Bitcoin could trigger financial meltdown, warns Bank of England
theguardian.com
theguardian.com
The housing crash of 2008 was a drunken debt binge. Housing by its nature is funded by debt and that is why we saw such a massive impact when it cratered.
I 'think' that most crypto is being purchased by people who have idle cash on hand. They don't want to invest in debt because the return is absurdly low. They don't want to invest in stocks because the US Fed has poured so much money into the system that stock prices are nuts. Thus, crypto seems like a good deal. Add to that the confidence that you can always spot the top and get out before the crash and voila, you have the crypto surge.
I mean, aside from the Tether time bomb.
I was just discussing Bitcoin 'investing' with a client last week and one of his engineers overheard us and told us a friend of his (another fresh Lebanese immigrant) maxes out his credit cards on the first of the month buying bitcoin, then sells it on the last day of the month and pays off the credit card and pockets the difference. I just...had no response to that. It seemed so obviously dangerous and irresponsible that I couldn't believe a grown adult would do that.
AND THEN he told me about another friend who does the same thing--but with the tuition/living money his family scrapes together and sends him from Lebanon. To me, that was not only stupid, it was a staggering betrayal in trust. Imagine your entire family scrimping and scraping to get money together to send you to college in the US and then you just casually betting it on Bitcoin.
At least its not hiding behind the might of massive banks and being sold as prime stock.
Much depends on his age and family situation.
If he's young, single, able-bodied and with no debt, why not? He can always take a night job at a micky dee's to pay back the credit card debt.
It's a gamble I would have taken in my 20s.
Way better odds than going to Vegas and same thrill.
Your acquaintence is going to be very wealthy. Not from this trade, but from the instinct to see the leverage opportunity and take that risk. Sure, bitcoin could go to a small fraction of what it's trading at, and he is out $2k minus whatever he netted on the leveraged trading. The cost to account for it properly outweighs any profits at that level, but it's a scrappy trade by someone who saw the opportunity.
As someone who still mainly makes money with labour, I was impressed anyway.
What leverage opportunity? He's gonna lose big on any prolonged downward trend.
Care to elaborate? Genuinely interested in those.
WRT Tether, when (not if) it implodes, it's actually unclear that effect it'll have on BTCUSD.
Short term, I think it'll lead to a huge price surge (USDT holders will rush for BTC/ETH as a bridge to get out).
Mid term, I believe it'll bring BTCUSD down by a fair bit (likely a 10x hit).
Long term, BTCUSD will be back to its unstoppable ratchet up.
See UST from Luna as an example.
The reason I like this idea is that it encourages behavior like people arbitraging the peg and they provide a service to keep it that way.
Here is a post mortem on the big crash back in the beginning of the summer and how it affected the UST algo stable coin.
https://medium.com/@terra-bites/luna-black-swan-do-kwon-ama-...
To me this was quite confidence inspiring, that even while the peg came off more than other stables it snapped right back.
Until you can't.
Until you can't = when it flash crashes and everyone loses.
Not everyone.
Crypto has flash crashed a large number of times already in the last 10 years, each time weeding out speculators and weak hands and coming back 10x once business was taken care of.
I consider this to be an actual feature of crypto.
Anti-fragile.
Are you serious? Your username suggest you're a whale. Aren't whales considered being investors too?
Very serious. Large volatility swings punish gamblers (day traders) and rewards strong hands / long term players who made a bet they can afford to lose (investors).
> Aren't whales considered being investors too?
Not sure how that ties into the conversation?
Apologize, I mis-interpreted "speculators" as "investors".
It is 'This system will eventually supplant governments and fiat money systems, which it directly competes with. I benefit hugely from this system, so the governments will allow me the crypto whale to become the truly powerful one and I'll be able to buy and sell them as their fiat currency collapses leaving me HODLing the only true asset.'
"They'll never object to that, or make it illegal or anything. That would be RUDE. And anti-freedom.'
I think you're correct about the volatility swings, but the nature of societies is that they've gotta come up with defenses against the whales like you, otherwise you're just King over everyone. Those defenses won't be further volatility swing, but legislating against your profiteering directly. Not because it doesn't work, but because it does.
No, the bet I'm making is that if BTC goes to zero, it won't affect my life in any way, shape or form.
If, on the other hand it continues going up, which I believe it will, it provides me with additional side money to play with.
> his system will eventually supplant governments and fiat money systems, which it directly competes with
I don't believe BTC will supplant government-managed money systems.
As a matter of fact, I don't even think I wish for that to happen. I'm much happier for it to remain a parallel system, an escape hatch if you will, to keep govts honest because they know if they decide to shave their flock too hard, there is an alternative.
Basically, like in any political system, you want to have counter-powers if you want everyone to behave.
And up until now, there was no such thing on the currency / wealth preservation front: all the power was in the hand of the govts.
BTC is a very welcome change to the status quo.
> "They'll never object to that, or make it illegal or anything. That would be RUDE. And anti-freedom.'
You seem to imply that I'm looking at the situation from a very naive pov.
I think that there's a high likelihood some governments will try to make it illegal. Specifically for the reasons I outlined above (escape hatch).
What I count on is the historically established tendency for sovereign powers to profoundly disagree with one another and using said sovereignty to explicitly allow some things that their counterparts forbid.
A political marketplace, if you will, and one in which you can participate because of the highly cross-border nature of BTC.
> they've gotta come up with defenses against the whales like you
???
What a very strange thing to say.
First, you're inferring from my handle that I am a bitcoin whale ... that's quite a stretch. I like Bitcoin, that's clear from my posts, but you have strictly no clue how much of it I hold.
Second, you seem to be implying that I'm somehow hurting other people / society ... another giant stretch and something I feel is a completely unjustified attack. This whole 'King over everyone' business is particularly strange, the only creature on this earth I sometimes lord over being my dog when he pesters me too much.
“ I also learned that Tether had lent billions of dollars more to other crypto companies, with Bitcoin as collateral. One of them is Celsius Network Ltd., a giant quasi-bank for cryptocurrency investors, its founder Alex Mashinsky told me. … Hoegner, Tether’s lawyer, [said] … that its secured loans are low-risk, because borrowers have to put up Bitcoin that’s worth more than what they borrow.”
https://www.bloomberg.com/opinion/articles/2021-10-07/matt-l...
Wall St: "hold my beer"
I'm probably breaking a bunch of HN rules here, but I haven't laughed that hard in a while.
Economics of real property is one thing, but fiat economics can be ad hoc manipulated in whatever direction the politi-sphere needs.
Debt at this point is used to put economic uncertainty in the masses.
Cheney even said the quiet part out loud; “Deficits don’t matter.”
It’s impossible to prove a negative; all future people need to do is ask “What debt?” and legislate it away.
France did this once before. We don’t owe the dead.
First, at the sovereign level, it only has consequences if the lender has more guns than you.
Seconds, most "debt" in OECD countries is not owed to sovereign entities, but to the countries population themselves, who if push comes to shove will just have to accept that their bonds are worthless if it is ever legislated to be thus.
Yea, the history of the world is full of populations just accepting their governments new policies to screw them over..
There are never any consequences to that, the people just shrug and say them the breaks and go about their day
<<sarcasm>>
Which is why it is much better to achieve the same goal via inflation, where after a couple of decade a 100$ T-bill isn't worth a cheeseburger.
My point is it’s a social contract not a law of physics we cannot hope to bend.
Our embedded memory and experience need not be the one we pass on.
They just create more of their fake err fiat money to cover the debt, sure it is worthless but they "paid it off"
See: the 1 Trillion Dollar Coin....
https://www.forbes.com/sites/francescoppola/2017/11/14/venez...
Two ways:
1. The brutish way: legislate that all T-bills are now worth 1/10th of their nominal value. Potential risk: riots and capitols set on fire. In practice, this was done in history many times without much consequences.
2. The "boil the frog" way: let inflation run hard for a decade, until a 100$ T-bill buys you a nothing but couple of big macs. This has been happening for the better part of a century.
My point is it’s not a law of physics, but a social contract to be negotiated.
We owed pensions to people and took those away, so it’s not as if society has a very good track record of paying what it’s owed, so don’t get too hung up on those words meaning something forever.
You might take continuous iteration of our social contract as seriously as code; as we can see letting it accrue technical debt and bit rot is not so great.
Money put into bitcoin went into buying electricity, just to burn it into heat. Someone is in for a rude awakening when they try to extract income from cryptos, not just sell them to the next fool over.
China has so such vast reserves of dollars that they can crash US $ value and cause international panic. Meaning that at any stage you $ saving have chance to be worth nothing.
The BTCs do have value and its a cryptographic promise that cannot be broken. People forget that when using all of those tired old arguments.
BTC is also a sign of new generations knowing that the game is stacked and unfair, and they refuse to play it. BTC is no a problem is a sign of broken system.
There is a guarantee of negative inflation. There is noone who can out of blue print 1T of BTCs and give it to rich to stimulate economy.
Built in transferability so you dont have to rely on some organisations to facilitate transfers and charge you arbitrary amounts.
You don;t have to like those, or agree whether its good or bad but those things are set in stone for BTC.
I would count this as a "con" and not a "pro". A fixed money supply is one of the things that caused a minor economic hiccup to turn into the Great Depression.
* https://www.nber.org/papers/w3488
Going to the equivalent of a digital gold standard is retrogradation:
* https://www.vox.com/2014/7/16/5900297/case-against-gold-stan...
My point is that BTC has built in promises that cannot be broken.
People got paid to put them up, and people were paid to tear them down. At least some people were able to put food on the table because of that activity, even it was kind of wasteful.
> China has so such vast reserves of dollars that they can crash US $ value and cause international panic. Meaning that at any stage you $ saving have chance to be worth nothing.
Do they have more than what is present in the US itself? More than the EU? Japan?
Even if USD ends up dropping in value relative to other currencies, it will help US exports, where the US is second-highest:
* https://www.statista.com/statistics/264623/leading-export-co...
> The BTCs do have value and its a cryptographic promise that cannot be broken.
BTC is just as imaginary as anything else of "value" for humans except for air/oxygen, shelter, water, and food. Regardless of what is called "money" is is a figment of the human imagination: sometimes more useful, sometimes less.
At least with dollars I can buy a hamburger, pay my taxes, etc.
But yes there is a problem that there is a lack of safe investments that pay a little above inflation. Bonds used to do that, but they don't anymore, because there are too few people who need money and too many who have it (ironically the price of money has cratered).
I suspect that this is linked to our inability to build things anymore. With interest rates in the toilet the various government should have borrowed way more money so that they could invest them in bridges, road maintenance and so forth.
I would think these companies would need to be split up as it would be too big of a risk that a "financial meltdown" could occur...
That would squarely fall in the "that's my opinion, unbacked as it is" bucket.
There are people who actually need BTC.
Ask wikileaks, for example.
But at the same time, I like the quote: “Reality is that which, when you stop believing in it, doesn't go away.”
Apple's stock may crash; but there'll still be 10's of thousands of people selling 100's of millions of iPhones. They'll keep doing it, as I don't see interest in iPhones being cut off in a day (slow or fast decline, maybe). Heck, even Blackberry as a company is still around somewhere.
Bitcoin is ALL market sentiment / vaporware / belief.
(A comparison to Fiat money may be more apt, though would take me out of discussion - I simply haven't the foggiest deep understanding of "what if currency X crashes / how likely is it / what is it backed by REALLY if anything" )
Sure, but if you take minute to think about it, so are iPhones.
They sell because people want them.
Supply and demand.
You are then going to tell me about utility.
I claim that:
a) utility is just another way to describe demand
b) cryptos do have utility:
- shielding wealth from govt
- shielding wealth from inflation
- shielding wealth from disgruntled spouses
- moving large quantities of wealth quickly across borders
I'm also not sure that bitcoin does shield wealth from government, at least in the US it doesn't. It certainly does a better job if your government is not the US. The other two claims I agree with.
To me the utility of btc is simple. It's the ability to opt into a different and codified monetary policy. That policy is collectively securitized. If I don't agree with the monetary policy of a or any government I can opt I to a system outside of that. Imo this serves as competition to centralized banking.
This is where I really respect China, they actually act. When they have a housing problem, they build more housing. When they have an energy problem, they build hydroelectric dams and nuclear power plants. When they have an electricity demand problem, they ban cryptocurrencies.
It seems the West has just lost the ability to carry out effective action and invest in infrastructure.
That, I agree with wholeheartedly. We suffer from a "we don't have that kind of problem here, thank god" complex that's the size of Mt everest.
The problem with interventionism is it assumes that brutal, large scale political and economical decisions are the correct ones and that all foreseeable consequences are taken into account.
As witness by countless examples (eg the one child policy), their track record is far from exemplary.
Also: history shows time and again that banning something that is in high actual demand usually only results in the market going underground.
The west is over regulated and our infrastructure takes forever to build and maintain. What infrastructure that does get built, however, lasts. China builds more faster, but it’s often ill thought out and falls apart quickly.
The west can and should improve how we handle infrastructure. China is a bad model. We should look to how we were able to create solid infrastructure more quickly in the past.
When they have an ethnic or religious group they don’t want as part of their society, they put them in concentration camps.
It’s super effective!
With regards to faith in centrally planned interventions: China also had an overpopulation "problem," and they "acted" and now the population of women of child-bearing age is set to diminish by 20% over the next decade.
Outside of the largest megacities, urban populations are shrinking as birthrates have plummeted. China has enough empty housing to house 40 million people and yet real estate prices remain too high -- real estate was relied upon to fuel growth and so there has been massive speculation.
There aren't enough new families being formed to fill the housing.
As far as energy is concerned, China's problem is that the price of coal is going up, mainly because Europe requires more coal as they have reduced domestic capacity at the same time that Russia is reducing NG exports. China runs on coal, mainly.
I feel lucky that we didn't have so much "action" because it's only going to get uglier from here on out for China.
If the US could just disappear all the people that suffer under capitalism their system would probably look exceptional also.
> When they have a housing problem, they build more housing
Often forcing residents to sell their land (which for many is their livelihood) at cut throat rates, and sending gangsters in to 'persuade' them when they refuse. Several have resorted to self-immolation in protest over the years.[1]
> When they have an energy problem, they build hydroelectric dams
Which devastates the local environment and that of neighbouring countries, and increases the chance of earthquakes.[2]
[1] https://www.npr.org/sections/parallels/2013/10/23/239270737/...
[2] https://www.theguardian.com/environment/2013/nov/04/china-da...
Focus on the positives. Bitcoin is actually a really interesting way of effecting an international wealth transfer that is totally independent of governments.
Apparently the labor market is starting to be affected:
https://twitter.com/mattyglesias/status/1448610691854839815
I'm surprised that Stripe is jumping on the crypto bandwagon as this is one of the biggest risk to their mission of "growing GDP".
they already jumped, and they failed miserably and they quit
https://stripe.com/blog/ending-bitcoin-support
that is why multinationals have so much power, because "people" have short memory and are easy to manipulate
Maybe it's time we try a different approach and just let cryptocurrencies be adopted, to see how it goes
That is not a new phenomenon, and all that matters is how much money is actually borrowed to onramp into crypto.
What also matters is who does that borrowing to buy crypto and if they have the shoulders to weather a 10x price down event, something which is a real possibility with crypto.
Finally, I'll note that the person crying wolf in this article is among those who stand to lose a huge chunk of their influence and power should crypto really take off in the sense of being used by the average joe to store value away from the grabby hands of governments.
Speaking of retail investors they are not the problem because your average crypto investor doesn't care about losing couple of thousands of dollars investing in some pump and dump crypto stuff .
The irony is that almost monotonically increasing prices of other assets lull investors into a false sense of security that encourages ever larger leveraged positions, resulting in increased risk exposure. But volatilility, especially for digital assets (sic), usually flushes out and resets build-ups of highly leveraged positions in both directions.
If lenders were doing their due diligence properly (as in: I'm going to lend you a 100 grand, but you had better explain what you're going to do with it and how I'm going to get it back plus some interests), then I see zero problem with people borrowing to buy risky assets such as crypto.
If lenders are to dumb or lazy to do their work, I see this as a win for the ecosystem when they get liquidate by a crypto crash: they'll probably be a little more careful next time they lend money or altogether go do something else.
In other words: the problem is not with borrowing to bet on crypto, but with the facts that it's all too easy for financial institutions to lend other (unsuspecting) people's money to huge credit risk borrowers (just like in 2008).
This is published the same week that the US created a paltry extension to pay its obligations; of which 1 of 2 parties had 0 votes in the house for -- and that party makes up 50% of the Senate.
Sure, and those industries make things.
i kept listening to random people, mistake!
https://www.uu.nl/en/research/urban-futures-studio/initiativ...
Now we're all suffocating in CO2 instead.
You'd argue the rollout of automobiles has been a net-positive? By which metric(s)?
The reality is that the financial world operates on about the same level as a sportsbook or racetrack. Except for some insane reason we treat the traders and hedge fund managers like priests instead of bookies and addicts.
One thing that people will figure out eventually is that cryptocurrency at least makes it hard to hide all of the borrowing and side bets.
Edit: thought about it for a minute, sportsbooks and racetracks are much more honest than the global financial system.