No one knows what is happening with Crypto

I have destroyed the lovely quote from William Goldman’s wonderful book Adventures in the screen tradethat ‘Nobody knows anything’ into ‘Nobody knows anything.’

This is to emphasize that no one in the crypto industry I have spoken to understands the current high price of bitcoinBTC or ethereumETH, even after strolling around NFT NYC.

At that time, a market was either “soft” or “firm”, which was a way of describing the trend of whether it was going up or down. Implicit was that it didn’t really matter that much in the long run, but that was the direction at the moment. It’s fair to say that crypto has been soft, but the media is reporting it as if it has crashed. At these levels, it’s a miracle of strength, in my opinion – look at how the US government has put the dogs on America’s main crypto players.

I think this action, while wrong, is completely understandable.

The best hope for crypto is the realization that artificial intelligence (AI) dwarfs the threat of crypto. AI is even more of an existential threat to government, not to mention democracy, not to mention humanity than some competition on the money-printing front, and regulation needs to focus on saving us from a robot overlord as opposed to fussing over ADHD crypto-entrepreneurs.

Hopefully the new Godzilla of AI will replace crypto as the villain in town.

Of course, it’s probably better to leave both alone, but there seems to be an awful lot of luddites out there in the US eager to remove the “new, new thing.” This threatens to put the final nail in the American coffin, but there seems to be no end to players with a hammer going for it.

When it comes to crypto, the US government should do some basic economic reading. I really mean basic school books.

Let’s start with an early chapter. Gresham’s Law: “Bad money drives out good.”

Ok, therefore the government can forget about the threat of crypto. Apart from arresting digital fraudsters and hackers of all persuasions, a job they are extremely bad at, they can take solace in the fact that as bad money drives out good, there is no risk from crypto.

Clearly fiat is bad money, so the chance of deflating bitcoin or ethereum to drive inflation of fiat is nil.

I wonder if they think crypto is bad money and therefore want to drive out the dollar, but there is also a solution to that if that is the case. Never let taxes be paid in crypto. Fiat money derives much of its value from its ability to pay taxes. The selling pressure of having to use crypto to buy fiat to pay taxes will always keep fiat in prime position. You only need to look at the tax/GDP data to see how much fiat goes through that doorway each year to see how fiat will always retain its primacy as a currency.

But now the dogs are on the loose, they are unlikely to come home anytime soon. Crypto will be under the US death ray for years.

So the question is why is bitcoin so strong, even though it is at its peak? Here are some possible reasons:

1. Market manipulation from centralized exchanges.
2. China is on the verge of invading Taiwan (please!).
3. There is a money flow channel between US QE and BTC that no one understands.
4. The crypto maximalists are simply right, it goes up and to the moon. It is humanistic destiny.

I asked someone at NFT NYC hoping to have an answer as to why BTC/ETH is so strong and the answer was: “beats me.”

It strikes me too.

I think it is most likely number 3 from the list above, because the peaks and troughs often seem to be directly linked to index movements in the same direction. The Federal Reserve pumped a sea of ​​money into the system when Silicon Valley Bank hit the skids and it has been pulling its profits back out in recent days. If BTC tracks the Fed balance, the link will be established that crypto is now welded into the global financial system and is no longer an uncorrelated asset.

I’m not sure if the anarcho-capitalists would agree, but it’s easy to see the connection.

If you do that, the markets are again in a situation where it’s not about investing, it’s about gambling on the whims of governance, which of course is a very difficult game.

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