I remember Charles Hugh Smith once saying to put your funds where the 0.001% put theirs. These loopholes are likely to remain open while regulators clamp down on “the little people.”
I’m a small fish–not wealthy enough to challenge the system. The exchanges as the choke point
I understand the choke point of governmental monitoring and control of cryptos is the exchanges. One cryptoguru explained his reasons for moving coins off the exchange into a hard wallet and running his own BTC network node:
I don’t keep my coins on exchange wallets because I subscribe to the mantra, “not your keys, not your coins.” The point is that as long as the exchange holds your Bitcoin, it can (at least theoretically) rehypothecate them. I don’t believe Coinbase – or any other major exchange – does so, but I’m not prepared to trust others with my life savings....
The other reason to avoid exchange wallets is because the exchange is regulated, and therefore it is a pinch point where our access to our cryptocurrencies could be shut off overnight. (Cyprus banks come to mind.)... (Exchanges are required to report all of their transactions to the IRS.)
On the other hand, we can (and should) assume that the government can find out who is purchasing BTC from exchanges; we can be confident (from news releases various exchanges have made) that government has secured their willing cooperation in any investigation they want to make, and so we should assume government has back door access to all regulated exchanges – or soon will.
The exchange is the choke point. As long as your BTC is not held on an exchange, it is immune to seizure. Under certain circumstances that could mean it is unusable (or, at least, cannot be converted to fiat), but it is not confiscatable if you have it in your own wallet. Especially if you have it on an external wallet that you can physically detach from the internet.
Nodes: I’m planning to get a full node up..... [This] helps bypass the pinch point of having to go through an exchange to use Bitcoin. .... Nodes can be set up for about $200, and linked into the BTC blockchain by installing the free Umbrel protocol on a raspberry pi. For more information/education, including a list of equipment (with helpful links to Amazon): https://getumbrel.com/
If others believe this analysis is not correct, I would love to hear your thoughts.
Mots,
I’ll bite on your question because I’ve been trying to figure this one out myself. So, my understanding is that Basel III will theoretically make it more expensive for banks to hold physical gold as an asset so the immediate conclusion is that this will tend to push down on the price of gold, at least initially. Except that mostly the price of gold is set by paper gold trading, except during crises, when I suspect the demand dynamics for commercial banks would also change. So, my conclusion so far has been: no effect, unless it affects market sentiment. However, the LBMA has been campaigning heavily on this so I think I’m missing something.
The explanation as far as I can tell is that commercial banks ‘buy’ their assets (which are considered to include the loan book, cash, equities, gold etc) using money they’ve created out of thin air. The central banks require the commercial banks to find a certain level of reserve funding (ie capital from term deposits, shareholders, bonds etc) as a percentage of assets, as a sort of leash on the commercial banks’ ability to create money. The central bank can tighten or loosen the leash by changing the cost/availability of the most highly rated types of reserves which are central bank controlled and voila monetary policy is achieved. Theoretically the risk ratings also encourage banks to prefer holding more liquid, less risky assets and prefer less risky, more stable funding sources, thus encouraging solvency. This is totally opposite to how I was taught banking worked in undergrad uni economics, but whatever, I’m not bitter, much. Incidentally, banks are also required to meet certain asset inflow:cash outflow balances to maintain liquidity in crisis situations.
For solvency purposes, gold used to have a 50% risk weighting as an asset but will now be rated at 85% along with all other physical traded commodities and listed equities, more risky than most mortgage backed securities and bonds. This means that a commercial bank which is part of the Basel III system now has to find more and/or more expensive, better rated capital funding to hold it. So that makes it more expensive to hold, leading to theoretically less demand by commercial banks. The only exception will be if the bank holds the gold or owns allocated gold at another bank and has fully hypothecated the gold 1:1, at least in the US (this is at the discretion of each nation, so not sure re UK).
I’m not sure this will affect bullion banks and paper gold trading, though. If they’re creating paper gold out of thin air as speculated then that seems to mostly come under the definition of an unsecured metal loan/deposit settled by cash which as per FAQ1 under NSF30.25 should be treated as any other cash loan/deposit for purposes of assigning a risk rating. Ie the bullion banks and their customers get treated just like mortgage originators and their customers with asset risk ratings from 0-100%. Maybe the intention is to force the bullion banks to declare truthfully whether their gold dealings are unbacked (in return for mostly better asset risk ratings) or backed (get dinged, with the assumption that a proportion aren’t being honest). They also get to treat unsecured gold as cash for liquidity purposes as per the FAQs under LCR40.5 and LCR40.86.
Thanks guys.
Wot- its a stalking horse/free prototyping mechanism which will later be hijacked.
Mots- they’ll kill it with taxes.
E - that’s a useful statement - by an international Bankster Mouthpiece (in this case, the German Fin Min - presumably speaking for all the G7 fin min gang) of future intent.
In a statement after a video conference of G7 finance ministers at which cryptocurrencies were discussed, Scholz said that relaunching Libra under its new name of Diem was only a cosmetic change.
“A wolf in sheep’s clothing is still a wolf,” he said. “It is clear to me that Germany and Europe cannot and will not accept its entry into the market while the regulatory risks are not adequately addressed.”
He added: “We must do everything possible to make sure the currency monopoly remains in the hands of states.”
Perhaps he was speaking of forbidding corporate "money issuance." But - the statement could certainly apply to the whole crypto marketplace.
“So, my understanding is that Basel III will theoretically make it more expensive for banks to hold physical gold as an asset so the immediate conclusion is that this will tend to push down on the price of gold”
Whoa, my understanding was the exact opposite. I thought gold was moving from a Tier 2 asset (which meant it had to be held on the balance sheet at a discount to market value) to being Tier 1 (meaning no markdown).
This change should make holding gold as desirable as US dollars or Treasuries (from a valuation standpoint).
It does bother me that few goldbugs (including me) are as on top of this as we should be.
Ive also become frustrated at the realization that in markets any event can be used to support any narrative of one’s choosing. For example there is this idea that the paper gold exchanges will someday go bust which means they wont be able to suppress prices any longer. But if that ever happens I can guarantee the financial papers will run stories about how gold can now “only” be sold in cash and carry markets which vastly limits its value.