[Cryptography] The Bit Short: Inside Crypto’s Doomsday Machine

[Phillip Hallam-Baker]

On Sat, Jan 16, 2021 at 7:03 PM jrzx via cryptography <
cryptography at metzdowd.com> wrote:

>
>
> https://crypto-anonymous-2021.medium.com/the-bit-short-inside-cryptos-doomsday-machine-f8dcf78a64d3
>
> TL;DR: Bitcoin prices are being propped up by Tether, which is a blatant
> fraud.  The house of cards should come tumbling down real soon now.
>
>
> Tether will vanish very soon.  And a lot of bitcoin trades are conducted
> using tether, because a lot of crypto exchanges are disconnected from the
> US banking system.  The collapse of Tether will cut the connection of those
> exchanges to the US dollar, and cause a lot of crypto speculators to become
> suddenly poorer, and thus less inclined, and less able, to invest in
> bitcoin.
>
> Which is likely to be very bad for the price of bitcoin.
>
> On the other hand, tether provides an efficient way to route around an
> increasingly dysfunctional US banking system.  When it vanishes, we will be
> left with bitcoin and the Kuwaiti Dinar as the major bypass roads, which
> will be good for bitcoin (and the Kuwaiti Dinar)
>
> If demand for bitcoin is driven by speculative madness, the collapse of
> Tether is likely to be devastating.  If demand for bitcoin is driven by the
> rapidly increasing dysfunction of the government system of accounting and
> moving value, the collapse of Tether is going to be not too bad in the
> short run, and pretty good in the long run.
>
> The collapse of Tether will provide an illuminating test of the real value
> of crypto currency.
>

If the numbers in the article are correct, Tether is responsible for the
overwhelming proportion of money flowing into BTC and all other cryptos. As
in 70-80%.

The part that really blew my mind was some of the exchanges are offering
leverage and not just 1x. up to 100x on some exchanges.

While the nominal value of crypto is enormous, the actual amount of cash
that has flowed in is much, much, less and unlike with the subprime
mortgage situation, crypto is not generally accepted for collateral outside
the crypto world. So what we have is a Bernie Madoff sized Ponzi scheme
about to collapse, not a more general situation.

Young men, absolutely convinced that they know the truth and everyone else
is a fool... Is that BitCoin or QAnon?

The immediate trigger for the collapse may well be the news that $500,000
was transferred to 22 individuals in the US advocating far right causes
ahead of the Capitol invasion. This has been atributed to a French person
who committed suicide shortly after. But the FBI will be forced to dig
deeper and make a federal case out of the whole affair because that is what
they do. And the latest is that the FBI is investigating a Riley Williams
who allegedly offered to sell Nancy Pelosi's laptop to Russia, reading
between the lines BitCoin is going to feature prominently there.

gov.uscourts.dcd.226160.1.1.pdf (courtlistener.com)
<https://www.courtlistener.com/recap/gov.uscourts.dcd.226160/gov.uscourts.dcd.226160.1.1.pdf>

I for one am not going to defend crypto-currencies just in case end-to-end
crypto is the next target in line. The idea we can stop terrorists using
PGP is silly. The idea that we can stop them using a multi-billion dollar
global financial system is not. PGP only requires two people to work.
BitCoin requires tens of thousands to maintain the group hallucination that
the 'money' has value.

At the end of the day, that is the difference between BitCoin and Gold or
USD. There are tens of thousands of people who are convinced that BTC has
value, there are 5 billion who believe Gold and USD have value. Money is
just a group hallucination but that doesn't mean it is an easy thing to
create. The group hallucination supporting the value of gold is as old as
civilization, possibly older. The USD group hallucination is centuries old.
BitCoin is ten years, if that.
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