Commence the tomato throwing!
If the crypto crowd wasn’t already incensed enough after a week that saw Bitcoin collapse as much as 30% on signs that China is deadly serious about Beijing’s ongoing shakedown in the space and after Jamie Dimon delivered a truly scathing critique of what he’s calling a “fraud” that’s destined to “blow up,” they can now add the B.I.S. to their list of adversaries (of course if you are a Bitcoin fan and you didn’t already know that the B.I.S. is your arch nemesis, then you don’t know much about your enemy).
“After the price of bitcoin reached a record high, China moved to reign in the exuberance, announcing September 4 that it was outlawing initial coin offerings [and] while the motivations behind the move and the trading restrictions are unclear, such a ban could affect an estimated one-quarter of all bitcoin transactions,” Bloomberg wrote on Friday, recapping recent events before noting that all of this “suggests Chinese policy makers are moving quickly on a previously reported plan to end exchange trading, their most far-reaching measure to rein in the growth of cryptocurrencies.” Here’s a fun annotated chart:
That, along with Dimon’s warnings and a new note from JPMorgan’s resident quant “Gandalf” Marko Kolanovic (who suggested cryptocurrencies are a pyramid scheme), pushed Bitcoin to its biggest five-day decline since it traded at ~$200 back in early 2015.
Well now, in its latest quarterly review, the B.I.S. is out asking what it would look like if central banks went ahead and adopted their own cryptocurrencies, effectively frontrunning (something central banks are quite adept at) the competition.
To be sure, that concept isn’t new, but you can be absolutely certain that this particular section from the B.I.S.’s latest quarterly (and their quarterlies are already watched closely) will receive much more attention than it would have otherwise given recent events as outlined above.
Further, to the extent the crypto crowd didn’t already despise central banks enough and to the extent we can assume that the vast majority of crypto users don’t know much about the B.I.S., you can bet the Bitcoin fanatics will be particularly distraught to discover that the B.I.S. is just the central bank for central banks (so, the ultimate enemy) whose board looks like this:
Here’s how the B.I.S. begins the discussion of central bank cryptocurrencies (CBCCs):
In less than a decade, bitcoin has gone from being an obscure curiosity to a household name. Its value has risen – with ups and downs – from a few cents per coin to over $4,000. In the meantime, hundreds of other cryptocurrencies – equalling bitcoin in market value – have emerged (Graph 1, left-hand panel). While it seems unlikely that bitcoin or its sisters will displace sovereign currencies, they have demonstrated the viability of the underlying blockchain or distributed ledger technology (DLT). Venture capitalists and financial institutions are investing heavily in DLT projects that seek to provide new financial services as well as deliver old ones more efficiently. Bloggers, central bankers and academics are predicting transformative or disruptive implications for payments, banks and the financial system at large.
Lately, central banks have entered the fray, with several announcing that they are exploring or experimenting with DLT, and the prospect of central bank crypto- or digital currencies is attracting considerable attention. But making sense of all this is difficult. There is confusion over what these new currencies are, and discussions often occur without a common understanding of what is actually being proposed. This feature seeks to provide some clarity by answering a deceptively simple question: what are central bank cryptocurrencies (CBCCs)?
Rather than try to walk you through the B.I.S.’s analysis, I think it’s far preferable to let you read it for yourself, especially considering the fact that there will be a demonstrable tendency for the crypto crowd to try and pick it apart and find reasons why it won’t work.
So the entire piece is embedded below (take a minute and skim it because it’s not as daunting as it looks at first glance and it’s actually an interesting read).
The last thing we’ll say here is that this is just one more reason to believe that Jamie Dimon is probably right. What government is going to do is shut these things down, steal the idea, and then, in the final insult, make you use it in its government-sponsored form.