What About Principles?

4 July 2022

 

Cogito Ergo Non Serviam

Fed Should Keep Crypto Out

 

Crypto-currency is a marvelous scam. The whole point of it was to create a currency that did not depend on government support. It was supposed to take power away from central banks and give it to the participants in the market. However, there is nothing behind crypto except the faith that its holders (one cannot call them investors, as that implies prudence) have that there is someone out there willing to accept it when it comes time to make a transaction. It relies on the bigger fool idea; there is a bigger fool out there than the one holding it who will take it in lieu of actual money. With the latest crypto-crash, there is now a bill in Congress that would give crypto-companies access to the Federal Reserve system. So much for ideals.

The Washington Post reported this morning, "A wave of notoriously risky cryptocurrency firms could one day be integrated into the traditional banking system under a little-noticed provision in a new bill that is raising alarms among financial experts about potentially destabilizing consequences.

The provision -- part of a sweeping proposal to regulate the crypto industry that Sens. Cynthia M. Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced in June -- would force the Federal Reserve to grant so-called master accounts to certain crypto firms seeking them from the central bank. The accounts give holders access to the Fed\'s payment system, allowing them to settle transactions for clients without involving a separate bank."

This is incredibly silly. The entire premise of crypto is that the currency is not the US dollar, the euro or the Japanese yen. Crypto\'s initial appeal was to avoid the banking system entirely and rely on block-chain technology to keep everything straight.

This journal maintains that crypto is the same kind of financial bubble the Dutch Tulip Bubble of the 1700s was. The price of Bitcoin is eye-wateringly high for no real reason. It is an asset in search of a purpose. At least with tulip bulbs, one can grow flowers.

With $700 billion of paper losses since the May sell-off began, the people running crytpo companies seem to have discovered a need for a government safety net. Naturally, they have found legislators who, for a few thousand dollars (not Bircoin) in donations, will do their bidding. Senator Lummis is clearly in the tank for them. At a hearing in June, she berated Fed Chairman Jerome Powell for the "black hole" that the process for access to the payment raise seems to be. She said her frustration with it all is "at a boiling point."

The process is not a black hole at all. If one wants access to the payment rails, one must be a proper bank and be regulated as such. What the crypto firms want is access without the regulation. It is obvious that would create systemic risks. So on those grounds alone, they should not have access.

More importantly, however, is the independence of the crypto markets from government supervision. Their entire point of existence is that independence. If they compromise on that in the least, they have destroyed any possible purpose they might have had. There are already enough currencies in the world with government backing. Adding crypto to the mix simply because hundreds of billions of dollars (a unit of account people actually use) vanished with a small yet audible pop is not helpful to anyone but those who made a poor investment.

This journal is confident that crypto has no real purpose or use. Those who disagree must prove otherwise. Running to Uncle Sam for help when the market drops is not helping their cause.

 

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© Copyright 2022 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.



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