Satoshi’s Curse: How Bitcoin Affects the World Economy

Satoshi’s Curse: How Bitcoin Affects the World Economy

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This week it was revealed that Bitcoin has been manipulated by bots at the time when the cryptocurrency rallied from $150 to $1000 in 2013. How this has been discovered and presented as conclusive proof is questionable, to say the least – the evidence is arbitrary. Big volume and…

Bitcoin world economy

This week it was revealed that Bitcoin has been manipulated by bots at the time when the cryptocurrency rallied from $150 to $1000 in 2013. How this has been discovered and presented as conclusive proof is questionable, to say the least – the evidence is arbitrary. Big volume and rapid movements of the Bitcoin price are common, so it should not be used as conclusive proof that any price rally was necessarily manipulated.

But is Bitcoin rigged and manipulated? That’s a difficult question to answer because there are so many factors that have to be taken into consideration. One key factor is that there a few big players that hold large quantities of bitcoins, such as the Winklevoss brothers and other less savoury individuals, as well as unknown crime syndicates. It’s yet unknown how much Bitcoin is used to transfer untaxed money from illegal gains or outright criminal money.

Another factor is the “mining syndicates” that have joined forces to reduce the expensive mining costs. And the biggest factors are the hackers and fraudsters that try to break or manipulate the Bitcoin code without much success, except for occasionally managing to steal e-wallets or the entire deposit of an exchange.

As has happened many times throughout history, markets and exchanges have been hacked, rigged and manipulated from the inside as well as the outside. When there are large amounts involved, there’s always the possibility that greed will rear its ugly head and perpetrators will break the law to steal, rob or manipulate for unlawful gains. Bitcoin is no exception.

Bundesbank and the Mighty German Mark

Before the euro became an official currency, each European country had its own currency. These currencies were each controlled by the national bank of their respective countries and could be devalued if economic circumstances so dictated. The German Bundesbank, along with the Bank of England, are two of the most powerful central banks not only in Europe, but globally too.

Even though the mighty German mark no longer exists, the Bundesbank can exert a lot of influence on the euro and the global financial markets.

The German mark and Swiss franc were considered the “strongest” currencies in Europe as these were backed by stable governments and a solid economy. These currencies – along with the US dollar – were considered safe, secure and stable in the sense that they would not lose their value over time. In addition, these strong currencies were accepted worldwide as payment, especially in countries where the national currency was unstable or prone to devaluation.

With the introduction of the euro on the 1st January 1999, these currencies disappeared with the exception of the British pound, Swiss franc, Swedish krona, Norwegian krone, Danish krone and other currencies. Along with the disappearance of these major European currencies, the stability of entire European economies declined to the point that the ECB has embarked on a massive quantitative easing program to stabilise the euro.

The euro, which is legal tender in 19 out of 28 European Union countries, is now controlled by the European Central Bank in Frankfurt and the stability of the euro has been maintained at a great cost to the European economy. Long gone are the days of the mighty German mark and solid Swiss franc.

American Dollar Imperialism

The US dollar today is considered the “global reserve currency”, long after President Nixon unilaterally suspended the convertibility of the US dollar to gold in August 1971, effectively bringing an end to the Bretton Woods agreement. From this day on, the US dollar officially became a fiat currency.

Powerful institutions such as the International Monetary Fund and the World Bank – both based in Washington DC – ensure the US dollar’s hegemony. More importantly, the US dollar is an “elastic currency” which means that the Federal Reserve can expand the money supply as needed by just printing more money at will, commonly referred to as “quantitative easing”.

For the rest of the world, US Treasuries are considered “safe” on the basis of the vast liquidity and the massive market for US sovereign debt. After cancelling the Bretton Woods agreement, the US dollar is no longer tied to the gold standard – however, its influence has remained very strong.

This has to do with the United States being a global economic, as well as military, power. Where money cannot influence matters, military power surely will. In the banking and financial world, the mighty US dollar still rules supreme.

The vast majority of global financial transactions are in US dollars and the worldwide trade of goods and commodities is most likely paid for in US dollars. This creates a huge demand for US dollars by governments and companies around the world. Any bank that deals in US dollars will most likely have a subsidiary, branch or representative office in the United States, most likely in New York.

To be able to transact US dollars, banks must be part of the US dollar system. Conversely, being restricted from the US dollar system or denied a US presence usually means “instant death” for any major bank. The bottom line is that the US government and agencies such as the Treasury, Federal Reserve, Pentagon, CIA, FBI, Justice Dept. and IRS wield a lot of power because of the hegemony of the US dollar.

Global Monetary Control

“Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world” – Henry Kissinger.

The Bretton Woods Agreement of 1944 established the first monetary order as well as the commercial and financial relations between the United States, Canada, Western Europe, Australia and Japan after WW2.

As a result of the Bretton Woods agreement, the International Monetary Fund (IMF) and the World Bank (initially under the name “International Bank for Reconstruction and Development”) were created. The prime objective of the Bretton Woods agreement was for each country to adopt a national monetary policy that maintained exchange rates within 1% by tying its currency to gold and give the IMF the ability to bridge temporary “imbalances of payments”.

Additionally, at the time, there was a need to address the lack of cooperation between other countries and to prevent the “competitive devaluation” of currencies.

Another powerful institution is the “Basel Committee on Banking Supervision” (BCBS) based in Basel, Switzerland. The BCBS is a committee of banking supervisory authorities that was established in 1974 – surprisingly without a founding treaty – by the governors of the central banks of the “Group of Ten”.

Its objective is to encourage convergence and improve the standards of banking supervision worldwide.

The US government, together with Treasury, Federal Reserve and powerful institutions such as the IMF, World Bank and BCBS exert very strong influence on the global economy and third world countries that are dependent on aid paid out in US dollars. As a result of this concentrated power, the US government can exert a very strong influence in global politics as well as economic policy, and thus maintain its currency hegemony in the world.

The big question is, are cryptocurrencies going to supersede the mighty US dollar and all other fiat currencies?

The ‘Crypto 500’

“It’s getting harder for institutional investors to ignore cryptocurrencies” – Goldman Sachs.

Bitcoin and the hundreds of “exchangeable” cryptocurrencies have taken the financial world by storm. What started as an experiment or gimmick has now become mainstream. Governments around the world are now starting to take measures to either accept cryptocurrencies as legal tender, such as Japan, or banning them (as China has done), which is futile as these digital currencies are borderless.

If any country bans cryptocurrencies, it can easily be traded elsewhere. There’s infinite appeal to a financial instrument that cannot be controlled by anyone, is available 24/7 and can be used as a means of exchange as well as a store of value. It is the ultimate currency.

There are, however, three drawbacks to digital currencies – volatility, stability and intangibility. A major cyber attack or cybersecurity breach could render cryptos inaccessible for an unknown period of time. Hacking could result in cryptos being stolen from e-wallets and exchanges, which has already happened on several occasions.

Volatility is another issue that cannot really be overcome because cryptos trade on the pure dynamics of supply and demand. No economic factors such as GDP, inflation or unemployment directly affect cryptos as these digital currencies are borderless and there’s no central authority to influence, manipulate or rig cryptocurrencies.

In daily life, the stability of a currency functions as a “unit of account”, so that consumers can use the currency as a “measure of value” – for example, when shopping for food or consumer goods.

Bitcoin has failed on this front, as the high volatility of Bitcoin makes it difficult for it to be used as a viable currency for daily purchases or monthly payments, such as rent or mortgage. Cryptocurrencies with different attributes are abundantly available and can be traded anytime and anywhere.

Bitcoin, Ethereum, Ripple, Litecoin, Neo, Monero and Dash are the “legends” of the cryptocurrency world and most probably will remain so for many years to come. There’s just something about a famous brand name, crazy hype and big market cap. Over time, the stronger cryptos will survive and the weaker ones will disappear into obscurity. And just like the “Fortune 500”, soon there will be a sort of “Crypto 500”, a ranking of the 500 most traded and highest market cap cryptocurrencies.

Meanwhile, there will be frantic trading and failed attempts of regulation, but cryptos will become mainstream and possibly become legal tender in many countries around the world.

The Unknown Genius

The world may never find out the true identity of Satoshi Nakamoto, but the impact of his brilliant idea will impact the financial markets and global economy forever.

The creator of the first truly international, borderless and decentralized currency that is available to everyone, everywhere and any time has made history without collecting the honours. While bestowing praise to the inventor and pioneer of digital currencies, governments and central banks around the world are facing a nightmare – how do they control the crypto craze? Apart from the wild speculation and trading of cryptocurrencies, the most important issue at hand is central control.

Is a global front on crypto regulation possible?

By creating a financial instrument that is detached from any economy, country, government or regulating authority, the elusive Satoshi Nakamoto eclipsed all governments, central banks and the shadow powers that control these powerful institutions. The dilemma now is, do the “powers that be” accept or restrict cryptocurrencies? Do governments and central banks surrender their control to the masses? Are countries going to issue their own national digital currencies?

With a global crypto market cap currently nearing $1trn, multilateral acceptance becomes inevitable. Satoshi’s vision of a decentralized currency is an incredible achievement and governments around the world have no other choice but to follow his lead and issue their own national digital currencies to maintain central control.

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