Bitcoin: Sound Money, Or The Sound Of Money?

Featured Image adapted from art by Alec Monopoly

Our look at claims that Bitcoin is a Ponzi scheme included a look at the success of bitcoin spilling over into other crypto-money products of varying degrees of obscurity, and the great monetary awakening being experienced in the zeitgeist with varying degrees of epiphany and devotion.

Libertarian gold bug types got it right away, because their religion is based off of the same core tenets: a fixed supply of money that has to be earned before it is created is honest. It has the makings of a level playing field that resists the meddling of bankers, and that appeals to their sense of enterprise. Once out from under the oppressive thumb of the US Treasury, capitalism can finally function as intended and provide unlimited prosperity to anyone who dares to open an artisan trading or mining operation; pure Horacio Alger.

Cryptocurrency being a lot more accessible than gold, the movement has spread wider and earned a larger and longer spot in the mainstream here in its third wave than the precious metals sect could manage since the modern gold bug movement got going in 1971. NFL O-lineman Russell Okung, a notoriously fiery (and vague) tweeter, convinced the Carolina Panthers to pay half of his 2020 salary in Bitcoin and, in the process, got his base all fired up for the opportunity to throw a crackback block at the establishment.

“Have Fun Staying POOR!”

Detractors point out that Bitcoin and its less famous peers make a great deal of money for the individuals who forged the original blocks, and are in a position to cash out at a multiple once the coin gains traction, to which coin types often reply: “Yeah? So?” As far as they’re concerned, anyone who gets in early deserves to get paid, and it’s still very early. This is not a religion that requires a vow of poverty.

So, since nature abhors a vacuum, the demand of the devoted is being served by an expanding universe of crypto products that people can either earn the old fashioned way by squeezing the most cpu cycles out of every available Kw/h of electricity, the new fashioned way by contributing to the proof-of-stake pool of some of the more modern constructs, or buy with the worthless, fiat dollars that their sucker landlord charges on rent day.

An entire galaxy of coins and tokens are traded on and off of an expanding list of exchanges, facilitating the matching of the supply with a reliably expanding demand. Coinmarketcap.com tells us that, in 2020, 33 different coins managed more than $20 million in average daily volume. Most of those coins saw considerable price growth over that period in dollar terms.

The coins that experienced no price growth – Tether and USDC – are on the left hand side of this chart, showing zero growth over the period in USD, because those coins are pegged to the US dollar, and are created when someone buys a new one from the coin’s “treasury” with a US dollar.

Accordingly, in an environment where dollars are flowing into bitcoin, those coins have experienced the largest growth in supply.

Meet the new paradigm, same as the old paradigm.

Journalist Amy Castor has done the legwork to bring us a timeline of hacks, banking problems and lawsuits in which the makers of Tether and Bitfinex, a closely affiliated exchange, have likely been less than transparent about Tether’s reserve base and its composition.

A reddit post from 2017, supposedly authored by a former Tether employee, alludes to the possibility that some of the tethers are functionally being created when purchased with other cryptocurrencies, which would be consistent with the reserves being invested in a rising bitcoin market, and the holders of the reserves pocketing the difference, a hustle which works just fine in a rising market, but is bound to fall apart when the tide goes out, and is by no definition the “stable reserve” Tether claims to be.

Tether had coiners laughing Mountain Dew through their noses when it was revealed in a sworn deposition that some of the USD that was supposed to be making up the reserves was in fact used to buy Bitcoin.

Tether’s stablecoin cousin, USDC, hasn’t run into any audit trouble yet. It’s backed by coinbase, and meant to be a gateway in to crypto product ownership. It’s growth is a reliable indicator of the general demand for cryptocurrency products as investments, because, presumably, most of the people buying it are doing so for the most righteous of reasons: to buy bitcoin.

As the public is increasingly coinpilled, and flees the oppressive chains of the financial establishment, that same establishment is dreaming up new and innovative ways of giving them what they want, and charging them for it. Pantera Capital wrote on their blog back in November that Paypal accounted for the largest purchases of newly minted bitcoins by volume, There is now a bitcoin debit card that runs on the VISA payments network. The Chicago Mercantile Exchange, the largest futures market in the world, is now offering BTC futures.

“History doesn’t always repeat itself, but it usually rhymes.”

It remains to be seen if the establishment’s encroachment on the DeFi movement will ruin its appeal and sink the whole value of its stock in trade, or if it will work the other way around.

Tether isn’t a complicated scam. It isn’t even original. The first banks were establishments that had strongboxes and security sufficient to keep the gold deposits of third parties safe from being pilfered. They issued receipts for deposits, which began to be traded instead of the gold itself for convenience.

The banks quickly figured out that they could issue more receipts than there was gold, which is an obvious grift, but also a useful one that adds some handy liquidity to the economy. So, after a few fits and starts, the con was dressed up with certain rules of engagement and evolved into modern banking.

Expect that the scams to come will evolve with the cryptocurrencies that are their medium, and that the laws will evolve to catch up.

---

Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.