Does ‘Ruin Get Crypto Right? Yes, Mostly (until the end)
Bloomberg has released, ‘Ruin,’ a documentary about the rise and fall of Sam Bankman-Fried and the bankrupt FTX crypto exchange. The former wunderkind “Crypto Fro” is on trial in New York for the stealing customer funds and using them to among other things, political campaigns and paying off pay sister company Alameda Research debts.
The program narrated mostly by Bloomberg reporters mixed in with sundry crypto players covers Bankman Fried’s rise from the privileged sire of Stanford law professors to Jane Street quant to crypto entrepreneur to the stars. Bankman-Fried’s carefully cultivated image as a devil-may-care do-gooder who played by his own rules, eschewed the trappings of wealth, and did everything for the greater good is aptly covered.
The documentary, though annoyingly overproduced, deftly reveals the disconnect between white hat image including his oft-highlighted Toyota Corolla and the reality of his multi-million Bahamas condo and private jet. In the process it exposes the ridiculousness of his “Effective Altruism” world view. For the blissfully unaware, Effective Altruism provides moral cover for people in tech to get rich as possible whilst ignoring rules and proper risk assessment for the distant promise to give away their wealth and save humanity. It’s a kissing cousin to ESG, the moral cudgel CEOs use to proclaim they shouldn’t be judged on shareholder performance because audiences laud them at international conferences for “saving the planet.”
‘Ruin’ gets the absurdity of Effective Altruism right
Bankman-Fried and his merry band of altruists never gave away anything. They did, however, spend big on celebrity and political endorsements, and apparently tried to sway capital-markets nonprofits to increase exposure and sway regulators toward them and away from competitors. FTX collapsed before the latter goal came to fruition. (Bankman-Fried’s meetings with SEC Chair and fellow MIT-er Gary Gensler go unmentioned. They also have no criticism for FTX promoter Kevin O’Leary, “Mr. Wonderful” who assured the public based on his own due diligence that FTX was solid. CNBC was less deferential to Mr. O’Leary.)
‘Ruin’ gets crypto policy prescriptions wrong
Where the doc fails is with the attitude of Bloomberg itself towards crypto. Despite securing the Twitter handle @crypto, Bloomberg has consistently been anti-crypto. This makes sense given their position as an institutional organ for TradFi. A constant theme throughout the doc is crypto’s lack of regulation that makes it unsafe, dangerous. It’s inferred proper government policing could have saved this debacle.
This familiar view of finance is expected from Bloomberg even if it’s baseless. Regulations did not stop Bernie Madoff or any other scammer. Anyone thinking regulations stop fraud should visit the SEC’s website any random day and note how many of their most recent press releases involve enforcement actions against an alleged fraudster.
The beauty of crypto if it’s allowed flourish is that it can take away the element of human greed and the temptations that come from having access to boatloads of other people’s money. Indeed, DeFi can take out human management completely. Transactions can happen peer-to-peer based on permissionless, open-source code. The code, as the saying goes, is the law.
Crypto done right deals with codes and transparent rules
This is the real promise of crypto that Bloomberg doesn’t understand or care to learn. It’s not having the SEC approve a Bitcoin-ETF or BlackRock investing in a crypto fund. It’s eliminating the need for traditional finance altogether. Of course, this comes laden with its own issues, namely lurking hackers. But AI-based code auditing and insurance markets could alleviate much of that risk.
The best possible future is not to integrate crypto into the existing corrupt system run by human-beings with all their flaws and fallibility to temptation and moat building. It’s for people to be able to remove themselves from that system completely if they wish. But that would ‘Ruin’ Bloomberg’s TradFi worldview.
Payments infrastructure usually doesn’t compete with “trans” controversies or mass shootings for public attention, but FedNow has achieved cultural-flashpoint status. Although popular rhetoric about the program is misleading, the dangers are real and align with a broader corporatist push by government and major corporations to control Americans’ financial lives.
Democratic presidential candidate Robert Kennedy Jr. stoked the FedNow fire by tweeting it was a Central Bank Digital Currency (CBDC), which, when tied to a digital ID system and social credit score “will allow the government to freeze your assets or limit your spending to approved vendors if you fail to comply with arbitrary diktats, i.e. vaccine mandates.”
FedNow is not a CBDC. It is a government-run payments system that will operate continuously and compete with existing private options. CBDCs are a dystopian form of currency that are liabilities of and controlled through central banks. The distinction, however, does not mean FedNow lacks risks to privacy and industry consolidation that augurs an Orwellian financial future.
FedNow began in a bureaucratic haze
The Federal Reserve greenlit FedNow in 2019; it will launch this year. Fed board members justified it by citing days-long wait times for checks and other transactions to clear or “settle.” This especially harms the poor who lost over $100 billion via payday loans and overdraft fees in the 2010s. FedNow allows people to bypass these noxious maladies via instant settlement. So far so good.
Yet the government could have achieved similar results years ago by upgrading the existing Fed-run final-stage settlement systems—Fedwire and National Settlement Service—to operate 24/7/365. This fix would have been relatively easy and importantly would not have introduced a government competitor to the existing system. Instead, the Fed chose its own ground-up solution. FedNow will enjoy comparative advantages over existing private solutions including exemption from antitrust laws, indifference to losses, and the power to regulate competitors.
But as Mr. Kennedy suggests, bigger issues also loom. In congressional testimony Cato Institute’s George Selgin opines FedNow could price out smaller banks. This could accelerate the already rapid consolidation of the banking industry into a cohort of too-big-to-fail mega banks. These big banks are highly integrated with the US government and are official partners of the corporatist World Economic Forum (WEF). Corporatism is a malleable term but is broadly a governance system where the most powerful public and private interests join to dictate societal norms and rules.
FedNow’s tracking capabilities are unsettling
Further, as Competitive Enterprise Institute’s John Berlau writes, FedNow would give the government unprecedented, warrantless, and likely irreversible, access to our financial data. Drew Johnson, senior fellow at the National Center for Public Policy Research adds, “the federal government could learn how much a mother paid for her son’s piano lesson, how friends chose to split a dinner bill, where an individual traveled using a rideshare app, how much a couple spent on concert tickets for their anniversary, and billions of other nuggets of information the government, frankly, has no right to know.” Yikes! says the law-abiding citizen.
This financial snooping would cause alarm at any time but is particularly menacing in an era where federal law enforcement sees “extremists” around every corner including Red-Pilled “Chads,” observant Catholics, and concerned parents.
Of course, FedNow is irrelevant in a world where people transact peer-to-peer, via digital wallets, and decentralized finance (DeFi) protocols. The Fed’s nightmare is a world where they cannot control our financial lives.
The medium is the metaphor
In his seminal book, Amusing Ourselves to Death, Neil Postman explains how new tools open our thinking in unexpected and unpredictable ways. “[I]n every tool we create, an idea is embedded that goes beyond the function of the thing itself.” Thus, the twelfth-century invention of eyeglasses gave forth the idea that we didn’t have to accept nature’s course, that “anatomy is not destiny.” Genetic therapies that will someday cure cancer began with the first spectacles.
Crypto—the exchange of irreplicable bits of code settled simultaneously by geographically disbursed and unknown validators—presents another idea: those who demand access into our financial lives, track us online, debase our currency, and manipulate the inflation rate aren’t doing it to protect us, make our lives easier, or in the name of some enlightened progress, but to keep us from thinking a different path is possible. Yikes! Says the federal bureaucrat, and here comes FedNow.
If the recent IRS warning about reporting $600 Venmo transactions warmed your Yuletide spirit, the federal government’s next financial surveillance move will create fuzzies all year long. Right now, officials are preparing to surveil everyone’s financial life in real time with the end goal of transferring more American wealth into its coffers. This intrusion on financial privacy and economic liberty is occurring partially in secret and potentially without Congressional approval.
Welcome to the Brave New World of central bank digital currencies (CBDCs).
Unfortunately, this is not the opening of a dystopian novel. Its prospect grows stronger each day.
CBDCs are dystopian following China’s totalitarian system
CBDCs are direct liabilities on central banks. Traditionally, direct access to central bank balance sheet is the purview of financial institutions as most money is privately created by banks lending out customer deposits.
Authoritarian governments, particularly China, are cutting the middleman for political reasons. The Chinese Communist Party (CCP) boasts their digital yuan (e-CNY) will enable further economic control and party discipline.
This power derives from CBDC surveillance capabilities. In blockchain-based cryptocurrencies, “nodes”—people worldwide with as little as a laptop and internet connection—maintain public digital ledgers based on open-source consensus mechanisms. CBDCs, however, have one node: the central bank, and it identifies, monitors, records, and potentially blocks or reverses each transaction.
When fully implemented, the e-CNY will augment the CCP’s social-credit system, which grants or removes privileges based on party loyalty. They are also testing negative interest rates as an economic-stimulus tool. Spend your e-CNY or watch it disappear in real time.
Don’t think it could happen here? It’s already started.
CBDCs are dystopian surveillance tools
American’s non-cash transactions are already surveilled by banks and those over $10,000 are reported. The government justifies this as a needed bulwark against financial crimes and terrorists under the banner (AML/CFT). Last year, Canadian Prime Minister Justin Trudeau used AML/CFT laws to freeze bank accounts of peaceful truckers protesting COVID lockdowns. Had the truckers had only CBDC holdings, Trudeau could have limited any spending or imposed instant confiscation or fines.
Proponents insist CBDC design will shield Americans from such abuses. The Federal Reserve would likely include protections as Chair Jerome Powell has assured. But context is needed.
As researcher Natalie Smolenski wrote for the Bitcoin Policy Institute, when government functionaries speak of “privacy” in the CBDC context they don’t mean from the state. “Rather, the state is presumed to be an essentially good and trustworthy overseer of markets at every scale, including at the level of individual transactions—and a desire for privacy from the state is implicitly equated to criminal intent.”
CBDCs cede all control of money to the government
CBDCs place American’s financial sovereignty at the mercy of (at times) partisan bureaucrats at an historically precarious time. Post-COVID, government balance sheets are bleak. Global debt-to-GDP ratio had risen 356 percent by the end of 2021. CBDCs offer a way out.
With real-time access to the total money supply, officials could implement any number of policies deemed in the public interest or necessary for the next crisis. This could include negative interest rates, instant tax collection for every transaction, restrictions on the purchase of disfavored products like firearms, cigarettes, or sugary foods, or carbon-based limits on travel.
The bureaucrat’s mind races.
Equally distressing is the opaque way officials are preparing to dump CBDCs on the public. Whilst academics openly build the technical foundation at the New York Fed and MIT, the legal groundwork remains shrouded.
In January the Fed stated it would not move forward without support from all stakeholders including “ideally” a Congressional enabling law. But in October, Rep. Tom Emmer (R-MN) claimed the Department of Justice had devised a secret CBDC Congressional bypass.
Upcoming House investigations may shed light on this. But it is telling how hard the government is pushing for something Americans do not need. As I’ve writtenextensively, privately issued, asset-backed stablecoins—digital assets pegged to a monetary value, mostly the U.S. dollar— already provide benefits proponents claim require CBDCs, including financial inclusion and smoother cross-border payments.
CBDCs will kill political dissent
Political dissidents and desperate people in Hong Kong, Argentina, Venezuela, and Ukraine use stablecoins. They have also performed remarkably well during this year’s many crypto crises. They could eventually supply the world’s poor and oppressed a pathway to survival and freedom.
Conversely, CBDCs yield ever more power and control to compromised and cash-starved governments. Let’s make our new world more free and less Brave. Say no to CBDCs.
‘‘No Federal reserve bank, the Board, the Secretary of the Treasury, any other agency, or any entity directed to act on behalf of the Federal reserve bank, the Board, the Secretary, or other agency, may mint or issue a central bank digital currency . . .”
These words in a bill proposed by Senators Mike Lee (R-UT) and Mike Braun (R-IN) is the statutory equivalent to Shakespeare or Goethe. Americans of every political stripe should hear these words like legal poetry and rally around the ‘No Central Bank Digital Currency (CBDC) Act.’ CBDCs would end Americans’ financial freedom and prompt inevitable confiscatory policies by the U.S. Treasury.
Cabining the CBDC authorizing debate in Congress is the first step to stopping this financial Road to Serfdom. This should be obvious. The Constitution’s Article I gives Congress exclusive authority over coining money. A power affirmed by the Supreme Court. Both Federal Reserve Chair Jerome Powell and Vice Chair Lael Powell have ceded in testimony the need for a congressional authorizing act. The Federal Reserve as a body did as well in a January 2022 report: “The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”
Stopping CBDCs means stopping DOJ workarounds
Yet according to Rep. Tom Emmer (R-MN) the Biden Administration has devised a workaround they refuse to share with Congress. This provoked House Republicans to write Attorney General Merrick Garland requesting DOJ’s “assessment of whether legislative changes would be necessary to issue a CBDC” by October 15.
The executive seems to be playing from last year’s playbook for potential stablecoin regulation. There it suggested the Financial Services Oversight Council produce regulations by fiat if Congress did not pass a bill. The go-it-alone strategy may be too tempting for a government seeking ever tighter controls over Americans’ financial lives. For regulators CBDCs are the Holy Grail as expressed by global financial regulator Agustin Carstens in 2020:
We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000 peso bill today. The key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.
Alternatives may quickly find themselves banned as Mr. Powell has stated: “You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies, if you had a digital U.S. currency . . . I think that’s one of the stronger arguments in its favor.”
Stopping CBDCs means less government power
Why is the administration pushing so hard for CBDCs? Researcher Natalie Smolenski provides the answers in a recent and well-received report published by the Bitcoin Policy Institute. First as stated CBDCs give regulators a complete record of all financial transactions thus eliminating transactional privacy. They claim total surveillance is required to stop terrorists and money launderers even though empirical evidence debunks that claim. Second, once CBDCs become widely used they transform into an instant tool for monetary policy. The U.S. now owes $31 trillion dollars. Congress has already allocated funds for 87,000 new IRS agents to unleash audit-palooza on Americans. CBDCs would eliminate the middleman by giving Treasury access to all the U.S. stock of digital cash. With this control the Fed could place negative interest rates on all CBDC holdings allowing Treasury to collect money without passing unpopular tax hikes. People would have no choice but to spend their savings or watch it vanish in real time. China is already doing this with its CBDC.
We must stop CBDCs before they gain traction
This is not financial system Americans signed up for. As I wrote in Central Bank Digital Currencies Threaten Global Stability and Financial Privacy, the supposed benefits CBDC proponents proffer will likely never materialize. Yet the threats to individual sovereignty and the invitation for abuse are practically baked in. Two senators have proposed an end to this terrible policy. As Shakespeare might put it, ‘Friends, Americans, Countrymen, lend me your ears, support the No CBDC Act!’
The paper has garnered widespread praise including by journalist JD Alois who wrote in Crowdfund Insider, “Anyone who is interested in the future of money or digital currency should read this paper.”
Hot summer temperatures have done nothing for the current “crypto winter” which has seen a $2 trillion market drop from highs last year. The downswing, including the spectacular failure of the Terra Luna ecosystem and a cascade of exchanges temporarily halting withdrawals, has livened crypto’s critics including governmental bodies and their academic allies.
Whilst the crypto industry should ignore the bluster as it recalibrates, it should also accept legitimate criticisms. The crypto revolution has just begun, and tough battles lay ahead. But ultimately those screaming “Get a horse” at crypto’s teetering auto will be proven wrong.
The first rejoinder to the crypto collapse is governments bear much responsibility. The trillions printed out of thin air recently had to go somewhere. Crypto with its general positive returns were as good a place as any. Low interests rates meant safer alternatives were not feasible.
As Mati Greenspan, the CEO of crypto research and investment firm Quantum Economics told CNBC. “Central banks were very quick to print gobs of money when it wasn’t needed, which led to excessive risk taking and reckless build up of leverage in the system.” Cheap money meant millions poured into untested concepts and undeserving projects. Existing business models that seemed solid are facing collapse and rethinking. Of course, crypto is not the only victim of government profligacy. The S&P is heading towards its worst first half since 1970 as recession fears loom.
Crypto has just begun to clean up government’s mess
The government-caused monetary bubble will wreak havoc on the industry short term. But afterward exposing weak business models will strengthen the industry. More investment discipline and exacting due diligence will benefit project developers and consumers. Bear markets usually beget stronger design and more solid plans as focus on short term gains wane. Some innovations will focus more on consumer value.
Nonfungible Tokens (NFTs) have a bright future in strengthening the relationship between entertainers and their fans and businesses and their customers through personalized experiences. Nouveau riche indulgences on jpeg art may be less sustainable.
Yet the crypto industry also bears responsibility for the current opening critics have seized. Over exuberance that imbibes any new technology foments overreach. Millions in venture capital poured into Terra Luna despite an untested design clearly unable to sustain a market downturn. Scammers abound and the industry should help push them out—46,000 people have reportedly lost $1 billion since the start of last year.
Hacks and inside-job rug pulls have exposed the general lack of focus on network security.
The future will see bigger battles. Enthusiasts’ zeal for decentralization and censorship resistance will collide with venture capitalists seeking control and return on the investment. Environmental, Social, Governance (ESG) advocates that have so effectively captured public companies have crypto in their sights. They currently direct their ire at crypto’s energy use but social factors are percolating. The crypto industry should not sugarcoat the viscous battles ahead.
Crypto has just begun to improve our lives
Yet crypto’s future is bright. It’s current omnipresence in media and government attention belies how young the industry still is. Ten years ago, the price of Bitcoin was $15.40. Crypto’s current market cap is half that of Apple and less than one-twentieth of U.S. GDP. Current growing pains will not deter the long-term innovations.
At its heart crypto is a way to hold and transfer value outside the prying eyes of the state. The idea of people exchanging value electronically outside the heavily regulated and in some places authoritarian financial systems already benefits the world as people in the direst circumstances have already discovered. Other individual-centered innovations will arise from this core concept in ways not yet imagined, just as mobile phones disrupting the taxi industry at one time seemed farfetched.
Critics including the post-WWII global financial superstructure insists this is all dangerous, unnecessary, or a Ponzi scheme it must protect us from. China and Canada to give just two examples show self-interest is the real aim. The crypto industry must answer legitimate criticisms and gear for the looming battles. But ignore the current naysayers shouting insults from their equine transport.
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