BITCOIN – The Currency for Drug Dealers, Terrorists, and/or Pedophiles
Kenneth Rogoff (economics professor at Harvard) recently opined in a Guardian op-ed that if “[Bitcoin were] stripped of its near-anonymity, it would be hard to justify its current price”. This dovetails well with the view of JP Morgan’s CEO (bankster extraordinaire), Jamie Dimon:
The ultimate fate of Bitcoin and its crypto-brethren will certainly depend on whether governments and banks view cryptos as a harmless collectibles fascination (akin to the baseball card bubble in the 90s) or a real active threat to their monetary authority.
Alternatively, the establishment could choose to anoint their own blockchain champion by either issuing their own digital currency or backing the most non-radical crypto in the basket — Ripple seems to check all the right boxes.
The scoreboard is currently 1-0, Bitcoin vs. Government/Banks; the Winklevoss superhero-twins are winning the PR war handily.
Genie’s Out of the Bottle
When a frenzy takes hold in the psyche of society, it’s already way too fucking late for the governments to come in and clamp the whole thing down. Maybe you can pull it off in say Venezuela (shutting down miners) or Kyrgyzstan (outright ban), but those places blatantly suck — if getting the essentials like toilet paper is a grind, hearing you can’t buy Bitcoin kind of rolls off your back.
But in developed countries, all sorts of manias are allowed to flourish and die at will — it’s the beating heart of capitalism, governments have no role in how money is made or lost (i.e. the opposite of a socialist state).
Now that there’s a functioning futures market for Bitcoin in the U.S., the task of putting the genie back in the bottle got infinitely harder. This isn’t an esoteric futures market for ‘beanie babies’. This is a futures market for a functioning currency that is accepted to buy stuff (although a very limited menu).
The longer the love affair grows, the more Bitcoin mania takes hold and the more impossible the task becomes. Governments will try the soft persuasion route by trotting the Mr. Dimon’s of the world and declare Bitcoin a “fraud, worse than the tulip bubble” (September 13th/2017) only to have Bitcoin blast to the moon — $3,700 to $17,000 over the next 3 months.
Soft persuasion ain’t going to work here. Suffice to say Mr. Dimon doesn’t like having his face ripped off. On January 9th, he quietly stuffed his tail between his legs and “regretted calling Bitcoin a fraud”.
Bitcoin Policing Around the World
There’s essentially three schools of thought here for governments:
Hope the problem goes away – Having uncharismatic bureaucrats highlight the risks of speculation and hope the crypto problem magically disappears before they’re forced to do something. The route most G7 countries have taken.
Ban crypto/Bitcoin speculation outright – To date the list reads like the D-league at a UN assembly (Kyrgyzstan, Nepal, Namibia….)
Allow crypto and Initial Coin Offerings (ICOs) to flourish – Switzerland and Singapore were early champions, however scrutiny has been growing of late. Japan looks to be setting the most stable foundation for long-term crypto-economy growth.
CHINA: Tightening the Noose
More bitcoin wallets have been downloaded in China than any other country, and more than two-thirds of all bitcoins were mined in China. The epicentre of Bitcoin frenzy was China from 2014-2016 (blue bars on the chart below); Bitcoin became an efficient route to move funds out of country — akin to Vancouver housing. While not nearly as fun as playing crackshackormansion, Bitcoin trading was a thing in China, until it wasn’t…
In September, China banned ICOs and effectively shut down the largest crypto trading venues. The country moved further into the no-go crypto zone on January 2nd when the country’s Internet-finance regulator issued a notice seeking local governments to crack down on bitcoin mining in an effort to reduce their related electricity consumption.
The Chinese government is treading a thin line with Bitcoin. By trying to muzzle the beast they may have inadvertently made the mania stronger. China’s crackdown in September sent Bitcoin down -25% over the following 3 days, only to have Bitcoin blast-up from the low of $3,100 to $11,000. By restricting mining activity China is surely tempting the animal spirits once again.
JAPAN: Trailblazing a Path Forward
Among the G7, Japan has taken one of the most constructive views on blockchain as an economic building block. It’s estimated the country accounted for 40% of bitcoin trading in November and December (picking up slack from China’s crackdown) — day-trading men in their 30s and 40s are the biggest cohort.
The Japanese Financial Service Authority (FSA) will enact the Virtual Currency Act as of April, 2018; providing clarity on the following:
- Bitcoin is considered an asset and can be used as a payment method. It hasn’t declared Bitcoin as legal tender.
- Exchanges are legal, the FSA has the ability to grant licences and regulate them.
- Lower the tax barriers for foreign capital to trade on Japanese exchanges.
Japan is playing 3D-chess here on crypto, while the U.S. is busy trying to figure out which configuration of ‘wall’ keeps trouble out.
SOUTH KOREA: Crypto — A Pathology That Needs to be Cured
The overall environment was rather hospitable until Youbit, South Korea’s largest cryptocurrency exchange, declared bankruptcy after losing 17% of investors’ assets because of a hack (North Korean origin — or so they say). The Prime Minister of South Korea, Yee Nak-yon, gave a dire warning for the country’s youth, already hooked on eSports and video games, “If we let things continue, I feel some serious pathological phenomenons could occur”. He’s probably right.
The Securities and Exchange Commission (SEC) hasn’t approved cryptocurrency assets for any exchange-traded product or assets related to cryptocurrency for new listing. Old-fashioned stock market parlour tricks are all investors have to play: Long Island Iced Tea Corp. changed its name to Long Blockchain Corp on December 21, stock price tripling on the day. More name-changing shenanigans will surely follow…
The country is caught in a full-blown millennial frenzy; pot, crypto and hipster beards abound. Mike Novogratz chose to launch a publicly traded merchant crypto-bank on the Toronto Stock Exchange (TSX). This is really about as good as it gets.