The Breakdown - Narrative Watch: Bitcoin is Political

Episode Date: September 16, 2019

As this was being recorded, Facebook was being grilled by 26 central banks about their plans for Libra. Last week, France and Germany said they'd block the project and were exploring their own digital currencies. Libra head David Marcus felt enough heat to take to Twitter to defend why the project wasn't a threat to monetary sovereignty. In this Narrative Watch, we look at how the emergence of Libra and the response among the nations of the world have made it clear that, despite Marcus' protestations, cryptocurrencies are a political force. What does it mean for bitcoin? Listen to hear the discussion.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

I think it's like a form of karma. I think that the banks has such a crooked model that the engineers and software designers and programmers was like, we're not going to fix this with a protest. We're not going to fix this with a march on Wall Street. We're going to fix this with technology. And they created an equalizer that just, it checkmated the whole game. That's my view on it. It's just like the energy balancing out what we're going to do.

out what went wrong over there and just the disadvantage that the people were at, the cryptocurrency is balancing that out or will in the long run. It's going to take a while, but it's going to create an option. And you're not going to have to go operate in that system that led to like 2008. All of the banks collapsing in the real estate bubble and all the malpractice of power that, you know, what's happening in the banking industry and the central banks and all that. So it's like, damn, that was slick. Whoever came up with that was slick if you really peep it from a political point of view.

You know what I mean? That was real effortless checkmate. You know what I mean? And they exited before anybody knew what was up. Welcome back to another narrative watch with Masari. All right. So we got a cool one today. That was Nipsey Hustle, RIP, Tragically killed last.

year, hip-hop artist, activist from LA. That is him talking about Bitcoin and cryptocurrency more broadly as a political force. And that's kind of the subject of today's narrative watch. I think, you know, cryptocurrencies have had this interesting trajectory where they've been, at any given moment, one, a technology, two, an economic force, an economic domain discipline, and three, underlying it a political force. And I think that what we've seen over the course of this summer, particularly with the introduction of Libra, is the acknowledgement broadly of Bitcoin and cryptocurrencies more broadly as a political force. So that's what we're going to get into today. So I want to go over and start with this essay from Nick Carter. So we might have even talked about

this last week. We certainly talked about it on the Crypto Daily 3 at 3 a bunch of times. This is Nick Carter's essay, A Most Peaceful Revolution. And basically, this sentence is really at the heart of what he's arguing. Cryptocurrency, despite the earnest protests of its lily-livered adherence, remains manifestly independent and ultimately hostile to the state. It cannot be regulated, captured, or rendered compliant. So Nick wrote this essay, huge attention around it. And his argument effectively, which he's clarified subsequently, is that,

that cryptocurrency and Bitcoin in particular are inherently combative to the state, right? They provide market competition for functions that were previously exclusively the domain of the state, specifically around money printing. And that brings them into contention with the state. And to Nick, those are simply the stakes of the game. And if you're involved in cryptocurrency in his estimation or you're building a new cryptocurrency and you're not thinking that those are the stakes, you're basically in for a rude awakening, for a rude shock.

That's kind of his take on this. And so this, I think, is part and parcel of a growing recognition, a growing conversation, a growing narrative around the politics of cryptocurrency. This was reinforced or kind of held up or seen. Another argument, basically, along these lines, came from Ben Hunt. Ben Hunt's an ex-money manager who runs a thing called Epsilon Theory now, which is a, interestingly, it's kind of a narrative newsletter and consultancy that helps market participants understand the power of narrative forces in the markets, which, if you watch me, you can

understand why that would be interesting to me. But he was on Hidden Forces a couple of weeks ago, and he was talking about similar things. So in his estimation, Bitcoin is on a collision course with governments for that same reason, right? that it is inherently competitive to their core functions. Now for Ben, though, that's a battle that he believes Bitcoin can't win. And when he looks over and sees our adoption in this Bitcoin community of the narrative of digital gold, to him that's a ghettoization, right, pinning us in a very specific controllable box that is, you know, not necessarily the place that you want to be.

It forces us basically into the role of gold box. who are constantly kind of doomsayers and waiting for the worst to happen because that validates our thesis. That's his reasoning behind why he gets nervous about Bitcoin. Now, on this same episode, he talks a lot about Libra. And so to him, Libra is the most co-optible cryptocurrency he's ever seen. It's the perfect guys. It's the perfect proxy facsimile. with which the state can take advantage of all of the things that people might like about a

cryptocurrency without surrendering the power that makes cryptocurrencies both unique and dangerous to them and liberating potentially to individuals. And so he's basically making this argument that Libra is this very, very co-optible force. And of course, Libra is kind of the context for this emerging recognition of Bitcoin and crypto as political. So last week, there's this great thread from Amin, Amin Ser that says, Libra awakened the sovereigns. This is the quote that I loved and I pulled. And he says, while this tech cannot be stopped, its reach can be limited by clamping down on on-rams. So what's his context? Well, his context was this. An official at the French embassy just reached out to me

in an official capacity today to talk about crypto. Feels like the French government is trying to figure out the state of crypto and trying to formulate what its response ought to be. This was the context, right? So last week, the middle of the week, there was an OECD conference around cryptocurrencies and at that conference, the French economic minister, basically the French finance minister, Bruno Lemire, came out and said that effectively they would try to block, they were planning to block Libra. So he said, I want to be absolutely clear. In these conditions, we cannot authorize the development of Libra on European soil. And the question, the core question, and this is the original report from the independent

before it got picked up by another news outlets, is that it poses a threat to monetary sovereignty. That's the key term, this idea of monetary sovereignty. So basically, you know, if you go back to the Libre hearings in the U.S., the Senate hearings and the congressional hearings, Brad Sherman was one of the congresspeople, for example, who brought up the idea that the ultimate goal of a Bitcoin or a cryptocurrency is to undermine the role of the U.S. dollar as a, as the world's global reserve currency. Well, this, you know, France basically is saying that Libra itself poses a threat to France's ability to print money and control the money supply and control monetary policy. It's this external force for this thing,

which is supposed to be the domain of nation states. Just one day later, Germany picked up the the same tone, the same tenor, and also concluded that they would block Libra or they would try to block Libra along with France. So really assertive pressure from these European nations around what is and isn't going to be allowed with Libra. Now, because the idea of them blocking Libra was such a big, clear banner headline, one of the pieces of nuance that got missed in this is that they're also then talking on the other side about how they may create their own public digital currency. So this is from Lemaire again in the same remarks. So in his remarks Thursday, Lemaire said he has spoken with ECB president, Mario Draghi, and Christine Lagarde,

who will be the next chief of the central bank about creating a public digital currency. So this is, again, they're saying you can't do it, but we can. and this is really something that I've talked about a lot is that we're seeing the trifurcation of crypto into permissionless chains like Bitcoin, corporate money like Libra, and convenient surveillance money, right, which is basically government cryptocurrency. And so what's the problem with government cryptocurrency? Why are people nervous about it? The problem is that on the one hand, it is going to be probably extremely popular, right? It will be more convenient. It creates all sorts of new opportunities. The digitization of currency upends a lot of old systems that are

inconvenient on a day-to-day basis. However, there is a cost of that. Right now, we live in a relatively private monetary world because of the prevalence of cash, because you can transact without there being a paper trail or a record. The elimination of cash obviously eliminates that ability to transact privately, and it means that everyone's finances are easily servile. And this is even just in now, in today's world, where cash is becoming more and more extinct every given day, every given week. In a world of digital currencies from government, central bank digital currencies, those sort of surveillance features are in fact built in, right? They are just part and parcel of what you get. It's the cost of doing business is that your transactions are easily surveilled. That creates huge, huge problems from the standpoint of the potentials for abuse of power and just the data that becomes available.

And this is not just France and Germany, right? This is a larger, I think, shift in the Overton window around what the future of digital currency should be and what the role of central banks should be. So just a couple of weeks ago in Jackson Hole, at a gathering hosted each year by the Kansas City Fed, Mark Carney called for a synthetic hegemonic digital currency or a synthetic, hegemonic currency, which is basically a collaborative central bank effort to create a Libra competitor. And so whether or not that takes place is sort of secondary, I think, in some ways, to the fact that this is now the conversation. I think Meltem had some choice words on this.

She says, favorite moment of the week, France and Germany issued a statement that they intend to block Facebook's Libra. And I quote, no private entity can claim monetary power, which is inherent to the sovereignty of nations. And so it begins. So again, what Meltem is recognizing here is that there is simply no way to deny that we are now, we have awakened the beast and cryptocurrencies and Bitcoin and Libra and everything in this space is political. It is a political force. I also thought this was a great poll quote. Jefferson nailed it in 1776. If people allowed private banks to control the issue of currency, the banks and corporations that will grow up around the banks will deprive the people of all

property until their children wake up homeless. A little extreme, but I think the point is that this has always been political. Every moment that we've spent thinking that it's not is just simply not true. It's a delayed wasted moment of deluding ourselves in a lot of ways about the real stakes of this game. So what's happening now and what happens next? So today, Libra is meeting with a group of something like 26 central banks, including the Fed and the Bank of England, and they're basically grilling them about their plans for Libra. And, you know, who knows? On the one hand, you have to think that Libra anticipated this, just given Facebook's place in the world and the potential of these cryptocurrencies. On the other hand, there is a lot of interesting momentum behind

this idea that Libra may be stillborn, right, and never get out of the gate simply because of the incredible regulatory scrutiny around it. Certainly, whatever their level of anticipation was, David Marcus decided that it was worth this new round of recriminations and kind of speaking about Libra was worth responding to. So he wrote a thread this morning about monetary sovereignty of nations versus Libra. He says recently there's been a lot of talk about how Libra could threaten the sovereignty of nations when it comes to money.

I want to take the opportunity to debunk that notion. and he goes through his normal set of arguments. Libra is designed to be a better payment network. It's backed by a basket of strong currencies. There's no new money creation, which will strictly remain the province of sovereign nations, and we'll continue to work with everyone. So this has been the line from the beginning.

The line from Libra has been, we're not making new money. It's based on a basket of currencies. We're neutral. It's going to be regulated by this kind of larger association. And we're going to work hard with everyone. and oh, by the way, your law enforcement will really like this because you can really trail people. And I think this is what gets to Ben Hunt's point about why Libra is a very co-optible force.

They're already basically making the argument to regulators, at least in the U.S., that this is a tool for them, not something to be feared by them. The reality is, of course, that especially for those, the smaller currencies that are part of this basket, Libra is very much a competitive force, right? If you look at what's happened in Argentina, Argentina, you know, as currency gets devalued, dollars flee as much as they can, or pesos rather, flee as much as they can into U.S. dollars. More recently, some amount of Bitcoin, which was trading at a premium there over the last couple of weeks, but certainly into dollars. And they have to impose capital controls, or that's been their strategy, is imposing capital

controls in order to prevent that flight from the Argentine peso. Imagine the situation of that happening when Libra was a lot. incredibly easy to just sign onto your computer and buy. Totally changes the game. You could see providing an incredibly destabilizing force. Now, this is not to say that that is, you know, in some ways that feels inevitable, right? We already have tether. We already have all these things. And so Libra's argument, and this has been from the beginning, is when Marcus was testifying, is that if we don't someone else will, that someone else being China. And as we've discussed, both on narrative watch and on the Crypto Daily 3 at 3 before, there is no doubt that the

introduction of Libra supercharged the efforts of China. It's just it's exploding with effort to try to get out its digital currency to compete. And so we'll see. So the point of all of this is that we've got a situation now where Libra, to quote a means, Sierra has awakened the sovereigns. And the sovereigns are responding by trying to ban and block Libra and trying to introduce their own competitive cryptocurrency. Now, where is Bitcoin in all of this? Well, for now, it gets to fly under the radar a little bit more. So if you'll remember in July, Fed Chair Jerome Powell basically was, he's testifying in front of the Senate Banking Committee. And someone said, what is your concern about Facebook or sorry, Bitcoin becoming a threat to the dollar? And he says,

almost no one uses Bitcoin for payments. They use it more as an alternative to gold. It's a speculative store of value. And this is, you know, for for some, it was a cheer, right? This is the the Federal Reserve Chairman recognizing Bitcoin's use case as a digital gold is a digital store of value. And for Bitcoin believers, for Bitcoiners, this is sort of part one, two, three on a hundred part process to becoming just global money, right? Is this holding use case, this ability to have a non-sovereign store of value that's outside of the whims of monetary policy. That's a good thing. Now, again, Ben Hunt's point is that that is a political ghetto that is hard to escape from. And maybe he's right, maybe he's wrong, but whatever the case is, it's clear that Bitcoin, at least right now in the conversation of regulators, sits in that role.

And frankly, I don't think that's necessarily a bad thing. I think that the animosity that is being pointed at Libra were it being pointed to Bitcoin would be very difficult. It would create a huge number of problems. And I think that that's a sentiment that exists and is kind of around the Bitcoin or community. So this tweet from Ben Prentice, Decentralization matters. Bitcoin competes with all bad monies. Cryptocurrencies are not tech startups.

This is a global monetary war. Schipcoins are vulnerable to state level attacks. Only decentralization protects Bitcoin from state attacks. This idea of state attacks is really important, I think, for the future, and it's something that we're just going to have to keep an eye on. But for now, what's clear is that Bitcoin is political. Cryptocurrencies are political. Libra is political. We are not just playing an economic game and we are not just playing a

technology game. These are the stakes. It's undeniable and proceed as such, right? That's the message of this narrative watches. I believe that this is a narrative that has, is crescendoing now, but from a recognition standpoint. This is not something new. These I think have been always political forces, right? It's, you know, banks on the brink of a second bailout, right? The words that kicked off this whole thing back in 2008, 2009, it was a political question. It wasn't just banks. It was banks being bailed out by governments. Bitcoin is political. Cryptocurrencies are political. Libra is political. Proceed as such. All right, guys, happy Monday, and we'll catch you next week. Peace.