BIS BS – Is this peak FUD?

It was an interesting, and possibly insightful or instructive 24 hours in the crypto markets as the Bank for International Settlements (BIS) or so called central banks’ central bank released a 24 page report damning cryptocurrencies.  Whilst markets dipped slightly on the news, there subsequently seemed to be a ‘realisation rally’ that saw $13billion added in a matter of an hour.  BIS as an institution is around 90 years old and many of the reasons quoted for the shortcomings of Bitcoin in particular seemed only slightly younger.  No one ever rings a bell at the bottom or top of markets.  Often you can look back at ‘events’ that signalled it and maybe, just maybe the market saw such nonsense from such an institution as ‘peak FUD’ and bought the dip.  

In essence the report was focussed on cryptocurrencies ‘replacing money’ rather than the broader uses and benefits of the blockchain or as it is more commonly being referred DLT (Distributed Ledger Technology).  In terms of the ‘replacing money’ argument they cite three key problems of “scalability, stability of value and trust in the finality of payments”.

The scalability arguments rightly refer to the problems experienced in the peak mania late last year but are focussed on Bitcoin and proof-of work protocols whilst dismissing the solutions such as Lightning Network and proof-of-stake.

The Lightning Network (which we explained here) is not a pipe dream, but a reality being rolled out right now and with the ability to allow literally millions of Bitcoin transactions per second compared to Visa’s 24,000.

The stability issue (price volatility) is fine if we are talking about the current crop of big cap cryptos completely replacing any sort of traditional daily transactional ‘money’, however cryptocurrencies act as both a store of value and a medium of exchange, not solely the latter.  Apart from those still dealing with the losses should they have entered at the December peaks, most are sitting on very nice gains thankyou very much, whereas the ‘money’ BIS wants us all to solely use (controlled by their member central banks of course) erodes every single day.  And we use ‘losses’ loosely as you only lose when/if you sell.  No one denies the volatility of cryptocurrencies, but the more astute profit from it.

The stability issue ignores the divisibility of crypto too.  Our friends at TravelbyBit are a classic example of the simple ‘medium of exchange’ that cryptos present irrespective of price volatility.  At a vast array of merchants (of which Ainslie is one!) you can travel around the world paying your way with Bitcoin, Ethereum, Litecoin, Dash or Nem.  Your coffee is $3.50? No problem, that’s the equivalent you pay in that moment at whatever the rate is for any of those coins.  Tap and go.  Are you from Korea? No problem, still $3.50 as there are no international transaction fees, money exchange losses etc etc.  Crypto knows no borders.  Want to buy an Ainslie Silver Stacker bar?  No problem, walk straight in to our office and do it using our TravelbyBit merchant app.  TravelbyBit have recently announced the full acceptance of crypto through this platform at all shops etc in Brisbane Airport and more recently the WHOLE Town of 1770.  Click on the following image to read the ABC article.

Finally they cite concerns around fraud and debasement, the latter due to forking which misses the point of forks normally delivery gains and new opportunities to holders not debasement.  The fraud argument either is stuck in the dark web past or addresses those ‘brave’ enough to leave their crypto on exchanges or other hot wallets, not storing their hard earned securely in a cold wallet.  It’s a little ironic that the BIS cites debasement as it sits over the likes of the ECB and BoJ instituting negative interest rates or together with the US Fed printing literally trillions and trillions of new ‘money’ through their QE programs, debasing the very monetary instrument they hold up as the exemplar.

The ABC’s report on it sums this up 

“Clearly the BIS comes into this with a significant institutional bias — the death of central banks would rob it of its raison d'être.”

Indeed.  

In the words of Shakespeare’s Hamlet – “The lady doth protest too much, methinks”