Why Bitcoin Could be Banned or Criminalized in the Coming Years
Many Americans are unaware that it was illegal to own gold in the United States from 1934 to 1974. The US was in the depths of the Great Depression that began in 1929, and the government and banks needed to shore up their financial soundness. Gold was nationalized. Executive Order 6102 was issued on April 5, 1933 under FDR (see newspaper clipping below) and Americans were required to report, then turn in, their gold bullion, certificates, and coins at the price of $20.67 per ounce. Americans were permitted to keep gold jewelry, and no more than $100 worth of gold. There were prosecutions for those who tried to get away with keeping larger amounts of gold stashed in secret.
I bring this up to remind you of the government we are dealing with, and the actions they take when times are excessively difficult. As you are aware, in 2020 we have entered into the second Great Depression.
With the history lesson over for now, let us discuss the issue at hand. Below I provide my case as to why I believe it’s likely that bitcoin and crypto could be banned, or at least blocked from usage, in the coming years.
I fully understand that bitcoin runs on a global, decentralized system, and that no government or individual has control over it so long as the Internet functions.https://www.apacer.com/DUD/Bowl-v-Koshien-jp1.html
Today’s economy, for all the figures being tracked, might as well be a black box to the Federal Reserve Bank. They put money in and hope that it works like they expect, with no certainty. Their words and actions have shown that although they can have a positive impact on markets, they are practically powerless in bolstering the real, underlying economy where we live and work. The Fed must count on banks for lending, but none aside from the most creditworthy are borrowing.
There are big changes happening across the global financial system. These changes are geared toward modernization and efficiency, and ultimately for central banks and governments to have greater insight into, and control over, their economies.
The Fed aims for inflation to try to reduce the debts of the government. The Fed however, has had great difficulty in stimulating economic inflation in recent years, in large part due to the naturally deflationary effects of technology and automation.
Until we have a better understanding of what the Fed is doing and why they are doing it, it is difficult to think banning crypto would become a reality. This is exactly what I’m going to explain below.
Out of Tools
It is important to understand that the Fed is out of traditional tools (interest rates, bank reserve requirements), and that QE (Quantitative Easing) was already an experimental method of trying to stimulate the economy.
The Federal Funds rate is already 0%.
Commercial bank reserve requirements — how much they must keep on hand to back lending — are now gone in light of the pandemic; they are at zero.
The Fed used QE with a questionable level of success after the 2008 crisis, and now again in 2020 have been performing open market operations in the billions to try to shore up the stock market. Beyond this, and direct stimulus, they are out of tools within the current framework.
On the horizon, we have CBDC — Central Bank Digital Currency, which will very much be a promising new tool for the Fed to tinker with the economy.
I’ll only get into the significant, applicable aspects of CBDC here, but you can read my other articles for more detailed information on CBDC.
What you need to understand about the capabilities of a Fed-based CBDC all boils down to data and control. Having tons of data is an economist’s wet dream, and the Fed having this data means the economy would no longer be a black box to them.
CBDC enables the Fed to see detail-level spending (and savings) data. It means they can get a bird’s eye view of which areas of the economy are suffering, and which are doing well.
One aspect of the economy that has eluded the Fed’s control is monetary velocity. This is significant, and I will explain more below.
When we talk about the GDP growing or shrinking, we are talking about a primary measure of US economic growth. As to our part, the citizen-consumer, what you need to understand is what contributes to growth, and what does not.
Spending money — buying products and services contributes to growth.
Saving money, whether in or outside of a bank, does NOT contribute to growth, even though it makes you a responsible human being.
Taking out loans and new debt contributes to economic growth.
Making payments toward, or paying off your debts does NOT contribute to growth. In fact, it is worse than saving, because debt payments cancel out that portion of the money supply, which goes directly against the inflation the Fed strives for.
Now that you understand your part in the economy from the perspective of central banks and economists, let’s run through the very real concerns we should have over what CBDC promises to offer the Fed.
CBDC will be a “closed-loop” system, just as some other forms of fully-digital money and equivalents are today. You likely get a discount on gas, for example, by paying with a certain company’s fuel card; you’ve likely received credit card “points” that could only be spent on specific items, or airline miles with blackout dates and other restrictions. There’s a vast amount of control in such closed-loop systems of money.
As for what will be implemented with a CBDC, I think at first, nothing questionable. After all, they will need consumers to use it even as cash is still available, so there will likely be incentives offered to us, such as receiving interest, or discounts for paying with CBDC.
However, this will be a transition; ultimately the goal is to get rid of physical cash and have everyone locked into the national digital currency.
CBDC will be a programmable currency, so it is much more flexible in terms of rules that can be built into the money itself. As I mentioned, influence over monetary velocity has eluded the Fed. Monetary velocity is simply how frequently money changes hands. It stops changing hands when you save for example, but they want you to spend it, and they may want you to spend it in certain sectors of the economy that need growth.
The following controls have been discussed in multiple white papers and research papers on CBDC by the IMF, the BIS, multiple Federal Reserve banks (by city), and many institutions that are influential to the government and the banking sector:
- Discounts over using cash;
- Caps on “undesirably high” savings;
- Expiration dates on CBDC funds;
- Restrictions on what CBDC can be spent on;
- Negative interest rates.
The last two are of particular note with regards to the future of bitcoin and cryptocurrencies.
Negative interest rates are exactly what they sound like. Some of you may be too young, but some readers will recall not too long ago your bank would pay you 5%, 10% or more on your savings. Times have changed, and you’d be lucky to get 0.75% today — realistically you’re probably getting 0.01%.
But it could be worse. Over in Germany and other European countries where the ECB has already instituted negative interest rates, consumers are paying money in their various savings vehicles, which really says a lot about the perceived stability of the economy as a whole. This will come to the US.
There has been a tremendous amount of both discussion and documentation around the ability of the US central banks to take interest rates below zero since at least 2015. The IMF has a whole paper dedicated to this “Zero-Lower Bound”, in which “Appendix A” offers banks a possible roadmap to transition away from physical cash.
Here is a quote from Ken Rogoff, former chief economist at the IMF, currently at Harvard University, and an individual who very much has the ear of the government when he speaks:
“Take cash away, however, or make the cost of hoarding high enough, and central banks would be free to drive rates as deep into negative territory as they needed in a severe recession.”
If the Fed can cause the digital CBDC money in your digital wallet to expire, if they can place a maximum savings limit on your account, and if your money is going to slowly rot away due to negative interest rates — which make you pay the bank for the “privilege” of keeping your money “safe” — they can damn sure begin to control monetary velocity, which is what they strongly desire to do.
So what? I just won’t use CBDC, I’ll use good ol’ US dollars instead. That will work fine — until you can’t. The primary hindrance preventing effective negative rates is the existence of physical cash.
The Fed and government can tell us that moving to CBDC will be all about faster stimulus and possibly future UBI (Universal Basic Income) but I can tell you the overarching theme and overwhelming emphasis is on the ability to move interest rates below zero as a tool to stimulate inflation. That is the primary goal of CBDC.
Now we can begin to see and appreciate both the beauty, and the threat of cryptocurrency in light of longer-term global economic aspirations. 80% of the world’s central banks are working on their own CBDC.
Cryptocurrency offers a way out of the system. Even if Bitcoin was not invented for the purpose of being a threat to a given nation’s monetary sovereignty, it is certainly becoming one — and if it doesn’t, then it is not working as intended.
After all, if there’s no more physical cash, and you’re tired of banks taking money out of your account due to negative rates, trying to control what you spend it on, and how quickly you need to spend it, bitcoin and other cryptocurrencies seem like the only logical choice to escape such overbearing controls.
This is the point when the collision between Bitcoin and the State will occur.
Bitcoin, Gold, and escape
It will not be about the problem of anonymity. The regulations being placed on crypto today will ensure that exchanges, at the very least, know who you are and what you’re doing.
It will be about the fact that just like in 1934 when gold was taken from American citizens, they want everyone in the system, especially during difficult economic times. If things do not suddenly and vastly improve in the US economy, and if inflation remains elusive to the Fed, we are heading toward a 1934-type moment.
Both gold and bitcoin are special in that they have no counterparty risk. Assuming you keep physical gold with you, and assuming you keep a separate crypto wallet, you are effectively shielded from the repercussions of a financial depression.
Back then, gold cost $20.67 per ounce so it was fairly accessible to the average person. The price of an ounce of gold today is nearing $2,000, and even though you can buy smaller amounts, it is not difficult to argue that bitcoin today is even more accessible than gold was until 1934. You can buy a few dollar’s worth of bitcoin at any one of thousands of exchanges online, and if you keep possession of your private key, there is no balance sheet in the world containing the opposite liability to your asset.
Remember, CBDC has the ability to control what can be bought with it. If you’ve ever tried to purchase any cryptocurrency with a credit card, you already know what happens; the transaction is rejected. Things have codes, it is as simple as that. The government will likely allow us to happily continue using cryptocurrency until the day we find out that CBDC does not work at crypto exchanges.
I assume there are smarter people than me working at central banks and in the government, but I really hope I’m not giving them any ideas, as I’m sure they have already thought this through.
We’re all in this together, like it or not
In the future, when you get your stimulus, UBI, or other monthly stipend, they’ll want you to spend it. The one thing they cannot allow to happen is for you to simply be able to purchase some bitcoin or other cryptocurrency and get away from all of their onerous rules. This is by and large why I personally believe they will attempt to ban cryptocurrency, or at least place rules in the CBDC that prevent the purchasing, exchanging, or selling of crypto assets. They’ll want to prevent you from using an untouchable, alternative store of value — even temporarily.
Something such as nationalization of crypto assets would not be impossible, as the Secret Service and the IRS have already worked with Coinbase, and exchanges already hold your crypto wallet keys. Whether or not such assets would be nationalized, confiscated, or otherwise banned, I believe their future will be in question.
My hope is that we do not remain ignorant as to the power of the state, or the capabilities of a national digital currency — especially if we lose the freedom of cash. From the consumer perspective today, it seems like it’s becoming a more welcoming environment for crypto, however in the same breath, the crypto framework recently released in October by the Department of Justice (DOJ) contains a certain level of hostility toward such an alternate monetary system.
I understand there are assumptions above — that we will move to a CBDC; that cash will go away; that rules will be placed on the CBDC that inhibit savings and even impinge upon our freedoms on how and when we spend. I can only tell you that I have researched CBDC, and studied the monetary and banking systems for many years now.
As we are likely nearing the end of the current fiat monetary system, I strongly believe that all of these things are coming — and I think some of them will start to appear much faster then you will be ready for.
Let’s hope I’m wrong.
To learn more about the changes happening in our banking and financial system, check out these other articles:
Central Bank Digital Currency has an Ugly Side
Faster stimulus, but at what cost?medium.com
The Real Reasons the Fed Can’t Hit it’s Target Inflation
Negative Rates may be ahead…medium.com
The World has Grown Weary of US Financial Control
No guarantee for US at the next Bretton Woodsmedium.com
Do People Not Understand What Regulating Crypto Will Mean?
You will lose anonymity — full stop.medium.com