan: King Dollar is Here to Stay.
Wake me up when China floats the Yuan, gets rid of capital controls, has enforceable property rights, and has the world’s largest bond market.
Those are all requirements of having the world’s reserve currency.
Mike “Mish” Shedlock
I wonder how much of this is attributed to Bitmain’s power consumption alternatives and their new ‘farm finder’?
https://www.quotecolo.com/bitmain-announces-88-reduction-bitcoin-mining-power/
Bitcoin as a currency? That train has already passed. It can be used for shady business dealing between willing parties that accept some loss as is the case with money laundering.
The bitcoin crowd destroyed it nicely by running up its value, then crashing it.
It’s quite enough to keep up with the counterfeiting operations run by the central bankers. Both central banking fiat and bitcoin have no inherent value, and no relations to the economy.
Gold’s value is as a bedrock of the monetary system, not a medium of exchange. It puts the brakes on central banking shenanigans of printing money out of thin air, or waging this last ditch battle to end all battles.
I am afraid that at one point there ll be a ‘crackdown’ on gold or any other ‘tangible’ asset as well ….when push comes to shove (it ALWAYS does ) desperate measures will be taken……NO doubt about it …….a gun and some grenades to die ‘honorably’ during the ‘last’ fight might be a better alternative ….
“Is it also possible for governments/central banks to crack down on the use of gold as a currency…?”
Regarding governments/banks cracking down on the use of gold as currency, I submit to you that it has already been done. The futures market sets the price of gold despite physical not necessarily changing hands. Any gains in gold relative to the dollar are taxed as a collectible (a higher tax rate than capital gains earned from other long term financial speculation), so if one does manage to make gains despite the managed gold price, then one gets hit with extra taxes on the gains.
Given that arrangement, I expect the only way gold will have a massive price increase relative to the US dollar is if the US dollar hedgemony looks like it is going to collapse soon. In that case, I imagine the currency that replaces the dollar will be gold-backed (at least temporarily). Because of its history, gold is still the universal IOU when nobody’s paper IOU is good enough.
This dollar crises scenario is not going to happen as long as western governments and central banks of the world do not navigate themselves into a corner that they cannot write themselves out of with either money printing or changes to the law. Someday that day is certain to happen, but it is damn difficult to get the timing right. Will it happen next year? In the next decade? Longer? Pretty soon one is contemplating the significance of Keynes’s statement, “In the long run we are all dead” where he was making the point that good decisions with respect to the near future should be given substantially more weight than nebulous decisions with respect the long term.
I have to agree with you that gold is a difficult play.
American kids want to be youtubers, and the Chinese kids want to be astronauts. https://twitter.com/andrewchen/status/1151496486028488705
There’s only one way to break free from the bankers and govt and it involves a lot of blood. I dont know why people dont understand that crap passed back and forth on the computer cant be shutdown.
Anonymity makes finding out what computers to shut down hard.
Bitcoin looked properly anonymous in the beginning. But turned out not to be, at least in finite space. Doesn’t mean more anonymous alternatives aren’t possible.
As for blood: Truly anonymous digital money means someone, anyone, anywhere, can make money selling drugs to Barron. Then make him perform lewd acts to get his next fix, and sell the resulting child porn for even more. Then take all the money thus made, and put a public contract on his dad’s head. Then, pay on that contract. With mathematical guarantee that noone, no matter how much resources they can bring to bear, will have even the remotest idea who did any of it. That makes sustaining oppressive regimes, an awful lot harder than it is today…..
Paying in cash is pretty anonymous too. And everyone takes it.
Paying in cash is pretty anonymous too. – This is becoming less and less true. Cameras in most shops, transactions timed to the second, I bet that they can find out who bought what when for most transactions.
And everyone takes it. – Again not true anymore. Many places are becoming card only now.
Not if you try paying out on the sort of contract I refereed to above…..
There’s a big, big difference between mathematically guaranteed anonymous identities handing over mathematically guaranteed to be untraceable digital coins, and anything which requires a face to face handover of a physical product. The former is a tough one to crack, even one has all the resources of the US government at ones disposal.
60% loss of “value” in just under two years. And some people still refer to this as “money”. LOL….
Bitcoin buys you more health care and housing now, than it did a decade ago…… So, what does that then say about other claimants to “money” status, per your implied definition?
Sorry, but it is anything BUT a “stable store of value”. It is a gambling instrument. Period.
Even if it was so, a “gambling instrument” at least provides the chance of winning. Something no fiat has ever done over any time.
The 20th century will be remembered as the time of the relative universe. The 18th and 19th centuries were all about stability, repeatable experiments and absolutes. The gold standard (and to a lessor extent bimetallism), said that a dollar in your pocket today would buy the same thing tomorrow.
Then came the scientific revolution brought to the mainstream through Einstein, that the passage of time depends on your perspective, and that caused armchair intellectuals and other lightweights to believe that applied to everything. God was killed, the vacuum replaced by the state. Everything soon became whatever the individual perceived it to be. The message and media intertwined. And there was no room for an absolute currency. Any attempts to create one will be thwarted by those who believe the dogma of relativism über alles. Standards are a creation of man, so they must be destroyed in order to bring about a novus-paradise. And because every man is the standard barer every man decides what is a violation of the standard.
But I have to go to work now…
Gold was never in history a currency most people transacted in. It was the currency of the highest elite that transacted in products in large capacity. Say a mass shipment of wheat from Egypt to Rome.
Most people transacted in some form of IOUs that were basically unwound when the crops came in. We have a shell of the system today, where the elite in government still hold the gold (in the form of Fort Knox), while us plebes still trade in IOUs, in the form of Federal Reserve Notes.
Trump’s trade war is hurting China’s economy, but it’s giving Beijing an opportunity it never dreamed of https://www.businessinsider.com/trump-trade-war-tariffs-china-bijing-political-defense-opportunity-2019-11?r=US&IR=T
Doesnt the crackdown in China underline the fact that there is something to bitcoin? If the state is willing to put resources into trying to eradicate it, then perhaps there is more to it that meets they untrained eye.
Nation state’s often try to ban things, but they dont always succeed. I know that Mish has often railed against state intervention such as price fixing. Mish is quite right to do so, price fixing causes economic imbalances and you end up with either too much supply or no supply according to where you have fixed the price. In the end the market takes control and makes state legislation moot.
If Bitcoin is to be destroyed, it wont be because of state intervention, it will be because the market doesnt want it. Short term nation states can impact on the value of bitcoin, longer term I dont think that they can, and expending resources against something the public wants is never a good idea. Better to pull back and let the market do its work one way or another.
Nothing discourages a marketplace from wanting a product like armed government workers cracking a few skulls. The drug war being an exception, but mostly because withdrawal can be just as painful as the baton.
The drug war works a lot better too, in places where the cracking of skulls are employed much more liberally.
America still affords at least some protection for drug users. Simply because they provide little direct threat to the FOFs (Friends Of Fed) and their regime.
Users and enablers of a genuinely regime threatening Crypto, OTOH, will be deemed/declared/found/judged and otherwise branded terrorists, child molesters, genocidiacs, Nazis, Zionists, mass murderers, Charles Manson, threats to National Security and “The System,” and every other supposedly scary slur for Hobgoblin that the progressive regime apologists can come up with. And, at least going by the current sordid standard of the (not so) Great American Indoctrinati, Joe Drone will fall head over fist for every “scary” one of them. Hence, the skull cracking will be a lot less restrained than wrt drug industry participants.
Despite this; the guys who have kids, and believe in God rather than imaginary hobgoblins, also have harder, and harder to reach from Washington, skulls…..
Long term, it seems clear that cash has become too important to be operated by nation states.
Humans have accepted nation-states policing both physical and digital counterfeiting. But the world is marching on. If any of several nation states drop the ball now, humanity gets another world war or plague in catastrophic effect. So, if the crypto guys come up with a workable scheme that erases the need for anyone to police counterfeiting and simple digital fraud, what then?
(Note: Bitcoin, itself, is not a “workable scheme”. Also note: A “workable scheme” would not stop digital fraud in general. Just important types of such fraud.)
“Workable Scheme” requires guaranteed anonymity from the get go. Coins like Monero has it tacked on to the point where it works, but without more solid guarantees that it will still work a century from now, people will remain leery about becoming too dependent on it.
Also, the viability of crypto currency won’t be validated in large, centralized, heavily taxed and regulated to the point of totalitarianism, market with an already semi functioning currency. In those, like China and the US, most people don’t really see the need most of the time, as all they are allowed to buy, say and think, is already available in the local fiat.
Where crypto will first make inroads, is rather in third world places, where the regimes are less entrenched, hence less able to both provide an even day-to-day working currency, and to herd their sheep to nearly the same degree. Then their use will spread out from there, once the first movers iron out the rough edges and make usage more convenient.
Anonymity? I’m not up to speed on the state of crypto-coin art, but would expect that you can either have anonymity or theft policing, not both. I’ll bet on the latter winning every time.
There used to be a universal currency that was not regulated by nation-states. It is called gold. Nation-states have decided currency is too important NOT to be under their control. Unless you accept your jurisdiction’s currency, you cannot pay your taxes. If you don’t pay your taxes, at some point in the not too distant future, men with guns will show up at your door to physically drag you away and lock you in a cage. If they let you out, this will be repeated until you decide to see things their way. Don’t expect that to change any time soon, or later for that matter.
Cryptos exist or not at the whim of government. Take your chances. Bitcoin could be declared null and void overnight. In fact, that’s probably how it will happen. WIthout warning you will wake up to a new rule, and that will be that.
Given the physical realities of gold, it’s not surprising that nations got in the money business. Nations have a monopoly on policing. And gold, along with its proxies, sure do need policing for even the simplest of transactions.