19 Comments
May 16, 2023Liked by Neoliberal Feudalism

I agree with you, but not because of the Tether issues, which in my opinion are of trivial significance compared to the existential threat posed by central bank digital currency (CBDC).

As you rightly point out, the government could make possession of bullion illegal; however the same is true of cryptocurrency - a point that is almost always ignored by fans of crypto. The authorities do not permit states or individuals to print their own paper currency, so why would anyone expect them to tolerate competition to the CBDCs they are actively developing.

Crypto never quite broke into the mainstream, and if it were decreed illegal, the existing userbase would drop precipitously. In fact, it would be a classic bubble burst: with everyone trying to get out of the market, there would be no bid, and the value would drop to nothing. Unlike tangible assets, crypto has no inherent value whatsoever (it is the ultimate fiat), so it could - and probably would - go all the way to zero.

CBDCs offer governments and international organizations (the IMF recently announced their own global digital currency) hithertofore unimaginable control over the lives and behavior of the public. There's no way those institutions will tolerate competition from grassroots alternatives.

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May 22, 2023·edited May 22, 2023

One thing to keep in mind that most do not realize is when bitcoin started, there were absoluately NO exchanges, and thus no (centralized, commercially measurable) market value in dollars.. and yet how were transactions conducted from the very beginning? From wallet to wallet, which can be arbitrary created, to the first know transactions between live persons--Satoshi and Hal Finney. In fact, even without exchanges, and still no commercially determinable dollar amount, in May 22, 2010 the first trade for goods was done when a user on the forums bought pizza for bitcoin. This was forever memorialized as Bitcoin Pizza Day.

Then again, later in 2010, when the US government sanctioned Wikileaks, forced Visa, Mastercard and Paypal to cutoff all payments to Wikileaks, guess what was used? Bitcoin, to get around the sanctions. Again, still a couple years before there were exchanges. Thus perhaps you could say from the genesis block to the personal transactions between developers, to the pizza bought and sold, to the transaction with Wikileaks -- all throughout its value was "officially" $0 due to the lack of centralized exchanges.

So why would it then still be used? That may be have been a blessing in disguise because technically lacking a commercial valuation method (except through peer-to-peer "under the table" or unofficial means of mass p2p bidding) also meant totally zero regulation, therefore zero KYC.

The same thing occurred again in 2022 with the Canadian Freedom Trucker's Convoy when protesters' bank accounts were seized and all donations in fiat (USD and CAD) were blocked. Neither Paypal or GoFundMe or GiveSendGo could be used. The only tool that was successful in bypassing the Canadian government's financial blockade was Bitcoin, however only in direct peer-to-peer fashion through Tallycoin: https://tallycoin.app/ as the means to the send funds -- in bitcoins, not USD or CAD--across the border to organizers on the Canadian side who then distributed again in peer-to-peer fashion. The big caveat in the current environment is with their government control of Canadian exchanges, forcing the blacklisting of certain known addresses. While there are ways around it, it does make life more difficult as it neccesitates completely avoiding Canadian exchanges (see also discussion below on Monero that would mitigate some of these issues). See how:

https://bitcoinmagazine.com/markets/bitcoin-fundraising-canada-ottawa-truckers-freedom-convoy

https://twitter.com/NobodyCaribou/status/1494524997515292673

> As you rightly point out, the government could make possession of bullion illegal; however the same is true of cryptocurrency - a point that is almost always ignored by fans of crypto

That may be so for institutional investors and whales, but definitely not so for a good portion cryptocurrency users who started from and were inspired by the cypherpunk movement, Sovereign Individual movement, crypto-arnarchists, like Timothy May et. al. who advocate holding their own private keys and managing their wallets and advocate use of privacy technologies.

Interestingly, if you look at the communication history--all of which is public--Satoshi on the bitcointalk forum before his departure expressed concerns about the incomplete privacy nature of the current state of development and he proposed some enhancements that never made it through. In the forums other users were questioning why the added complexity since at the time, the pseudonymous nature was quite good enough, especially given that lack of exchanges and LACK OF REGULATIONS demanding KYC/AML (which was perfect for wikileaks at the time).

I also distinctly recall Satoshi expressed concern of mining centralization to Laszlo, the buyer of the pizza for bitcoin in Bitcoin Pizza Day, since Laszlo was the developer who created the first GPU miner implementation and any Satoshi's concern were prescient, as anything GPU friendly would be even more ASIC friendly (unlike Monero btw)

But after his disappearance with his last public words on the forum that there is still a lot more to be done, those forgotten feature proposals instead eventually made their way into Monero (formerly bytecoin).

Do you know of the Tom Robbins quote: "When freedom is outlawed, then only outlaws will be free."?

Do you think when the US enacted alcohol prohibition, all the citizens acted like good boys and girls and remained sober until politicians realized the error of their ways?

.. which brings me to your point above: I would say Monero since its inception and increasingly at every step of its development, is prepared for this doomsday scenario. Such technology resilient enough for outlawry would be the only lifeline left in a bleak CDBC world.

> Unlike tangible assets, crypto has no inherent value whatsoever (it is the ultimate fiat), so it could

You are also confusing the word "fiat" which means by decree of the king or an authority you must obey and are inappropriately applying it to crypto. It cannot be fiat because all transactions, adoption and usage is voluntary. Crypto developers or projects cannot point a gun to your head compelling to obey, which is the real meaning of fiat (again, originally, decree or order from the king)

The main problem with much of the arguments when discussing "value " and "investment" that can also be applied to gold and silver is: why are we valuing things in dollars, which is a unit of measurement controlled by the State, in the first place? The whole issue with COMEX and hypothecation, etc is fundamentally, you are valuing gold in dollars. If gold were to actually BE money itself, there should be native Au units say, defined as troy oz of 0.999 purity, and gold should be valued in and have transactions conducted in such a native Au unit, instead of treating it as commodity to be *sold* for the actual currency of dollars that would then function as the medium of exchange.

The advantage crypto has is that it could, regardless of authority (again especially in Monero's case) be used on its own, with its own native units, purely divisible, fungible, verifiable with an intrinsic utility of functioning as a medium of exchange. The store of "value" would be measured in its own native unit and judged against the goods and service directly used for exchange, without necessarily selling the crypto for dollars.

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VJ, you raise some good points, and I'll grant you the correction on my use of "fiat." I was using it in the colloquial sense, to indicate something that is regarded as having value only because people agree that it does.

Your comparison to Prohibition is interesting. Certainly, laws prohibiting the consumption of alcohol and drugs have been an abysmal failure (unless the actual goal was to increase the size and power of the security apparatus, while providing a steady stream of off-books revenue for unsanctioned operations, but that's a different topic). However, there is an existing demand for drugs and alcohol, which is reinforced by the addictive nature of those products. The demand for an alternative to centrally-controlled currency exists, but it is infinitesimal in comparison.

More to the point, just as the illegal alcohol and marijuana industries were co-opted and subsumed by government-sanctioned ones, it is reasonable to expect the casual cryptocurrency aficionado to accept whatever exchange rate is offered during the launch of the CBDCs, and trade in their Bitcoin, Ethereum, etc. for digital currency backed by the full faith and trust of their local regime.

In short, I don't disagree with your logic, but only with the scale involved. Since cryptocurrency, by definition, requires it to be accepted in exchange for goods and services (e.g., pizza), any black market use post-criminalization will be limited to a very small community of users.

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Yeah those are valid arguments too. I was disheartened to see the eargerness of the mainstream crypto community, mostly those with trading backgrounds, to integrate themselves into the financial system. I concede widespread crackdown would render it a niche item... as it once was

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Excellent piece. This is a bit out there, but do you believe this is why LUNA (Terraform Labs) was attacked? To eradicate algorithmic stablecoin competitors?

I agree that gold is manipulated, however the reason for the manipulation is that the American elite know that gold is a superior form of money. Allowing gold to reach its market level would deter investments in the U.S. dollar, causing DXY to crash.

I believe we will see gold prices skyrocket once the derivatives market faces the hard reality of the bullion market, and COMEX reserves evaporate. That is, provided the government doesn't intervene to rescue speculators.

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May 15, 2023·edited May 15, 2023Author

Hi Ignatius, "do you believe this is why LUNA (Terraform Labs) was attacked? To eradicate algorithmic stablecoin competitors?" I have not studied LUNA closely, but one of the benefits of possessing krisha (a term explained here: https://roloslavskiy.substack.com/p/power-politics-is-a-pyramid-scheme ) is the ability to target and destroy competition.

Patrick McKenzie has commented on LUNA here: https://twitter.com/patio11/status/1592505726270083073 https://twitter.com/patio11/status/1590911357226209281 and

https://twitter.com/patio11/status/1526186120999993350

He also wrote a May 2022 update after the LUNA collapse: https://www.kalzumeus.com/2022/05/20/tether-required-recapitalization/

I agree with you and like gold and silver, but I do expect government intervention to rescue speculators if true price discovery starts occurring.

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Nov 6, 2023Liked by Neoliberal Feudalism

Tether having a “krisha“ honestly wouldn’t surprise me at all. To be the only stablecoin standing after Op Chokepoint 2.0 just reinforces that theory. Just to be clear tho, this is from your article with the “contention” mention being the “krisha”, correct?

“If this contention is accurate, what the establishment’s control over the cryptocurrency space via Tether means is that they can pump or crash the entire crypto space at will. Although the total cryptocurrency market cap is currently over $1.1 trillion, the trading platforms are so illiquid that small amounts of purchases or sales can move the market and cause dramatic, oversized changes in market cap. They can pump prices 100x from here it crash it to 0; but the decision is entirely theirs, artificially and not subject to market forces.”

With only 55,000 BTC to sell I don’t see how they could provide the downside pressure your mentioning. Micro-strategy has more than 3x that bitcoin. It doesn’t seem to me that Tether is any more of a risk than any other major player in the industry. Am I missing something here?

I also don’t see trading volume as a particularly useful metric. Some exchanges pump their trading numbers by 50x using Wash trading, many using Tether to do this. (https://www.sciencedirect.com/science/article/abs/pii/S1544612321000635)

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Thanks for quoting that, it's been awhile since I've re-read the article, I'll update the 0 contention. Regarding liquidity, in late 2017 on Coinbase there was a singular whale that market sold a bunch of Bitcoin, fat-fingered, and it dropped the price to very close to zero, as that one sale triggered a bunch of stop loss sales which created a snowball effect. The whole system crashed and no one was able to buy or sell during this event.

Re: your other question, Patrick McKenzie referred to tether as a systemic risk, i.e. a risk not just to Bitcoin but to the entire crypto ecosystem. I'll quote him here: "Tether should introduce the cryptocurrency community to the concept of systemic risk: after something is infrastructure, it gets into everything. When you withdrawal the infrastructure suddenly, a bunch of things break all at once, even ones that don’t look exposed, because of the transitive nature of the dependency graph.

An example of this in real life: money market funds, which have many surface similarities to Tether, likewise are critical load-bearing economic infrastructure. Just one money market fund “broke the buck” (declining to 97 cents) during the global financial crisis. And the real economy, which has many things in it which aren’t money market funds, and which has many money market funds to choose from, and which has high-quality options for backstopping money market funds, went into barely restrained panic.

Why? If you believe the asset is riskless for long enough it will find itself in the infinite variety of structures which need a riskless asset, and when those structures suddenly have a hole where their riskless asset should be, calamity quickly follows. There was the prospect of companies missing payroll, financial structures unwinding due to sudden unanticipated insolvency, etc. And so there was a massive outflow from money market funds as a class which put such strain on the commercial paper market that it nearly broke. The liquidity crisis’ downward spiral was only broken when the government guaranteed money market funds.

Where is Tether critical, load-bearing infrastructure? Lots of places. It represents most of the liquidity for many “altcoins” (cryptocurrencies which are less popular than the main ones, like Bitcoin/Ether). It is the unit of account and the internal reserve of many of the less-banked exchanges. It very probably functions as the credit supply which keeps liquidity in the system.

It remains to be seen whether there will be a lender of last resort who steps in to make Tether holders whole if and when the reserves vanish."

From: https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/

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Thanks for linking the article, that clears things up quite a bit. The author seems to be using “crypto” and “bitcoin” interchangeably. Based on the research I have done they are somewhat connected and bitcoin is required for crypto to exist but not the other way around. I also looked through his Twitter and his reason for doing this is he believe the marginal buying of bitcoin was on done credit by the crypto industry. (Based on your resent comments to Peter St. Onge’s article, you seem to hold the same opinions. Please correct me if I am wrong.)

But this doesn’t add up. If that was the case bitcoin should have gone back to the previous low’s of $3-6k during the last downturn. The fact that it didn’t means that there are buyers outside of the “crypto” economy that are holding through the market panic.

I don’t think it’s a coincidence that investors like Bill Miller and Stanley Drukenmiller point to this “higher lows” phenomenon as their main reason for allocating some of their assets to bitcoin. (Miller has 50% in it!!)

I agree the collapse of Tether is a systemic structural risk the the crypto community but that does not make it a risk to bitcoin. They are not the same. Crypto is an ecosystem of high leverage, smoke and mirrors, marketing Ponzi scams looking to extract the user’s liquidity at the top of the market. Bitcoin is a decentralized, censorship resisting, bearer asset, attempt to revolutionize the monetary system so it cannot be manipulated at the expense of the general population.

Also, just the cherry on top, if Tether collapses, exchanges would probably halt USD withdrawals and crypto holders would be forced into bitcoin driving the price up. Whether they can withdraw their bitcoin will depend on the exchange but many would not be allowed to. Anyone who has bitcoin on a hardware wallet has zero risk of losing their bitcoin and no increased downside risk in price with or without Tether.

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Nov 4, 2023Liked by Neoliberal Feudalism

Great work! I really enjoyed reading it :) History-book worthy conspiracy if true. And I believe it. Coffeezila also did a piece on Tether focused around the people behind it, but I hadn’t considered your theory until I came across it in your work.

I have a few questions, if you have the time:

Do you think CBDCs will succeed in Europe and the US?

Alternatively, what taxation practices would you endorse in a system where people use Bitcoin and are their own bank? I suppose you’ll look to the past, but did those systems work well? Would they hold up to our technologies?

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Nov 4, 2023·edited Nov 4, 2023Author

Hi Nacho, I have a pessimistic view of history, that humans pursue technological innovation because it confers power advantages over others, hence there is an arms-race toward more and more technology that can't really be stopped (which puts me at odds with Kaczynski). But what comes along with technological innovation is increased centralization and decreased autonomy and privacy, which ultimately decreases quality of life.

On this basis, I do think CBDCs will succeed in Europe and the US, which will be implemented either due to a major (contrived) financial crisis or introduced gradually via welfare and such and then expanded. Meanwhile, the "war on cash" continues as more and more businesses refuse to accept cash for payment, only credit card. The pieces are all ready for CBDC deployment at this time throughout the world, including Russia and Iran. The incentives for governments to implement CBDCs are too strong -- they will be able to cut people out of the financial system they don't like at the push of a button (much more widespread and streamlined than they do now), it will remove the cash black market which makes up a lot of the economy and isn't taxed, and they will be able to more easily "nudge" human behavior into approved activities (like eating bugs and living in pods and getting vaccines, with limited travel) and away from disapproved activities.

I hope I'm wrong, as living in a world of CBDCs will be pretty terrible.

It seems hard to believe that Bitcoin will become the basis for a country's financial system even without the Tether scam, because governments rely on deficit spending throughout history and they desperately want to control their currency. Rome, for example, gradually debased their currency from almost pure silver and gold content to less than 50% purity. I think governments would simply ban non-governmental crypto if it became a real challenge, and cut off fiat on/offramps. But so far they have limited their actions to Tether and requiring taxation of cryptocurrency in USD.

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May 21Liked by Neoliberal Feudalism

Thanks for your reply! Sorry that I took so long to read it. :)

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I agree that Bitcoin, no matter how different it actually is compared to alt (shit) coins - decentralized, finite supply, etc - and its performance is intrinsically connected to the overall performance of the 'crypto market'. Confidence and lack thereof in the space affects BTC. Yet, I feel it has slowly gained more independence and strength as the FTX scandal - and others like Celsius - could've totally nuked everyone's holdings. However, BTC continues to grow and becoem stronger. There are whales who own a lot of BTC and can manipulate the BTC market willingly but its protocol and safeguards/incentives to join rather combat the network are arguably what's going to keep BTC alive in the future. I do not have utopian visions of BTC solving world inequality, hunger, creating anarchist heaven etc. but it will remove the problem of value and the way centralized entities distort this. Maybe BTC lives on as a side market of actual value while most are enslaved in the arbitray CBDC hell hole that's coming. Maybe BTC transactions will be totally outlawed so you cannot convert your value to whatever version of fiat exists. In that case, some other country is incentivized to promote BTC because of its value and the significant advantage say the US is forgoing with a hypothetical illegalization...

Just some thoughts

I do believe crypto is a complete scam, but I'm not convinced BTC is hopeless. quite the contrary. the future looks bleak but I'd rather have a raincoat when the storm approaches

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Late here, but did you confuse Tether's market cap at the time $83Bn with its cash balance? Apple for example has a much higher market cap than cash balance, but you put Tether in the list of firms by cash balance and appeared to use Tether's market cap instead.

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Hi Artist, thanks for the question. Tether is supposed to be backed 1:1 between Tethers and US dollars or US dollar equivalents. At one point, Tether’s website merely stated that “All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves.”

The contention is that not only are Tethers not backed 1:1 with US dollars, but that Tethers are only minimally backed and the rest of their Tethers were printed out of thin air to inflate the crypto marketplace.

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What do you mean by “The core reason, however, and why they likely have had broad establishment support for this operation, must be because of this: to publicly stress-test blockchain technologies before central bank digital currencies (CBDCs) are unleashed by governments, which will result in the greatest centralization and loss of individual freedom in human history.”

If Bitcoin flops, then why would people trust CBDC? It could be possible that CIA made Bitcoin and spread the myth of a lone hacker named Satoshi.

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CBDCs are different than current cryptocurrencies because they would be government backed and subject to existing central banks, not to the Tether monetary printer. Because of this, it’s not clear how a crash of crypto prices, if any, would affect the roll-out of CBDCs.

Indeed, it’s not clear how they intend to roll them out — gradually like the ongoing quiet War on Cash? Loudly via an artificial, acute crisis where CBDCs will be unleashed as the “solution” to their generated crisis?

Regardless, most countries have been developing their respective CBDCs and the infrastructure appears ready for rollout as soon as the political trigger is pulled. See here from the Atlantic council: https://www.atlanticcouncil.org/cbdctracker/

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I have ready your article, the comments, and some of the sources linked in the article and I can’t understand how Tether could send Bitcoin to $0? They only own 55,000 BTC. Tera Luna alone dumped almost 28,000 BTC on the market during the last crash and it only went to $15k. Can you explain this to me?

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Hi Coach, I didn't say Tether could send Bitcoin to $0, just that a collapse of Tether would have a very material impact on all of cryptocurrency's prices. "BTC could tank to below 1k if we don’t act quickly" wrote Bitfinex & Tether CFO “Merlin”, Giancarlo Devasini in October, 2018 per: https://archive.ph/WxU8X

As mentioned in the article, Tether has more daily trading volume than the rest of the top 10 coins combined. Because exchanges are highly *illiquid*, a sudden collapse of Tether could lead to the equivalent of a bank run, and due to the lack of liquidity on exchanges the impact of such an event could dramatically collapse crypto prices.

This isn't guaranteed to happen, of course. As I wrote, Tether/Bitfinex executives have a "krisha", i.e. institutional protection by the CIA and NSA, so what happens depends entirely on how they decide to deal with this giant scam moving forward.

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