In the defense of Bitcoin

Bitcoin and other cryptocurrencies are getting absolutely crushed today, and it doesn't appear that the selling will stop anytime soon.

Bitcoin, BTCUSD, -10.53% the world’s No. 1 digital currency, crashed through support at $3,500, falling more than 10% to a 15-month low at $3,230 on the Kraken exchange.

“The price of bitcoin has crippled on the back of this and I think it is likely that the price may not only drop below the $2K mark, but with this kind of momentum behind it, the price can test the 1500 level,” said Naeem Aslam, chief market analysts at Think Markets U.K. in a research note. “Simply put, the bad news keeps coming just like cockroaches coming out of a hole.”

Bitcoin has now fallen 84% from its all-time high above $19,000.

Forbes even asks if Bitcoin is going to zero?
So will it?
No. Bitcoin will retain some value.

I say that as a long-time outspoken Bitcoin skeptic.
Even before Bitcoin peaked I wrote Bitcoin: One scam to rule them all.
At Bitcoin's peak I wrote Bitcoin: We've never seen a bubble like this.
If anyone avoided Bitcoin because of the warnings I gave - you're welcome.

So why would I, of all people, be coming to the defense of cryptocurrencies now that everyone is running from it like it was ebola?
Because cryptocurrencies still have a functional purpose, and not just for illegally buying drugs or guns anonymously.

This is effectively demonstrated by the response to America's unprovoked economic sanctions against Iran.

Russian experts in cryptography will provide their knowledge to Iran to bet on the development of the crypto-economy in that country. This contribution is part of an agreement reached by representatives of leading industry organizations of the two countries, both subject to Western sanctions.
...The news about the Russian-Iranian agreement comes days after Iranian financial institutions were denied access to SWIFT, the international system that allows banks to transmit messages and transfer cross-border funds.

Cutting Iran's access to SWIFT has forced Iran to find other means for foreign trade, and cryptocurrencies are a natural fit.
Iran is still complying with the nuclear deal, despite U.S. sanctions.

Iran, which has done nothing to deserve being cut off from SWIFT, is probably just the first nation to receive this punishment.

“Swift is the lifeblood of international payments,” Thilo Brodtmann, executive director at Germany’s VDMA association, said in a statement. “Any restriction, however small, on the neutrality of this system is unacceptable. Today Iran, tomorrow Russia and then China?”
...Excluding Iran from Swift will have the knock-on effect of making transactions with Russia and other countries involved in political disputes unreliable, according to the VDMA, which represents more than 3,200 firms.

Which brings us to yesterday, when Kurt Volker, the U.S. Special Representative to Ukraine, suggested disconnecting Russian banks from SWIFT banking network. It's unlikely that the international community will agree with that idea, but then we cut off Iran without the international community's input.
Russia is mostly ready for this eventuality.

The more that the dollar is weaponized by Washington, the more cryptocurrencies will prove their usefulness. Eventually, one day, Bitcoin's price will stabilize around it's real fundamental value.

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mhagle's picture

But I fully support alternative currencies. I am mostly interested in local financial exchange systems.

It seems like sanctions hurt for a time, but ultimately strengthen the sanctioned.

Thanks for the essay. Smile

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Marilyn

"Make dirt, not war." eyo

gulfgal98's picture

@mhagle are one of the tools being used in the Transition Movement in order to support local businesses and farmers.

Increasingly Transition groups are starting new enterprises, especially community owned energy companies and food businesses. Others are developing local currency projects, setting up ‘buy local’ campaigns or working with local businesses in some other way.

As Transition groups develop their capacity and their relationships, they often identify more substantial changes that would build resilience and support wellbeing within their local economic system – for example, increasing the availability of land, space and support for entrepreneurs, helping existing businesses to change their models, and improving access to the right types of skills and investment.

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Do I hear the sound of guillotines being constructed?

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

arendt's picture

crypto currencies backed by governments, I would agree with you.

So why would I, of all people, be coming to the defense of cryptocurrencie...
Because cryptocurrencies still have a functional purpose,

Crypto currency desperately needs to be backed by something other than burning 1% of the planet's electicity budget to generate what are essentially random numbers. [And those numbers are not as secure as one thinks. Why do you think the big boys (Google, Amazon) are trying to build quantum computers? To crack encryption. (Yes, I realize that encryption and blockchain are completely different algorithms. But quantum computing would certainly impact crypto-currency.)]

Nobody trusts bitcoin because the rules (e.g., difficulty to create next block, possibility of 51% hack by miner consolidation, unexpected hard forks) are not under the control of anybody but a bunch of self-interested insiders.

If a govenment says it will back a crypto-currency by exchanging it for gold, like China will, then the idea will be adopted.

But, bitcoin itself? Bitcoin is the latest version of tulipmania. It has had its $18k peak mania, UNLESS some Wall St bankers decide to kick the scam up a notch by trying to push government currency through some blockchain funnel, from which Wall St. can extract its usual exorbitant fees. In that case, you have what they call "blockbusting" in the real estate business. In that case, bitcoin becomes another privatization ploy run by TPTB to grab control of money - even more control than they already have by owning the SWIFT system and backing all the major credit cards (3% rakeoff on every single transaction).

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bitcoin may very well go to zero, but I too doubt it will, IMHO. I believe it will retain some value albeit relatively small unless it becomes universally useful in every day transactions.

But I don't think Iran, and possibly Russia, etc., will use bitcoin per se. A new crypto yes, but bitcoin probably not, unless they open their own bitcoin exchange. Even if they do open a new bitcoin exchange it will leave it open to regulation and sanctions. So if they do go the crypto route they'll have to create a new coin with it's own exchange or some form of peer to peer transactions. In my opinion anyway.

Please correct me if I'm wrong.

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@JtC
You may be wrong.
I have no idea how details of this will play out.

But I have noticed that all the cryptocurrencies move roughly in unison.
If Iran or Russia find a cryptocurrency that proves itself, I'd bet that this will "put a floor" underneath many of the other cryptocurrencies.

There are already Bitcoin exchanges, but there are no regulations.
Too many regulations and the reason for cryptocurrencies cease to exist.

Personally, I'm still a believer in precious metals. They've retained their value for 3,000 years of human history.

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@gjohnsit
seem to move roughly in unison, I confess I don't know why that is, but it is observable. And probably for that reason if bitcoin fails so will the other coins.

I think Iran etc. will have to create their own blockchain crypto totally independent of the current cryptos, if that's even possible, so I don't know about a "floor" that may prop up the other coins.

Edit to add after your edit above: My point about the exchanges is that if Iran/Russia were to use the current bitcoin exchanges then it would be easy to limit or stop their transactions or even close down the exchange, that has already happened to some exchanges if I'm not mistaken. They would need an exchange independent of outside control, unless I am misunderstanding the concept.

I agree about the PMs.

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