Bitcoin Keeping the Fed Up at Night? No, Not Really

Mish

A rumor is circulating that the Fed concerned Bitcoin will “eviscerate” big banks. Let's investigate the claim.

Zerohedge writes As Bitcoin Nears $10,000 "Central Banks Kept Up At Night".

Here is the line that caught my attention: "St. Louis Fed President James Bullard admitted to Reuters in a recent interview what the real concern was: '(We could) wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere.'"

I tracked that that claim back to the Reuters article Bubble or breakthrough? Bitcoin keeps central bankers on edge by Francesco Canepa.

Canepa made the same statement but did not provide a link.

Business Insider Interview

On October 13, Business Insider interviewed Bullard. BI reported The rise of a new kind of finance is setting off alarm bells at the Fed.

The article did not contain the quote.

Also on October 13, TrustNodes reported Digital Currencies Could “Eviscerate” Big Banks Says Fed President.

James Bullard, St. Louis Fed President, is the latest old banker to ring an alarm bell of sorts stating in a fairly emotionally charged use of words that new inventions, such as blockchain technology, cryptocurrencies and ICOs, might “eviscerate” big banks if regulators do not do something about it.Bullard said regulators, by which perhaps he might mean banks so being from the Federal Reserve Bank (Fed), might: “Wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere.”

TrustNodes linked to BusinessInsider, but as noted above, the BI interview did not contain the quote.

What Did Bullard Really Say?

So far, we have lots of claims (and there are now dozens more quoting ZeroHedge), with still no reference to the true source of the claim.

I found it: On October 12, Reuters reported Fed's Bullard warns bank regulators are 'complacent' over fintech risks.

Growing competition from fintech players has become the “number one issue” for large financial firms and regulators are “fighting the last war” by focusing on tweaks to post-crisis financial rules, Bullard told Reuters in an interview.Many deep-pocketed banks including Goldman, Citi and Morgan Stanley have been scooping up fintech assets through direct investments and acquisitions, while national bank regulator the Comptroller of the Currency has proposed directly regulating fintech firms.Bullard warned that if regulators were not more aggressive, however, they could “wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere,” adding this could create the risk of a financial crisis because regulators had lost sight of the activity.“I think a lot more should happen to help these smaller banks,” said Bullard. “To have Dodd-Frank rain down on these smaller banks has been a tragedy of the whole legislation.”

Words Bullard Did Not Use

  1. Bitcoin
  2. Cryptocurrencies
  3. ICO

Spotlight on Fintech

This is what Bullard said to Business Insider:

"The new issue now for the next 10 years is going to be fintech, and how fintech is going to affect financial intermediation in the US. And if you go out to Silicon Valley, all the discussion is all about how can we strip the profits from the big firms."

Fintech Description

Wikipedia has the following discussion on Financial Technology.

After reviewing more than 200 scientific papers citing the term "fintech," the most comprehensive scientific study on the definition of fintech concludes that "fintech is a new financial industry that applies technology to improve financial activities."Financial technology has been used to automate insurance, trading, and risk management.The services may originate from various independent service providers including at least one licensed bank or insurer. The interconnection is enabled through open APIs and open banking and supported by regulations such as the European Payment Services Directive.Global investment in financial technology increased more than twelvefold from $930 million in 2008 to more than $12 billion in 2014.[6] The nascent financial technology industry has seen rapid growth over the last few years, according to the office of the Mayor of London. Forty percent of the City of London's workforce is employed in financial and technology services.

In Context

In context, Bullard appears to be concerned about Fintech, which does include blockchain. That's a lot different than "Bitcoin keeping central bankers up at night."

Philly Fed Position

On September 30, CoinDesk posted this image.

Image placeholder title

Federal Reserve Bank of Philadelphia president Patrick Harker made some pretty silly statements about fiat currencies. Regardless, neither Bullard nor Harker seems overly concerned about Bitcoin itself.

Jerome Powell's Views

Jerome Powell is Trump's nominee to replace Fed Chair Janet Yellen, who steps down in February.

His view is far more important than either Bullard's or Harker's.

Here is a snip from the CNBC article New Fed chief isn't likely to embrace digital currencies, written November 2.

I have "nothing against bitcoin, nothing against, you know, private currencies," Powell said in June at the Economic Club of New York. They are "associated with money laundering and those sorts of issues, but we're not broadly opposed or supportive of alternative currencies.""I think from a Fed standpoint, I would say I am very cautious of the idea of a Fed digital currency," Powell said.

Synopsis

  1. St Louis Fed president James Bullard is concerned about Fintech, not Bitcoin per se.
  2. Philadelphia Fed president Patrick Harker seems oblivious to everything.
  3. Incoming Fed Chair Jerome Powell has "nothing against Bitcoin".

Claims vs Reality

Claims that Bitcoin keeps "The Fed" up at night or "The Fed" is overly concerned about the price of Bitcoin are false.

By the way, why should the Fed be concerned?

There is not much if any lending in Bitcoin, at least yet. That is in stark contrast to the housing bubble. It's not like we are going to have a mountain of Bitcoin debt that will be defaulted on.

Moreover, given the Fed does want higher inflation and more consumer spending, one can make a case that the wealth effect from Bitcoin will help.

Logically speaking, the Fed might want a rising Bitcoin.

Mike "Mish" Shedlock

Comments (27)
No. 1-27
JonSellers
JonSellers

Agreed. Financial issues are traditionally caused by banks lending out money far past their reserves. In the old days, banks would print up too many bank notes for their gold reserves. Eventually you'd get a run on the bank and the banker would high tail it out of town with whatever gold was left. Nobody is printing up and loaning out bank notes backed up by bitcoins. The Fed could care less.

ReadyKilowatt
ReadyKilowatt

However the IRS is salivating over the capital gains taxes that will be owed.

SweetKenny
SweetKenny

I am getting sick of Bitcoin. A Bitcoin is basically a digital address that can be tracked and owned. So what. The fact that people value them at $9,000 only shows the stupidity and herd mentality of people. Bitcoin is bloated with speculators and hucksters. Every day there's a new article rationalizing the increase in value based on some unrelated or imaginary event. It just goes along with identity politics, 70+ genders, debt being an asset and numerous other idiotic concepts that are mainstream. Soon the whole lot of it is going to collapse under the weight of all that idiocy and hopefully people will grow up. Yeah right

Mike Mish Shedlock
Mike Mish Shedlock

Editor

SweetKenny I agree on all counts other than "soon" I have no idea how insane this gets. $100,000 is now the target

SweetKenny
SweetKenny

You are right, Mish, I think I was hoping when I said soon.

MikeTrike
MikeTrike

Hey Mish, take a look at this guy's twitter, @Bitfinexed. He has proven how Bitfinex is creating Tethers out of nothing and is using them to bid up crypto's, mainly Btc. This thing is going to come down like a house of cards.

Blacklisted
Blacklisted

Based on the uninformed comments about cryptos, I am willing to bet you are the same folks that have missed the ride up in stocks, while riding gold down for more than FIVE YEARS. Yet, we are supposed to take you seriously now...really? Even Mr. Gold (Jim Sinclair) recognizes that crypto's are here to stay, and valuation is the only thing outstanding - https://youtu.be/z0Dval_I0_w.

Bitcoin is a generalized statement for the entire crypto world. If you don't understand or think Bitcoin will prevail, what then is the alternative when the current debt-based system implodes?

Since not even the Fed has plan B, I bet they are thankful the free market developed a solution. How do you know previous Fed officials were not behind the original Satoshi White Paper?

BTW, if the minimum target for gold is $5K, the $100K target for Bitcoin is way low.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Bitcoin is likely her to stay. I do not believe I said otherwise. Jim Rickards thinks $0. I think he is wrong and have stated so. But what price? I do not know, nor does anyone else. If you like bitcoin here, buy it. However, those who believe Bitcoin itself (not some govt sponsored crypto) will replace Fiat, are on Mars.

Six000mileyear
Six000mileyear

Bitcoin has all the markings to nearing a top. 1.) Irrational exuberance AFTER phenomenal moves. 2.) Front page news for nearly 2 months. 3.) Government statements or actions. 4.) Obvious hockey stick chart

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/lPPOm4zdx0CtfoItkc1-0w/MHZTYTsfz0Kur3CoMv1PAQ

RonJ
RonJ

"What Did Bullard Really Say?" Nothing i would trust. In August 2014 he said that QE should not end, causing the Stock market to rocket upward. When QE ended and Japan announced it would take over QE, Bullard said U.S. QE should end and his previous remark was misunderstood. What Bullard did was market manipulation.

RonJ
RonJ

Bullard warned that if regulators were not more aggressive, however, they could “wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere,”...

RonJ
RonJ

Just how do captured regulators regulate? After Bernanke left office, he pretended to lament that no one had been prosecuted- when he had the power to do so while in office.

SweetKenny
SweetKenny

Jim Sinclair was a fool when he had his countdown on $10,000 gold and he's a fool now. The Blockchain is like Linux - the technology is free so why is Bitcoin worth $9000? Because of speculators and hucksters. Bitcpin can be manipulated easily by fake liquidating using bots by the big players. The cattle is being sled to the slaughter.

truthseeker
truthseeker

Well yea Mish I for one do believe that what you set out in parentheses (some government sponsored crypto) will at some point prevail, tho it will b something much greater than that! How about a worldwide cryptic currency under the control of the New World Order, a globalist dream one that guys like George Soros can be proud of.

Stuki
Stuki

If anyone at The Fed is even baseline sentient (a big if, I know), they are fully aware they will eventually be disintermediated by crypto currencies. Once past a certain familiarity and comfort level with crypto currencies, the 95+% of Americans (and similar captives of any fiat regime) who The Fed's very existence is there solely to rob for the (and even then only short term) benefit of the status quo establishment, will simply route around the leeches to an ever increasing degree.

truthseeker
truthseeker

Seems like to me that once the CME gets a futures contract set up for bitcoin they say by next month, bitcoin will b able to be manipulated just like any other currency at some point!

SweetKenny
SweetKenny

Cryptocurrencies are here to stay like Tor or Torrents. It is a fringe concept and the only reason it's making such huge gains is the same reason housing is = speculators. A majority of people who buy into it have no real understanding of it and are looking for quick gains aka dumb money. Unless Cryptocurrency becomes so simplistic that anyone can use it AND the powers that be allow it, majority of people will never use it.

KidHorn
KidHorn

Bitcoin is no different than any other paper commodity priced in USD. Once Bitcoin is no longer priced in USD and has a value all its own, then it will be game over for fiat.

Blacklisted
Blacklisted

http://www.zerohedge.com/news/2017-11-28/meet-world’s-most-powerful-bitcoin-backers

I'm sure these companies and countries are investing millions in Bitcoin technology because it's a fad. I really don't understand why people, who are opposed to banksters and all the other fraud and corruption perpetrated by the establishment, have such a negative knee-jerk reaction to Bitcoin. It is obvious that you have either not done your homework, have your beliefs married to gold, or you are part of the establishment, as Bitcoin is the ultimate anti-establishment tool.

As you and the establishment will one day realize, cryptos don't care what your beliefs and self interest are, it is just as certain as the popping of the govt debt / socialism bubble.

My question goes unanswered - "what is the alternative when the debt-based system implodes"?

SweetKenny
SweetKenny

The system is not going to "implode". When there is a collapse of the debt cycle people will move towards a more "real" financial system. Bitcoin is a more imaginary system like fiat (how many hard forks will happen? How much more imaginary Bitcoin money will appear?). Cryptocurrency is fiat on fire - it's generated from nothing and now there are 300+ of them. No, when the system implodes and retirement funds disappear and we see both deflation and inflation, people will wake up to the fallacy of imaginary wealth and return to healthy skeptism.

SweetKenny
SweetKenny

I find it fascinating that people promoting Bitcoin basically want something for nothing - they invest money in it on the belief it's going to $100,000 and they're on the edge of a groundbreaking reality changing technology. Puleeeaze. Every monetary system exists on the coat tails of the one prior to it and every one is a shadow of the one prior to it - cryptocurrencies are a new level of debasement - completely imaginary. Bitcoin is not real and it's not wealth even if you want to call it money (which it isn't). So have your fun, be part of the hysteria but the party will come to an end and Bitcoin is part of the party everyone is going to regret when they wake with a hangover.

Stuki
Stuki

Who the heck cares about “investing” in Bitcoin? Or how much t’s supposedly “worth” according to some sheep flock? The same sheep flock who “invests” in “homes,” no doubt. Happily playing along with the bankster games, as they have been told to. And even happier to have the Fed and junta rob and harass their neighbors, to make it look as if their “home” “goes up,” despite incompetent little them being completely unable to do a lick to improve it’s “value.” Instead of just sitting there cheering on the boot stompers as it decays.

Just as a house is a roof over one’s head and walls providing some security and privacy (not really true anymore in idiotopia, but that’s at least how it would be in a free world), publicly-known-fixed-quantity, anonymous crypto currencies have properties that make them very much useful, for exactly those things a currency has always been useful for: They can be exchanged cheaply, they can’t be debased at will by anyone, and they are anonymous. The first make them useful for trade; the second make them safe to accept as trade for something else, and keep around until you need to trade them again; and the third help ensure that those wishing to rob people instead of creating and trading for value on their own; whether those be thieves, kidnappers, taxmen or ambulance chasers; have no idea who has anything worth stealing; hence will have to find something productive to do with their useless little lives, instead of robbing others.

Gold has some/many of those properties; but not nearly in as pure and pervasive fashion as a properly constructed crypto currency. What Gold has, is familiarity. And a much, much, much longer, unbroken track record. With any viable crypto, the math will likely remain complicated enough that the number of people truly able to do much in the way of verifying it, will be limited. Hence, there is always the (at least theoretical) risk that something is overlooked; and it all comes tumbling down to a literal nothing. While Gold has been verified by the entire world’s population for as long as people have been around. Perhaps longer.

But crypto currencies don’t have to replace Gold to be useful. The two can coexist happily, with people moving back and forth between the two depending on preferences at any given time. Trade in crypto, then exchange some of it for Gold stored in a jurisdiction you trust to not divulge anything. It’s a marriage made in heaven. Cutting the thieves that have ruined the West with their thievery out of the equation, without any detrimental effect on the efficiency of neither payment systems, nor ability to protect one’s wealth.

Exactly none of which has anything at all to do with how much Bitcoin is “worth.” Or whether the well indoctrinated dimbulb army is “smaaart” or “stoooopid” for “inveeeeesting” in it or not.

SweetKenny
SweetKenny

"They can be exchanged cheaply, they can’t be debased at will by anyone, and they are anonymous" I disagree. Bitcoin is debased every time there is a hard fork and it is easily manipulated (debased) through fake liquidity by larger entities. Bitcoin is not anonymous - it can't be - you cannot prove ownership without a Bitcoin "address" and you can be tracked by that address. Lastly, bitcoins can only be exchanged cheaply because someone somewhere is providing the facility to do the exchange. Right now the increase in value of Bitcoins is paying for that cheap exchange service, wait until it drop in value.

Stuki
Stuki

A crypto currency does not need to be debased by a “hard fork.” The currently hyped hard fork in Bitcoin, doesn’t debase the currency. Having a culture open to hard forks, does technically open for debasement down the road, but doesn’t mandate it. In any case, debasement by hard forking the entire world’s payment system, is most certainly much more difficult for a would-be debaser, than just making up some nonsensical pseudonomics supposedly calling for QE, then printing up fortunes for himself and his buddies down the Street.

Bitcoin itself is not anonymous. Bitcoin is also a first attempt at a crypto currency. Less than a decade old. There are already several different provably anonymous extensions to the Bitcoin protocol. With the first big publicized snafu stemming from Bitcoin’s lack of anonymity, they’ll grow in prominence. Just as they will continue to evolve towards increased user friendliness. And grow in familiarity. As long as anonymity is a mathematically possible feature of distributed blockchain currencies, and anonymity is a desirable property, some anonymous blockchain currency will grow in availability and utilization.

Bitcoins can be exchanged cheaply because the underlying protocol provides it. Which is what the “hard fork” you mentioned is all about extending. The need for such a kludge, is again due to Bitcoin’s youth, immaturity and first mover disadvantage. It has nothing to do with the “value” ascribed to a given Bitcoin. It was cheaper to exchange Bitcoins back when they were priced under a buck, than it is now. More anonymous currencies, and even currencies less open to manipulation by gigantic miners; are intrinsically more expensive to exchange, as the math is more complex. But, with anonymity, the need to keep every conceivable single penny exchange “on chain” lessens dramatically as well. And debiting and crediting anonymously funded, traditional ledgers, are real cheap, being devoid of “know your customer” spying nonsense; as well as the plethora of restrictions currently in place to maintain the privileged status of banks.

SweetKenny
SweetKenny

Can you imagine if there were 300+ different US currencies? The sad thing is that the only reason Bitcoin is worth $9,000 is the same reason there is a housing, stock and bond bubble. The world is flush with cash thanks to its twin debt. When it all collapses do you honestly think people are going to rush to Bitcoin? How many people who own Bitcoin have used it to buy goods? 1%? At the rate Bitcoin is increasing in value it's like the Weimar hyperinflation in reverse and so no one is spending it. It is a victim of its own "success" and when it implodes it will be fast and fascinating to watch.

GeorgeKaplan
GeorgeKaplan

Why should Bulltard (or the Fed in general) be concerned by crypto currencies? Wouldn't they be outlawed if things got too "out of hand"? Much like FDR made gold illegal in the 30's?

TCW
TCW

So what if they got wiped out. The horse and buggy got eliminated by the car. If we don't need them, we don't need them.


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