Topic: Cryptocurrency in Central Bank Reserves - DoE, Harvard (Read 163 times)

I think I remember discussions of this paper, and while it is available online, I believe it was not published in an academic journal and thus wasn't peer-reviewed. So there can be big mistakes here that won't be spotted by people without very good higher education in economics.  In any case, the arguments seem to be that gold is less risky (because it's less volatile) but has less liquidity and is more inconvenient (because it's physical, has to be transported and stored, etc.), whereas Bitcoin is easier to obtain and store, but is risker because it's more volatile. That seems right to me, but I would expect banks to go for gold way more than for cryptos because volatility is too big of a gamble when you need to stabilize your economy.

fiat is not backed by gold. as you first said for many many decades

however you suggest there is a rate..
how have you calculated this rate

are you saying a $1 bank note (smallest 'note'/promise to be backed.. is valured at $42.50

or that $1=1gram (smallest transferable amount of gold) you presume to be $42.50

..
here is my view on gold. it is valued at a store of value of ~$900/oz for 2021 (before fuel and labour cost crisis of 2022)
note: value sits below market rate.(explained in my last post)

where by 1 gram is valued at 31.75/g
where by 1 gram is market priced today at 63.49/g
so how are you rating $1 against golds V $31.75 or P $63.49??

are you instead talking about a $10 bank note rate per gram or a $20 rate per gram?
for bank note rate of a backed swap if bank notes were swapped?

are you rating it at a gold Value of 1kg / ~$30k($28.8k) allotment of bank notes
or
are you rating it at a gold price of 1kg / ~$60k(57.6) allotment of bank notes

To be honest the rules of gold haven't really mattered since the 1800s when the Rothschilds effectively cornered the global gold market. They even brag about this on their website: https://www.rothschildarchive.org/collections/rothschild_faqs/rothschild_and_gold.

I actually believe eventually there will be a massive revaluation of the gold price, which would be a devaluing of the USD against gold. If the Fed (or really the Treasury) merely marked gold to market (its actually priced to this day at $42.50 by the Fed / Treasury) theoretically this is a way out of the incredibly massive hole they've sunk everyone in. This is easier said than done because there are a lot of societal complexities along the way which have to get resolved, also because you don't want the worst people in America, who are insider enough to know of the timing of such a plan so that they rug pull the economy, to be in possession of the gold when you do devalue. Also I think Bitcoin emerging when it did may have delayed those plans. Greenspan all but admitted this back in 2014 so I dont think I'm off in terms of speculation.

yes but you dont need to print money or multiply the supply to move the price

with shares if there is a company holding of 1m shares. and a share is selling for $10
that creates a valuation of $10m
to make that valuation 20m means someone has to buy a share for $20

but with bitcoin
its not about minting more coins or printing/spending more money to buy coins

do you know the easiest way to get a valuation of $317b change to $3.17T without a buyer needing to spend more than $1.67
and without a seller or market having to offer 190m coins of circulation

yep instead of buying just $1.67 for 0.0001btc
                                buy $1.67 for 0.00001btc (10x LESS coin)
(seller offer less coin on offer not more. )
yep you can 10x a cap by offering less coin

you can also -10x by offing more decimals. inside the current 19m circulation

yep no extra coins in circulation. no extra fiat spent. instead its just adjusting the decimal

do you know that the average investor spend a minnow trader spends per month in 2012 vs 2022

you may think going from $16 to $16,000 it means the minnow trader of 2012 now has to spend 1000x more.. but no

what you actually see is market orders for minnows still are the same monthly amount average. but they just get 10000x less coin for that amount

..
after all.. this recent quarter
many are claiming FTX is a $32b company that disappeared
it never had $32b

it just had a valuation struck by someone investing $400m for under 1%

valuations do not indicate real utility. it just falsely promotes something as being popular

there were other exchanges that have 25m-60m customers with lower valuations but the destroyed company of a previous $32b valuation only had ~1mill customers..

meaning only 4% popularity compared to its main competitor and under 2% compared to the most popular exchange.

so dont use valuations to gauge popularity
..
lets word it one more way.

lets make an altcoin of 1trillion premined coins. and sell 0.1coin for $1
BOOM $10trillion valuation

meaning bitcoin $320bil is only 3.2% popular in comparison to the alt.

..
so as said dont measure of assets popularity/utility based on caps/valuation

I agree with you, but when we are talking about the Bitcoin market capacity, it is a good measure because we have a limited offer.
We cannot create bitcoin whenever we want or print an additional million bitcoin to adjust the price.

Arbitrage between platforms will prevent the creation of 3 billion dollars from nothing, if the demand increases on a platform, the price rises, people will go to that platform and balancing will occur in a short period.

It is completely different with altcoins, shares and almost most of the investments that can Printing Money Out Of Thin Air!

never use market cap as a measure of utility, EVER!

market cap is not a measure of dollars backing an asset.

whether its crypto or a fiat company share. they are meaningless valuations

bitcoins market cap
$16.5k price x ~19,218,000 circ = $317b

one person can with just $1.67 buy 0.0001btc
and change the market cap to = $320b
(ofcourse that price wont stand for long due to other uses also trading and moving the price milli seconds later)

yep for just a coffee price one person can add  $3billion to market cap where that $3b extra cap is not backed by $3b withdrawable dollar

it does not require governments. it doesnt require huge userbase of new users. nor huge fiat deposited. just a cup of coffee by one user

Most of us may not have an economic background for the in -depth discussion of this paper, but it is wrong to build expectations about using bitcoin as a reserve and try to track the price to verify this information is very wrong due to the small capacity of the bitcoin market, we are still talking about less than 3 trillion dollars that can be It is easily manipulated by US.


Now the price is in the weakest cases, the United States can easily be struck by a bitcoin judge if it wants to.
Therefore, unless we see that the time of the long time settled over ten trillion dollars, we cannot start with a real analysis of global influences.

I dont think Trump is a believer in free trade and the general benefits to free capitalism, supposedly he might be right wing capitalist but purely wanting a bias for your country is something else closer to nationalism and large government same old deal we've had forever; doesnt work as governments constantly lose money and mismanage economic growth.
  Comparative advantage is what works without any required false bias just the basic idea of each area of the world making the best most efficient goods they can and trading equally for a mutual benefit, thats the future we all benefit from not ever increasing politics and the cost from that.


It doesnt lose anything, unlike some commodities there is no decay possible but I understand some expect consistent performance especially vs borrowed money.   None of that is going to fit gold which has no yield or any intention in that way, its all external including the price itself which is variance in the value of dollar.   Considering Dollar going back to the eighties is including interest rates of 15% and if that occurs now the national debt cannot be paid.    Holding gold is like insurance, its not done to a profit but to prevent the absolute worst case scenario and sadly thats a long term possible for more then a couple of the world's major economies.

I don't know much about graduate economists, but isn't there still an Austrian school? Or isn't this perspective still presented in economic books? I can recognize and justify why politicians might not want bitcoin, but what about economists?

That is a government concern. And if there's a benefit fom the government (which as I can judge from the paper, there is) expect things to magically adapt. 

why do people think a letter from a newbie to adult-hood has power over central bank decisions.. they have no real world experience outside the classroom

most banks are run by old cronies. not fresh graduates.

sanctions apply to banks and institutions that serve some bad entity. where the business has to stop serving them or seize their funds..

yes having value move outside of the fiat system is a by-pass obviously but then to avoid all businesses where sanctions can be applied is hard when it comes to handling more then a suitcase of cash amount.

this is because banks have to show collateral/reserves and follow rules, so if a nations gov sanctioned a bank. the bank would have to hand over the private keys to gov

when china wants to buy tanks from a us-friendly company. the US will still be able to sanction china from buying those tanks. no matter the currency. after all its not like you can digitise a tank to make it impossible to seize a tank in a decentralised system

crypto as a hedge against geo-political sanctions only work on a dark market outside of institutional banks and outside of established manufacturing of known military grade production facilities(which are regulated too)

..
when it comes to valuing a deflationary asset too many people are stuck in the mindset of stocks and shares where the HIGH's are the valuation and the lows are the crash.

in deflationary currency value is the opposite, its found below the bottom. and the market speculation above it is just price discovery searching for the new raised bottom of the next market cycle

EG bitcoin is not suppose to sustain and be supported 'value' at $70k(the ATH)
the ATH was a temporary bubble 'premium' speculative event. the dip after is the correction back down to 'value'.

same with gold. the price of over 1.6k is not the value line.
its the low that is the value and the high is the premium

over time the lows raise to new higher levels. but its the lows to keep an eye on not the highs

the low of this decade is higher than the low of the decade pre millenium
gold: because of fuel+labour costs increase compared to 20+ years ago. golds minimum worlds mining costs have gone up. meaning the lowest price on earth to acquire gold is more than $900 now. compared to pre millenium costs/prices

bitcoin: because of electric+hardware costs increase compared to 5+ years ago. btc's minimum worlds mining costs have gone up. meaning the lowest price on earth to acquire btc is more than $12k now. compared to lows of 2017(and before)  underlying bottom costs/prices of under $1k

The gold and bitcoin comparison is very nice in the third para. No one ever considered the losses over the period of time. The loss is not just in terms of pricing but it could be associated with many other factors such as loss in the metal itself, good reserve which are untouched Forever (ex. Temples, Shrines, Cultural). It may not be useful when wars are broken because no one will be using metal to trade. High possibility that we will be working on modern missions with high tech war and bitcoin could be good transfer value.

I think Russia also seems interested in developing a crypto exchange. Countries like Iran and Russia could use cryptocurrencies to avoid sanctions and keep their international trade running. It's more convenient than using gold as a medium of exchange for international trade. Many countries are unhappy about the hyperinflation of the USD and are eager to find an alternative.

The idea of Bitcoin "hedging geopolitical risks" doesn't seem right to me. Bitcoin mining in concentrated in several countries around the world-USA, Canada, Kazakhstan, etc. Banning mining in those countries could create short term panic across the Bitcoin community(until the hashrate is adjusted). This possesses certain risks of market panic and price crash and/or the blockchain getting stuck for a while.
This definitely doesn't make Bitcoin bulletproof against geopolitical risks.
I don't think that China and Russia are going to use BTC in order to bypass any western sanctions. They would simply use their own national currencies(ruble and yuan) since their goal is to "de-dollarize" the global economy and to increase the value of their own fiat currencies.
Bitcoin/crypto isn't a part of the equation here.

I have come across this headline a number of times for the past few days. I'm curious how it was received by the respected economists of Harvard considering that majority of them are probably traditional. I believe this was presented as a PhD dissertation? It's interesting to know how Mr. Ferranti was graded with this paper and who his adviser was.

Anyway, it seems this is more focused on circumventing sanctions. I think this possibility was already widely discussed during the time when a number of packages of sanctions was imposed on Russia for invading Ukraine, although probably not as a central bank option. Of course, it's probably better than gold in that it is digital, so it could easily be moved from one nation or continent to another. However, challenges as to its actual use are probably difficult. Would it be accepted as a payment method? Like, for example, in purchasing arms?

The irony here is a capitalist like Trump advocating for protectionism of america's military industrial complex which trends against free markets and fair competition in business.

The dollar cost of scientific research in the united states is considerably more expensive in contrast to other nations of the world. America's healthcare is vastly more expensive in comparison to other nations and the market and regulatory reasons for these trends carry over to defense technology and other industries. Which is one reason why america's manufacturing sector has suffered.

Long story short, conditions inside the USA will not allow it to produce military hardware at a competitive cost in comparison to other nations. This puts american defense contractors in a desperate position where they must resort to this type of heavy handed and authoritarian approach in order to maintain some semblance of competition. Of course, this is only temporary and the outcome is obviously in favor of defense contractors outside the USA if things do not change to make american arms manufacturers more competitive in global markets.


Bitcoin is better than gold. Apple co founder Steve Wozniak is famous for defining how better and more efficient methods of extracting gold from the earth will be developed. But no matter how fast crypto miners become, the mining rate for bitcoin will remain relatively the same. Which guarantees bitcoin's stability as a deflationary asset over its precious metal competitors.

Graduate from department of economics Matthew Ferranti recently published this paper that describes how bitcoin can serve as a sanction hedge, alternatively to gold, and especially if acquiring gold shares isn't sufficient for the respective central banks, which does present some interest: https://blackhatcoiner.com/Cryptocurrency_in_Central_Bank_Reserves.pdf (source)

Here are some parts worth to highlight: