Did you happen to notice the big news in Bitcoin the other day? It wasn’t the sound of the top forming at $59,000 or Janet Yellen’s comments about its ‘inefficiency.’
It was settling, once and for all, the argument that central planners and oligarchs aren’t omnipotent.
The State of New York’s pathetic slap on the wrist of Tether marked the moment Bitcoin joined the ranks of the ‘Too Big to Fail.’
Somewhere Peter Schiff is sad.
This lawsuit was supposed to be the nuclear bomb goldbugs thought would finally blow up bitcoin and return the world to their vision.
Too bad that multi-megaton nuke was more like an M-80 going off in my neighbor’s backyard.
“Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie,” James said in a statement. “Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” she further said, adding: “These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”
This is a face-saving statement for the press by NY Attorney General Laetitia James. Because if there really was a Ponzi scheme at the heart of Tether’s business in 2018-19 then she would have gotten them to cough up a helluva lot more than $18.5 million.
If the powers that be could destroy bitcoin at this point they would have pressed further charges against Tether, undermining the structure of the entire bitcoin market which is increasingly becoming a function of Tether liquidity.
But they didn’t.
In fact they gave Tether and Bitfinex the same treatment they gave J.P. Morgan for gold and silver market manipulation and the entire mortgage industry for fraudulently robosigning legal documents.
In other words, ‘We fined some folks.’
Most, if not all of the anti-bitcoin arguments come down to “the government hates it they will ban it.” But what happens when the government admits it can’t?
So while, Murray Rothbard was right, the establishment hates a free market more than anything else, Murray was also right that their is a limit to their power.
Um, someone tell Janet Yellen and Bill Gates running the anti-environment talking point that Bitcoin uses a lot of electricity isn’t working.
It’s the oligarchs’ latest talking point. And it’s pathetic.
Someone tell Laetitia James to get back in there and fight.
Meanwhile Bitfinex and Tether agree to quarterly monitoring of their books as a gesture of “transparency” and add $18.5 million to the failing tax coffers of New York State.
Whatever hinckey stuff they do they will now — like the major primary dealer banks — settle up at the end of the quarter to present the face to meet the regulators that they meet (with apologies to T.S. Eliot).
And, make no mistake, I think Bitfinex and Tether are sketchy as all get out. In fact, I think 95% of the entire crypto market is sketchy.
But, that doesn’t make it unreal or becoming something unstoppable. Because it doesn’t matter what purists want. The market, in the aggregate, is smarter than any one person.
And the market wants what bitcoin and Tether are selling… right now.
It may want something different in the future. The market is nothing if not fickle…. and gods bless it for this.
Which brings me to why this lawsuit is so important. There was a recent uptick in anti-tether noise out there, doomsdaying the latest bitcoin rally.
This article “The Bit Short: Inside Crypto’s Doomsday Machine“ (very long, and reasonably well researched) from January outlines a strong argument as to why Tether could be a scam.
And I want to point out how well-timed it was, published January 14th, coinciding with the first attempt to derail bitcoin’s rise.
He goes into a lot about Tether, staking his entire argument on their responding to this lawsuit as the proximate cause for their cashing out of their scam.
He does a forensic analysis of the Bahamanian banking system, lays out the mechanisms for startup company scam, the whole nine yards. Kudos to the writer, it’s a good tale you should read it.
He also didn’t sign his work, but, you know, details.
That doesn’t mean however:
- He’s right.
- Things can’t evolve or change.
- Tether isn’t performing a valuable service
- Demand for bitcoin liquidity outstrips available supply
In the end, this is just another great piece of writing that misses the bigger picture.
The market decides what it wants not you or me.
In short, it doesn’t mean Tether was intended to be a scam but could simply have been, like bitcoin itself, a service so needed by the market that demand for it far outstripped its ability to perform within its operating parameters, i.e. 100% dollar reserves 100% of the time.
That’s the main reason why Laetitia James settled out of court and Tether admitted no wrongdoing. The market was simply moving faster than the money pouring in and out of the crypto-space could clear and they shuffled some money around to, in the end, protect their clients and their business.
Here’s an aphorism which bears on this story, “It’s easier to beg for forgiveness than permission.”
$18.5 million and a negative headline is cheap to protect what is now a $35 billion business.
But, the premise of this article has been a standard refrain in the crypto-skeptic land for four years.
It boils down to, “You all know Tether’s a scam, right!?”
It’s a glaring bit of editorial bias. Because many of the arguments that people make about bitcoin and cryptocurrencies in general are built on the premise that everyone holding them wants to at some point “cash out and get back to dollars.”
But what does the market look like when a critical mass of people make a psychological shift valuing their portfolios not in dollars but bitcoin?
One could argue we’re in the process of finding out the answer to that right now.
I’ve talked about the potential for this shift previously here, here and here for anyone who still isn’t listening.
And that scares the living daylights out of everyone who makes their money outside of the dollar, bull or bear, but especially the bears.
Because for a generation now those bears were sold by people like Peter Schiff and the writer of this article which was disseminated far and wide in gold circles that gold was the only alternative to the dollar.
But it’s not and they are bitter about it.
They created what I now call “Gold-Only Bugs.”
For four years I’ve listened patiently to every argument against bitcoin and tether. They aren’t completely wrong. But they do, I think, overstate the risks.
I continue to hedge my bets against monetary insanity. I’m one of the few people in this space that advocates de-risking across all cash-equivalent asset classes.
With this lawsuit and the whole Tether Time Bomb removed from the market bitcoin is now part of the big time. It’s a multi-trillion industry. Those don’t just dry up and blow away without damaging the very people trying to defend against it.
When you owe the bank a thousand dollars it’s your problem. When you owe the bank a trillion dollars it’s their problem Bitcoin is a variation on that idea.
Blackrock’s buying bitcoin, folks.
Blackrock.
Coinbase is filing for an IPO. It’ll be at a valuation higher than Facebook’s.
In fact, it’ll be the biggest IPO in U.S. market history.
The bookrunning fees alone will make Goldman’s or Morgan’s next quarter a blowout.
They said the internet was a fad, too.
But yet you still think a troika of Participatory Medal Winners like Janet Yellen, Christine Lagarde and Jerome Powell are going to stop this train?
You think they can just wave their magic wands and make it all go poofta?
Why would Tether and Bitfinex run away with all the money now when they just won? Bigly.
They can pull massive yield in DeFi on their USDT and bitcoin. But they’re going to give up their first-mover advantage in the immensely important stablecoin space for a couple of billion which can be seized by any government?
The only central banker with a brain is Powell, as he properly identified the threat to their rule… and it’s not bitcoin.
It’s stablecoins like tether.
Because what is the dollar except a stablecoin backed by the confidence of the debtholders of Nancy Pelosi’s ability to extract wealth from Americans to pay the coupons?
If someone builds a better one than the dollar eventually it’s game over for the debt-based system.
Why would Tether run away with a few billion in depreciating dollars when they can literally bring down the entire monetary system and replace it with their product?
The reality is that the day the dollar becomes irrelevant is the day Tether folds up shop and completes their scam because no one will want dollars and a dollar-pegged stablecoin with dollar reserves will be redundant.
I’m not saying that day is here. No. We’re a long way off from that day.
But this lawsuit settling with such a whimper is a primal scream marking the next phase of the war between central banks and the people.
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I agree with you. I’ve long been a gold bug, someone who agreed with Ron Paul and the Austrian school and thought Bitcoin was a fad similar to tulips. But… at this point, I think it would be foolish not to hedge my bets. I can’t see the future, so I’m taking out more than one insurance policy. Just in case.
Shefali,
Don’t forget, I’m an Austrian. And years ago, I was the one who brought bitcoin to the Austrians and said, “this is a potential money” and started the arguments. Within a couple of years, it became obvious to most, I was right.
Gotta admit I don’t understand stable coins like Tether or why anyone would use them. They are anti-crypto coins to me. They offer all the disadvantages of fiat, such as 3rd-party trust and non-transparency, all rolled into a product that isn’t even needed to conduct trades on a crypto-only exchange. You can always check in and cash out in BTC or LTC, so what’s the point?
Today the whole crypto market is a derivative of bitcoin. You can’t get around that. Having dollar-pegged stablecoins allows those wanting to lock in profit and trade the waves can without having to go back to dollars, access to which is controlled by bitcoin’s opponents.
That’s only the beginning. You have to think in terms of liquidity not in terms of store-of-value.
You need a good medium of exchange that is then backed by the trusted assets themselves… this is a product needed during the transition.
Good article – as usual from Tom.
I just want to add, Bitcoin and its offspring like Litecoin are one thing – maybe a store of value due to limits on quantity. However, the likes of Ethereum, Cardano, Polkadot and a couple others are NOT Bitcoin alternatives, as the “smart contract” aspect of them is a different beast altogether. As an old computer programmer (started in 1976), I think smart contracts and the coins that back them could be a revolutionary technology – not evolutionary. Personally, I think these are as important as the Web was in the early-mid 90’s. Others like Theta are solving issues that are difficult. Theta is finding a way of creating last-mile broadband distribution solutions for steaming. Chainlink is finding ways of bringing together blockchain-based smart contracts from different standards. Stellar might be a good solution for funds transfer – maybe better than the SWIFT system. There are many others that have specialised purposes that provide real UTILITY. Litecoin, Dogecoin, and the vast majority of Bitcoin “derivatives” provide little to no unique utility. Separating the wheat from the chaff in the crypto space is easy once you understand the concept of utility, and apply that criteria when evaluating a crypto-coin. If Bitcoin is a good store of value, then that is its utility.
PS – Tether gold is interesting, but yes, Tether USD?? What the…
“Theta is finding a way of creating last-mile broadband distribution solutions for steaming.” LOL – I meant “streaming”.
LTC provides utillity in low fees compared to BTC. It is traded anywhere BTC is traded so there’s plenty of liquidity. Did I say low fees? When BTC pumps, the fees have gone as high as $20. Typically LTCs fees are much less than $1. It also settles and and confirms much faster than BTC.
HI Tom,
Surely I appreciate all the work you’re doing; you want people to be free and determine for themselves what value is and what money is. When it comes to BTC however, I disagree with you. It’s a scam. A NSA scam. But don’t listen to me, listen to this lady, Catherine Austin Fitts. I don’t know if you know her, but she’s one smart cookie. Check her out; definitely worth your time;
https://usawatchdog.com/building-a-bitcoin-prison-catherine-austin-fitts/
I know of Catherine. I also know that things are never this simple. And I am smart enough to know that this is just as likely disinformation as anything else.
So, to that end where is the $21 trillion Ms. Fitts keeps telling us is missing?
There comes a point where people have to accept that things are sometimes simpler than they appear and these people aren’t all powerful but just incompetents
That’s my take. I have been in this space for going on 20 years now. I’m not a fool. Think about the timing of this interview and what do you actually know.
Tom – isn’t one possibility that crypto is a government creation, which is why Nakamoto has never cashed in? They have merely laundered it through the private sector, so we will accept it once they retake control of it – a ban on private crypto looks quite easy from here?
They aren’t out of bullets. They have just paused to reload for bear.
The states of readiness we see in global governance, NIRP, cash bans, UBI and CBDC is not a coincidence. Something very big is coming.
Hyperinflation is coming. And the Great Reset. Of course crypto is another tool for cashless society. Pure fact that this is not forbidden yet, clearly demonstrates who`s creation crypto is.
But it will not play out by their scenario. I have seen 2 currency collapse. In the Soviet Union when I was 16 and later in the Yugoslavia when the war started and I was “peace keeper” down there in 1997-1998.
So I know a little how society reacts in case of collapse. People want more control over their lives, not less and things go local not global.
Reaction to collapse is cash under mattresses . This might be foreign money what is still standing like Yugoslavia went over to German Mark. Or invention their own money like former Soviet countries did.
One reason, why Eastern Europe had crime through the roof was, that nobody trusted banks , everybody kept cash at home or business and criminals knew it.
It is also reason, why Great Reset will collapse. We see already now , that society reacts opposite what those resetters wanted. Instead of mass
obedience, we have mass revolt and rapidly vanishing trust to institutions.
Yesterday WEF tweeted about goodness of lockdown and got trashed until the deleted this tweet. Not a good start for respected and trusted World Government… :D
I think that instead of world crypto, we may see collapse of the internet because when large institutions like Big Tech go bust, there is nobody left for maintaining infrastructure.
It’s just not a currency. Belief that BTC will survive future (or now present) generations of “shitcoins” is like believing people will still use brick phones over Iphones yesterday.
100m transactions in the US per day, good luck finding the PWhs of electricity to run this network.
And second layer solutions are just like the 2008 mortgage crisis – mix half gold with half shit and call it just gold, as if!
Bitcoin will die a technological death as soon as anyone needs to use the thing in the real economy. The best technology will win when the fiats fail, and BTC is certainly not that.
Good demonstration tech of course.
BTC is a Proof-of-Concept that went viral because of the extreme need for it. It’s an imperfect tool but the right one for the job at hand. That’s how I’ve come to look at it.
Best of luck to your take and investments on it. The crypto-tech revolution is surely a once in a millennium kinda technological shift, imo. I certainly didn’t see it with BTC for personal eristic flaws, but the reduction/removal of the derived demand for the middleman will filter through to give us a less authoritarian economy and even politics. Sooner than later hopefully! :)