E Bank Run, Or Run From The Banks?

Another perceived but volatile haven to protect against the loss in value of depreciating fiat currencies is to buy cryptocurrencies such as Bitcoin.  Despite dramatic volatility of market price, Bitcoin has thus far created profit or even wealth for its buyers when compared to the dollar’s (or a multitude of foreign currencies) declining purchasing value, or confiscation potential from failing banks.  As Bitcoin has declined about 40% from its recent high, the U.S. Dollar has declined 98% since the founding of the Federal Reserve.

In order to scare the public away from cryptocurrencies and to enhance the public’s commitment to government paper currencies, banks or government agencies will likely cause the volatility of cryptos to grow and prices to fall, so as to shake the public’s growing confidence in cryptocoins as a store of value.  Therefore, any near term crashes in the crypto currency market could be related to some agency of your friendly government which wants to keep people from adopting democratizing and decentralizing assets – just as it has happened in the gold and silver markets for decades.  With the crypto asset market’s small size, and 100X leverage provided by derivative contracts, this is not difficult to achieve, so expect some crypto market turbulence over the next several years. 

Sanctions, and cryptocoins  

The world has moved somewhat from applying exclusively kinetic weapons and force to threatening economic competitors, and destruction of its perceived enemies to using less lethal but highly effective monetary weapons.  Note America’s weaponizing and use of the global SWIFT monetary transfer system to its geopolitical advantage by mandating penalties to banks or businesses, or denying SWIFT’s use for trade payment to uncooperative countries or those seeking an independent course of action.   For example, U.S. sanctions blocking countries from using the SWIFT system have made it nearly impossible for Iran to sell, trade, pay for or receive funds for oil or other product sales, collapsing its currency and impoverishing the country.  See: Iran: Public Image Versus Historical Reality Part 2. Iran: The Last Century to the Present.  

The United States should want dollars to be used as widely as possible in international trade to maintain its dollar use dominance, but sanctions on Iran, Russia, and other countries are creating negative drivers to dollar usage.  Using the SWIFT system as a financial weapon may have desirable short-term geopolitical results for the U.S.; longer term it simply encourages the diminishing future international use of the dollar resulting in substantially reducing its purchasing value domestically.   

Sanctions on Russia have prompted them to create their own money transfer system, giving them instead the option to unilaterally terminate its relationship with SWIFT.  Russia’s ability to exit from the SWIFT system has an important unstated message to the world.  Russia, China, and Iran now feel economically and militarily strong enough such that they can leave the SWIFT system unilaterally because they have a system they can use among themselves - which excludes the use of the U.S. dollar.  In other words, Russia instead of being exposed to US sanctions related to the SWIFT system is now taking actions which show that it can make independent decisive action on the world financial stage.  For information on Russia since the collapse of the Soviet Union See: Russia – Without the Propaganda –Part 2: The Rise of Putin

Many countries of the world have been embracing blockchain and cryptocurrencies more fervently than the United States.  The US banking industry, the FED, and regulators don’t view cryptos the same way as foreign countries because its adoption diminishes America’s hold on the current financial system and world hegemony.  Indeed, cryptos are a clear and present danger to the established banking system and US currency-based dominance of the global finance.  Accordingly, there is a challenging balance to maintain between necessary or permissive-enough regulations in the U.S. to be adopted, which will allow blockchain and cryptocurrencies to develop domestically, such that foreign countries do not maintain a regulatory-incentivized development advantage – as they also try to maintain its established legacy order and power of banks and the FED.  

Cryptocurrencies can also be perceived as a monetary weapon - one that competes with traditional fiat currencies.  Therefore, governments and legacy banks feel the need to control or destroy these decentralized platforms.  However, technology is disrupting all pre-existing business systems, and the banking system cannot escape the disruption either.  The nation’s malls are collapsing as shoppers switch from mall sales to on-line sales, and as some preppers migrate from gold as anti-inflationary haven to buying Bitcoin as the new and possibly improved haven asset.  In this disruptive tech environment banks cannot escape the disruption, and many will disappear.  

In addition, the effect of sanctions will evaporate altogether when the world exclusively uses central bank digital currencies (CBDC) for payment or settlement, and cryptocurrencies continue to gain adoption.   This is because CBDC and cryptocurrency payments are peer to peer and decentralized, without any centralized bank intermediary which could be controlled by a single country.  Overall, it has the potential to bring forth to our world the democracy that the United States has been claiming it was seeking to establish by military means around the world for the last sixty years.  It seems that country sovereignty and nationalism can be enhanced by blockchain and cryptos - contrary to what may be the case for citizens within the boundaries of a specific country.  

Inflation? 

According to the Mises Institute, the year-over-year growth in the money supply as of January 2021 was 38.6%.   Additional proposed infrastructure spending is planned by the current administration this year.  What happens to the value of the dollar if there is another comparable emission of debt and new dollars in 2021?   How will this affect the value of financial markets, gold and cryptocurrencies?  How will it affect statistical reporting for money and price inflation?    

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and ...

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William K. 2 months ago Member's comment

Transitory Inflation? More like permanent intentional inflation to save their banker friends. Bitcoin better than gold??? That is the biggest lie ever told, I think. Bitcoin price is as unstable as it's claimed actual value, which does not exist, except in the minds of the holders.