In 2013, the United States launched ‘Operation Choke Point’. The aim was to restrict access to banking for high risk industries like payday lenders, ATM operators and other industries allegedly linked with money laundering. The unique element of the plan was that it did not involve legislation. Instead, Federal Agencies simply wrote to banks “…..you might like to think about withdrawing your services to Bob’s loan sharks” etc.
The plan was highly successful because of course if you are a bank and the government writes to you making a ‘suggestion’ there is a strong likelihood that you will comply. The project ended in 2017 and resulted in multiple successful lawsuits against the government who had in fact illegally circumvented the need to pass legislation and resorted to sending out passive threats.
It was bad and now it’s back. Choke Point 2, unsurprisingly, targets the cryptocurrency sector and in particular the providers of stablecoins. In the last few weeks Binance has had its US banking facilities withdrawn and can no longer process wires for under $100,000. The main provider of services in the US is Silvergate bank who are allegedly in the process of restricting access to their services to all but a very small number of US owned businesses. Why? Most likely because they had a nasty letter from the US Government. (An excellent write up of the whole operation was provided by Nic Carter of Castle Island Ventures, you can read the whole thing here).
The wider picture here is the protection of the USD hegemony at all costs. The USD is under siege from China, Russia and India who are all commencing trade in currencies outside of the USD. The offshore $ industry is on the rise and basically out of the control of US authorities.
The US will be extremely aggressive here but it will be damaging to their industry. There are very few incentives now to start a digital asset business in the USA; far more hospitable climates can be found in the Middle East and Asia. This will be ugly for those with exposure to stablecoins like USDC and Tether and I would urge maximum caution for people holding those assets. Exit stable coins while you can.
It’s also a tacit attack on bitcoin. The US has had a hard time making an argument for why a bitcoin ban might be appropriate. It’s simply open source software, isn’t a security, and to some degree it enjoys constitutional protection as a result. The only methods of attack are narrative ones (it’s used for drugs and crime, etc) and attacks on supporting infrastructure, like stablecoins.
Ultimately, this will fail. Distributed systems do not work in the same way as those that have historically been attacked in this way. It will likely have the effect of driving development in stablecoins beyond those things we currently have, think decentralised algorithmic assets. It’s hard to do but it will be done.
The US would be far better simply embracing the reality of mathematics. They cannot kill bitcoin despite how hard they have tried. The penalty for their failure will be severe in the long term. When you come for the king, you best not miss.
The Golden X
Charts mean nothing. I know! There is no need to email me. This particular series of charts is presented for your interest because there are some consistent characteristics about bitcoin cycles that might be relevant. Remember, you might be the leading quant for George Soros’ latest hedge fund, but you have never traded an asset that has an issuance curve that consistently halves every four years. We can be clear that you don’t know and neither do we.
In trading terms a ‘Golden Cross’ generally indicates a momentum shift.
The first example here is in 2015. After the Golden Cross, the price doubled to $600 and then after significant chop, returned 65x topping out at $19,500 before the collapse of 2017/18.
Again in 2019, the Golden Cross took place at $6,000. The price then dropped sharply before charging upwards to $14,000.
Now we are here and the Golden Cross has happened again. This time, half the industry is bankrupt and the US Government is restricting access to the USD, which will probably make a difference. We already saw a sharp pull back in the last few days.
Prediction: So many people are building on Bitcoin, and adoption is surging on Lightning, that I think the same thing will happen. Choppy, downward shake outs and then an upward charge so fierce it will rip your face off.
A new Lowe
As central bankers go I like Philip Lowe. He’s had a solid record for years and the only genuine error he made was declaring low rates until 2024 which permanently damaged his reputation as well as that of the bank. Still, I don’t think anyone could believe that error was intentionally misleading but it was certainly being unhelpful for people that bought property under that assumption.
I’m less sympathetic to his more recent galavanting though. The Financial Review report on the private meeting with Barrenjoey bond traders last week is disturbing. These sorts of meetings are older than time but Barrenjoey has been in business only 12 months. Only connections and money brought them their private meeting with the RBA Governor.
Some traders and analysts were angered to find out about the briefings, particularly in light of Thursday’s movements in bond futures contracts and bond yields.
I can assure you that the only angered bond traders were the ones who didn’t get invited. The fact is that whatever Lowe did or didn’t say (the bank insists he repeated only what was in his public statements) his non-words moved the bond market and only the people invited benefitted.
This is petty corruption that gnaws at the edges of money. We can be confident that 99% of the Australian population don’t know this happened but it undermines the money they all work for every day. It’s not acceptable that someone chiselling away in a mine three miles underground is having their own efforts chiseled away by a select group at a fancy restaurant in Sydney.
We have to depoliticise money. This sort of the thing is the bread and butter of any decentralised system, you cannot bribe it. You cannot say “come to lunch and tell a special group of people what’s going to happen next”.
There is so much special interest activity happening from which select groups make a living; it is that access that perpetuates the system. It’s the same 200 people in the AFR every day reassuring each other of their own brilliance. When it comes to petty grift, they are indeed brilliant.
But just like it was once impossible to imagine the separation of the Church and the State, it is impossible to imagine the separation of Money from the State. It will happen though just by the mere presence of a superior alternative and the cold breeze of economic reality will blow down the well-connected corridors of Australia.
What happened at the Barrenjoey lunch was probably innocuous but the whiff of corruption is real. It will be part of the Philip Lowe postscript and an even deeper footnote in the history of fiat money.
In social media land, everyone is upset that Elon has broken Twitter. He fiddled with the algorithm and it resulted in the largest accounts not making it into anyone’s feeds. Raoul Pal gave a good example after he shared his engagement stats, 90% down.
On the dark side of the internet a new social media animal is being born. Nostr, which means “notes and other stuff transmitted by relay”. I cannot in good faith recommend this platform to you yet. It is new and buggy and the overall experience is poor; however there is a huge difference.
Nostr operates a little bit like bitcoin; it is the users that host the network. Users can operate something known as a relay that will share messages from other users and essentially build out a decentralised network for communication. Since the first Nostr app went live in the App Store it has had hundreds of thousands of downloads and the number of relays is booming. The difference here is nobody owns the network, anybody can build an app that displays the messages and there is a competition only for the best UX, not to control the content.
Nostr might not be the winner in the end, but the technical possibilities for decentralised social media are being demonstrated. One of these platforms will totally dominate Facebook, TikTok and Twitter in the next few years. What’s more, as Nostr does, payments are integrated via the Lightning Network. If you like a message someone posts, you can send them a tip for 1 Satoshi which is 0.0002185 USD (or any other amount). Micropayments like this are simply not possible in traditional systems. What’s more, such micropayments can and likely will be used to combat spam.
The number one supporter of Nostr is none other than Jack Dorsey. His only use of twitter this year was to promote the use of Nostr.
I would not underestimate the power of the integration with decentralised social media and decentralised money. It will happen fast, so be on the right side of it.
The EU held one of its AMA (ask me anything) Twitter-fests last week.
The question is an excellent one. Why is the inflation target 2%? Why do we accept this material reduction in our purchasing power every year, particularly when we all know inflation is a lot higher than the official measures? Is it not a giant fraud masquerading as economic policy?
The argument that if prices were allowed to fall, nobody would buy anything and wait for cheaper prices is complete nonsense. The only sector where prices fall consistently is in technology where price per unit of performance collapses at a huge rate and we have never spent more on tech.
Isabel Schnabel’s reply is rather disingenuous too. There is only one currency at scale which has a provably fixed supply. The Euro has now lost 99% of its value against that currency since it launched and there is a very real likelihood that will keep on happening.
“Yeah but you’re selecting your time period carefully”.
No. This is the all time chart, the Euro has been absolutely crushed by bitcoin and it will keep on getting crushed because as the questioner pointed out, “it has a fixed supply”. It’s as simple as that.