Ray Dalio: ‘Good probability’ the U.S. will outlaw Bitcoin
finance.yahoo.com
finance.yahoo.com
https://news.ycombinator.com/item?id=26625859 (68 points/119 comments)
https://news.ycombinator.com/item?id=26618206 (34 points/79 comments)
It outlawed gold ownership because the dollar was backed by gold, the Fed wanted to print more dollars to stimulate the economy, and at the time it could only do that if it had enough gold to back those dollars. They were running out of gold so they confiscated it from regular people.
https://en.wikipedia.org/wiki/Executive_Order_6102#Rationale
Come to think of it, that's another difference from "outlawing Bitcoin."
Wouldn't it be unconstitutional for them to seize and not pay for it? Though they probably just paid face value in paper money.
Since the dollar was backed at $20 per ounce of gold, that's what they paid. Then they changed it to $35/oz.
The SEC made most of the Initial Coin Offering industry go away by prosecuting some of the blatant frauds. The ICO backed by nonexistent diamonds and real estate was the first to go down. After a few of those, the SEC sent out letters asking ICO issuers why they thought they weren't issuing an unregulated security. A few registered. Most gave up.
The SEC has essentially grandfathered Bitcoin as pre-dating any SEC guidance on the subject, and as lacking an "issuer". Newer make-money-fast schemes get full scrutiny.
[1] https://www.forbes.com/sites/ninabambysheva/2021/03/15/22-bi...
Bitcoin is a $1.6TB market valuation. $2.1B represents around .1% of that value.
So the total capitalization dropped $160B when someone removed $2.1B in value? That is a multiplier of 80 times.
And you're saying that's pretty good?
[1] https://www.pymnts.com/news/bitcoin-tracker/2018/south-korea...
I.e. the US.
https://en.wikipedia.org/wiki/Capital_controls_in_Greece
https://en.wikipedia.org/wiki/Exchange_Controls_in_the_Unite...
And if it does, it won't matter. How do you even ban Bitcoin? Are they going to set up a great firewall? Cryptocurrency isn't the type of thing you can just ban.
It's in the US's best interest to embrace it.
Edit: the best downvotes are from people that missed out on the technological innovation of a lifetime.
Then it's going to stay alive. Look at Uniswap, Sushiswap, 1inch.
That's a strong reason for governments to ban them.
Governments derive their power from their ability to raise taxes; and they need to be able to measure how much people and companies make for that. Governments can't tolerate a widespread bitcoin.
So what? You can easily put a layer of legal red tape around something, so that individuals cannot reasonably use it, but allows corporations with large legal departments can continue.
The Ponzi bubble will need to largely pop on its own, or will need to be popped by governments other than the US.
you can also use bitcoin like a physical bearer asset (gold bullion) by using things like https://opendime.com/ so even if the network was 100% down transactions could still happen IRL. You'd just be exchanging a hidden private key that can move UTXO's on the blockchain.
considering that I'd say bitcoin is much more anti-fragile than a bank statement, in most of the natural disasters you're talking about im not so sure banks will be letting you withdraw any significant amount of $
https://ocw.mit.edu/courses/sloan-school-of-management/15-s1...
I think the basic issue is there is huge amounts of cryptocurrency that can't be converted to USD for one reason or another (proceeds of ransomware, inability to pass KYC checks, etc.), and that is causing some crypto assets to be worth far less USD than others, and inflating the price of assets when purchased with those coins. But that isn't stopping people from pricing them just the same.
Not really - because you could exchange you crypto for USD easily & reliably enough. The second that's true it stops being "funny-money" as you put it.
Contrast that with monopoly money where nobody will give you USD for it.
NFTs - either people are doing it for the giggles or they're betting on greater fool theory
Give a little more credit--they're also great for money laundering.
That valuation is based on what you can, right now, exchange crypto for USD on the exchanges.
So, who will participate in this massive backlash in the US besides Elon Musk and Dorsey whose companies have public positions in bitcoin, and a few others?
2. Many companies and citizens and even the US gov itself have over $1M in bitcoin, to name a few: Square, Microstrategy/Michael Saylor, Greyscale, Tim Draper, Winklevoss/Gemini, etc [2]
Safe to say, Bitcoin and crypto is Big Business now in the US, with hundreds of companies and startups in the space based in the US.
[1] https://insights.glassnode.com/bitcoin-supply-distribution/ [2] https://www.kevinrooke.com/bitcoin
For example, they could make a special cryptocurrency tax which is 100%. And/or a heavy tax on all currency exchanges “expect for the national currencies of the nations in Annex D”, and Annex D turns out to be a list of countries that they have a specific trade agreement with.
They can remove long-term capital gains on it and make it all short term treatment or partly short term treatment (I think that is how it works for futures IIRC.)
They could create different categories of taxes (e.g., what we have for dividends), except with higher categories.
I've always wondered why this hasn't happened with bitcoin.
Surely the feds are aware of the scale of money laundering being done in the cryptocurrency world, but I'm guessing they'd prefer to see that being laundered by western criminals than leveraged by China.
"At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"
How literal is "currency?" I would consider currency different than "assets" from a tax perspective. Can anyone provide some clarity or articles which provide any?
The IRS's instructions state:
> Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, or a medium of exchange. Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency. The IRS uses the term “virtual currency” to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency. Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes.
Based on that description, WoW gold would qualify...
If you use it purchase items in games it’s probably not. Especially if those items can’t be purchased directly. It’s similar to gift cards. Especially if you purchase items from the publisher, who pays tax on the income.
If you start using it to buy pizza it’s on the other side of the line. It’s an asset, and could be potentially taxable as an asset.
https://www.irs.gov/individuals/international-taxpayers/freq...
If you're familiar with buying/selling stocks, it's treated pretty much the same.
To do this properly, everytime you use bitcoin to buy something you should sell enough bitcoin (for cash) at the same time to generate enough cash to cover the tax on the main transaction (assuming bitcoin went up in value from when you acquired it).
If you did that, you'd have to report every purchase on your taxes as a separate asset sale.
The difference being most people don’t trade Tesla shares for laptops.
Also what does "outlawing" bitcoin even mean. It's not a US based entity.
It's easy to scoff at the idea of censoring bitcoin, but I'd love to hear someone defend the censorship-resistance of bitcoin, because I really don't see it.
It's trivial to make it illegal to operate a full node, and it's not like the government doesn't have the dragnet surveillance infrastructure to enforce it. You can't transfer bitcoin without access to the network (ie: you can't physically transfer bitcoin between two untrusting parties) and if the government bars exchanges from operating legally, how do you actually trade bitcoin for anything?
If you think this sounds draconian and far-fetched, you might be right, but remember: the government once tried to ban gold (https://en.wikipedia.org/wiki/Executive_Order_6102 ).
Right, making something illegal is trivial. But how would you effectively stop someone from doing it? You can tunnel the traffic as with anything. They'd have to go full China to stop it.
And you don't need to run a full node if you're willing to trust a consensus of miners about the current state. (You can see how much work a block (probably) took to mine, so if someone shows you a block with the wrong proof-of-work target you know they're lying, meaning that even this forgery to show to an offline user is 51%-attack level hard.)
> if the government bars exchanges from operating legally, how do you actually trade bitcoin for anything?
Have you ever travelled and bought currency privately? Either just because you ran out, or the listed exchange rate is fixed. You meet someone in a bar and hand them an envelope of cash.
If you used something like the OpenDime offline wallet then it would be easier. They'd transfer to the offline wallet which you would verify, and then you'd do a regular handover of physical items, cash for hardware wallet.
Sure, it's a bit shady, and maybe horribly illegal, but if you were trying to get out of the country with your family's wealth all of a sudden it'd seem pretty easy compared to the alternatives.
but.... I really don't think either of those things is true. You should talk to people in the state dept or DoD and pay less attention to FED/Treasury. The current USD global reserve status quo isn't always great for the US gov.
The exchanges don't hold the assets. At least not of the guys that know what they're doing.
>If they coordinate it across the globe
In all 195 countries? Doubtful.
Even if by some miracle this could be pulled off, there are now decentralized exchanges.
Pretty much the only thing that would make any dent is getting visa & mastercard to shut down what they can...except they're both making moves in favour of Bitcoin currently
All legitimate Bitcoin trading exchanges have assets. Some countries have more flexibility to shut down companies than the US. During the golden era, governments weren’t sure what to do with Bitcoin so companies like mtgox were left alone but those days are gone. Especially with the threat of getting arrested for money laundering, it makes the risk much higher and popularity would plummet.
They could shut down Bitcoin trading in the Western countries and then put financial sanctions on any countries that allow Bitcoin trading. It would drive Bitcoin trading underground but with no legitimate and easy way of converting your Bitcoin to fiat currency, it would die quickly.
Once the price of Bitcoin drops below the price of the cost to mine it in terms of electricity, it would probably stop getting mined by many parts of the world. It also might drive Bitcoin into the hands of China but I think what would happen is that the governments would come up with some other form of cryptocurrency that they could control.
The demand for heroin and cocaine is driven by intrinsic value: it gets you high. You can restrict supply but you can't stop people from wanting to get high. The demand will be there no matter what. The utility of the product is unchanged by laws or public perception.
Bitcoin doesn't have intrinsic value. It has value because people will buy it from you. I think BTC is a crappy technology, but I'm not ashamed to admit I'd buy one at $50,000/ea this instant, only because I know I can turn around and resell it for $57,000/ea. The only reason I want 1 BTC is that I know enough other people want 1 BTC badly enough, that I can sell it to them at a good price.
If exchanging my Bitcoin back into fiat or directly for goods becomes illegal, now I've got difficulty and risk involved in using it. I won't want Bitcoins as much. Its utility -- being useful for exchange -- can be directly impacted by the law.
A lot of the people who want to buy bitcoin today would not buy it if it were illegal to do so. I'm talking about casual retail speculators, Tesla, Microstrategy... all of your basic white collar investors who are looking to make a buck but don't want to get in trouble for it. If you delete all those people from the buying side of the order books, and put those who have already bought and want to get out on the selling side, what happens to the price?
Let me see if I can explain my definition of intrinsic value.
Suppose a genie appeared before me and presented a gift to me, with one condition (enforced by genie magic): I can never sell this gift. The gift is a gorgeous, hand-engraved Krieghoff shotgun stocked in highly figured walnut. Now, this is a coveted object and one that would fetch a high price, if I were able to resell it. It's unfortunate that I can't! But I would still be thrilled to receive this gift. It's a very fine piece of craftsmanship and one that I can both appreciate for its beauty, and enjoy using on the skeet field. I want it just to have it and use it, not to sell it or put a number on it in measuring my assets.
You can imagine the same arrangement for many other things: a fancy car, a house, a stunning artwork, a barrel of booze, or even a pile of heroin and cocaine, if that's your preferred vice. Even with the stipulation that you absolutely cannot sell the item, you still want it.
Now, if the genie gave you a gift of Bitcoin, with this same magic arrangement that prevents you from selling it to somebody else (including trading it for anything), how excited would you be?
> If you redefine "intrinsic value" to include "trade value", you have just made the word "intrinsic" meaningless. Is there any type of asset that does not have intrinsic value, using this new definition?
The value of cryptocurrency in the abstract over regular currency is that it's provably tied to a transaction which is a program, and that transactions cannot be reversed - any revocation mechanisms like escrow, timeouts, etc, need to be part of the contract and thus transparent. This has a ton of value if you want your software to be able to do things that involve real value, from topping-up your API limits on a website to trading Pounds against a falling Euro.
That can't be recreated by any centralized entity, such as the USA with dollars, or Ethereum and Eth, because of their ability to blacklist or roll back anything they don't approve of.
Yes! You get it. Currencies normally don't and shouldn't have intrinsic value. The gold coins of the distant past had some intrinsic value since they could be melted down and used for jewelry or corrosion resistant coatings etc, but all modern currencies have near-zero intrinsic value and there is nothing wrong with that.
All value is dependent on the use. Food is useful for sustenance, but less useful for shelter. Currency is worthless to eat, but useful to facilitate trade for shelter, etc. There's no objective intrinsic value to anything.
If the Genie was to offer two intangible things, useless in isolation, such as a cryptocurrency (not a unit of that currency, but the system itself) or a new human language, neither would interest me. Both only have network value. But if I was allowed to use them as intended I would feel happy to have either.
If so, perhaps you can also agree that making that distinction might be useful, at least in certain situations.
In particular, the post that started this thread compared banning bitcoin to banning heroin. I believe heroin's value is driven almost entirely by its ability to get you high. The end users don't care if it's white, blue, red, or covered in Louis Vuitton logos as long as they are confident that it gets them high in that particularly lovely heroin way. When you ban it, you don't interfere at all with the fact that heroin gets you high. Heroin does that job as well as ever. By banning it, you make it harder to obtain, but you don't make having it any less desirable for the addict.
On the other hand, when you ban bitcoin, you do interfere with the thing that's useful about Bitcoin: trading it. Not only do you make it harder for somebody to obtain BTC, you make having BTC less desirable, because it's harder to redeem it for a product or another currency.
Maybe just speaking for myself here, but it wouldn't be as valuable to me if I couldn't go to a "legit" company like Coinbase to facilitate turning it into something I can use to buy a car or a house. I suspect a lot of people feel the same way so overall that lack of buying interest would be pretty strong downward pressure on the market price.
Well, I've never used a centralized blockchain service. But then again, I've also transacted for foreign cash while in a bar. Obviously for you though, the value is based on those services. As it's a network effect, you not using it does hurt me a tiny bit multiplied by the number of people like you.
But it's not like it has to be the currency to be almost as useful. Euros aren't taken everywhere yet nobody trades them at a discount in those areas. As long as cryptocurrency works for what I want it to, I don't much care that it's a bit harder to use at the grocery store.
And of course, what's the consequence of the law? Do they shoot you, or do they just treat it as foreign cash or something and tax you at the least favorable rate? A totally ineffective ban could actually help. If you drove it underground enough that nobody declared it (or paid taxes on it) the increased value might help a burgeoning underground economy and help create money-laundering opportunities. And the ban has to be relevant to the use. If the USA banned bitcoin it might actually help other countries more than the diminished value of bitcoin hurt them and that disproportionate benefit could be the catalyst to make the system more useful overall.
Already the USA has effectively banned most cryptocurrency by limiting what Americans can invest in and who they can invest through, but because of the halo effect Americans can buy BTC and ride the general wave despite not participating in some of the other opportunities directly. The limited ban did almost nothing despite your logic being fairly sound.
There is a difference between things that are desirable in and of themselves, and things that are desirable because of their trade value. The term "intrinsic value" is used to make that distinction. It doesn't mean things without intrinsic value are bad, or broken, or doomed to fail. It's not a strictly negative or positive distinction. But it is a useful distinction to be able to make.
If you redefine "intrinsic value" to include "trade value", you have just made the word "intrinsic" meaningless. Is there any type of asset that does not have intrinsic value, using this new definition?
Now, getting out of the realm of hypothetical genies and magic, you can make an argument that government regulation cannot realistically prevent trade in Bitcoin, so that trade value will be maintained. No intrinsic value is required. I'm not so sure that the trade value would hold up without the buying pressure from retail investors and businesses wishing to comply with US law, but reasonable people can disagree.
I agree, one cannot consider “trade value” as a component of intrinsic — I think a better (partial) attribute of intrinsic to be its fungibility, which is more what I meant (ease of selling) instead of “trade value” as (sale price). Ease of selling can impact the sale price, which makes it an attribute of its trade value, not intrinsic, but I am making an argument that the very nature of the asset’s fungibility makes it a component of its intrinsic value. BTC is not perfectly fungible due to tx taint, but it is fungible enough over traditional stores of value that it makes it slightly better than traditional. This itself is independent of its sale price; “BTC had an intrinsic value the day it was born”, by merit of its coin provenance, audibility, integrity, censorship resistance and fungibility. That is worth something, even if nobody on earth wants to trade it for fiat.
To lower bitcoin's advantages as an inflation hedge, governments can:
- tax heavily the conversions of bitcoin into fiat cash and vice-versa back into bitcoin. E.g. an "oppressive 90% tax" at the exchanges like Coinbase
- declare exchange businesses as illegal. This is analogous outlawing nationwide gambling websites. Yes, the bitcoin network by design still operates without exchanges but the barriers to quick liquidity and fears of cashing out affects its value as inflation protection
- declare property transactions enabled by bitcoin to be null & void. E.g. If you convert 4 bitcoins @ $50k to buy a $200k house, that real estate transaction is illegal and the government uses its power to confiscate the property. Analogous to property seizures because of drug money. The government still wants to trace the origins of money and if it's an illegal activity, the property is forfeited.
- require citizens to declare the bitcoins they own. This is based on the honor system and citizens can try to hide it of course -- but the FBI and IRS can monitor large amounts of fiat cash deposits into bank accounts and if the citizen can't explain where $200k legitimately came from, ("Uh, I sold a car wash business!"), they get fined or go to jail. Of course, the black market will come up with solutions to "legitimize bitcoin cashouts" but again, the barrier to lawful liquidity decreases its inflation hedging value.
- require a government license to use bitcoin. E.g. After your license is approved, you must run extra software to notify to the government the bitcoin addresses and amounts you intend to transact. Yes, the bitcoin network is independent from the government but that doesn't matter because if your self-reported declarations don't match the bitcoin activity, your property can be seized. Analogous to informing the SEC ahead of time of a new issuance of corporate stock.
- ... any creative other ways? The common theme is that citizens still have to interact with the real world and the government has a monopoly on enforcing property rights and putting people in jail in that real world. There doesn't have to be a law that literally has the word "ban" in it. Instead, governments can changes bitcoin's utility and thus its market value.
So to balance all the negativity above, the way bitcoin can avoid government interference is to virally embed itself so thoroughly in society that it makes it politically impossible for the government to pass anti-bitcoin laws. Examples:
+ many influential members congress have significant net worth tied up in bitcoin so they are unwilling to pass laws that hurt themselves. Self-interest and self-preservation can be used against the government.
+ several large institutions (e.g. California Federal pensions, cancer charity endowments, etc) that millions depend on have significant bitcoin holdings.
+ the more influential billionaires that hold bitcoin, the more they pressure congressmembers into leaving bitcoin alone
It's hard to predict how game theory between government and citizens will play out. It seems like it's easier for China & Russia to control its citizens bitcoin rather than the USA.
This is actually a key observation, and I hope that some crypto whales can see that it may be in their best interest to donate large amounts of crypto to some high-profile charities (or possibly University endowments?)
Not only would they get income tax deduction for charitable giving, if they donate the crypto directly (rather than converting it), they pay no capital gains on a conversion.
Plus, importantly, the philanthropic beneficiary -- ideally high profile -- is now invested in ensuring the survival of said alternative financial system.
That's horrifying.
That sounds like a strategy a sentient AI would use in a cyberpunk novel to deter the humans from acting against it before it's too late.
(not to say that you're wrong or that it wouldn't be effective; just... jeeze, I hope it doesn't get that far)
Has anyone tried to buy something with it lately? I tried in 2016, and it was almost impossible unless you go through 3rd party exchange, and the rates were insane.
You haven't used bitcoin in half of a decade, but you assume you have some knowledge about its uselessness that everybody else doesn't?
my single bitcoin remained there, because I couldn't use it in an easy manner. I am kind of glad about it, as it has risen in value, but really, apart 'it rises in value', what practical use does it have? Feels like modern day tulip mania.
My expectation is that they are coordinating with other countries so that they shut down bitcoin immediately across large swathes of the world. That would be enough to damage it permanently. They did something similar with online poker in the US and I can’t believe they wouldn’t do the exact same thing in this situation.
i.e. not outlawed.
Everyone calls bitcoin a currency. I don't think of it that way. I think of it as digital gold and should be treated the same way as you'd treat gold from an investment standpoint. The fact that Tesla takes bitcoin as payment is simply a novelty of our time.
Either way the US isn't going to outlaw bitcoin.
Where they do have the power is regulations regarding (legacy) financial industry. Given the interest in magic internet money from institutional investors and wall street, I think the moment where it would be acceptable to block fiat->cryptocurrency transactions has passed, and would now offer a systemic problem for big finance today.
Yeah, that's not how the law works. There are regulations about what software you can run with software-defined radios, since the FCC regulates radio emissions and SDR allows you to potentially violate those regulations. Free speech is not going to be a defense here that will win you victory in the courts.