Bitcoin Supporters Cannot Answer One Simple Question

-edited

What would happen to the price of Bitcoin if the US did not allow merchants and banks to make Bitcoin transactions?

That's a very simple question that I have been asking for months. My reason for asking is based on a simple premise:

If central banks or governments are ever threatened by Bitcoin, they will destroy it.

Playground Responses

That reads like a third-grader response "If you don't know, I'm not going to tell you".

Peer-to-Peer Silliness

Under the transaction ban scenario I describe, the government will allow you to keep your bitcoin, it just will not let let banks or stores deal with Bitcoin transactions.

So, how do you get money in or out?

What good is peer-to-peer going to do you?

You can send your bitcoins to whomever you want. But try getting US dollars in or out, in size. This leads us to the Amazon gift card proposal.

Amazon Gift Cards

Hmm.

What happens if there was a $1,000 government enforced money-laundering limit on bitcoins and you wanted to buy of sell $250,000 in Bitcoin?

And by the way, if the US banned Bitcoin transactions, rest assured Amazon would not sell you a gift card for any amount of Bitcoin.

Censorship Resistant

Despite the obvious flaws in Bitcoin beliefs, supposedly Bitcoin is government and censorship proof.

OK, let's assume Bitcoin is 100% impervious.

What about the value of it?

It's important to understand that the Bitcoin technology, bitcoin tokens, and the value of a Bitcoin are in fact three different things.

You can keep your Bitcoin, even barter it peer-to-peer assuming you can find someone willing to accept Bitcoin and also has what you are looking to buy.

War on Drugs

Rather than answer my question, the above person tried to change the subject.

Another person proposed flying to Bermuda or somewhere where he could deal in Bitcoin.

OK some people will do that, but how many?

And let's assume you can get $250,000 out. How exactly do you get that back into a bank, legally, in a way the US government will never find out about it?

International Enforcement

Another person challenged me to name just one time there has ever been international enforcement that stuck.

I answered in about 1 second flat.

Of course the response came back that the EU would never get involved in this.

Hmmm.

Central Banks to the Forefront

Please consider ECB’s Weidmann Urges Euro-Area Banks to Battle Facebook’s Libra

European Central Bank policy maker Jens Weidmann called on banks to come up with cheaper and faster systems for transferring money to combat alternatives such as Facebook Inc.’s Libra, and said there’s no pressing reason yet for the ECB to develop its own digital currency.

I’m not in favor of always immediately calling on the state” to come up with solutions, Weidmann said in an interview with German newspaper Handelsblatt published Thursday. “In a market economy, it’s up to companies to develop products that meet customer demands.”

Weidmann, who heads Germany’s Bundesbank, has long called for caution over private-sector digital currencies and his comments echo concerns among officials from Europe to the U.S. over Libra, a planned digital token backed by multiple national currencies.

Weidmann Translation

In case that was not obvious, I offer this proper translation: "I am immediately calling on the state to deal with the threat of cryptocurrencies".

ECB President Christine Lagarde and BOE Chime In

ECB President Christine Lagarde -- in common with Bank of England Governor Mark Carney -- has said central banks should consider whether it makes sense to launch their own digital coins, and she may make that question part of a wide-ranging strategic review planned to start this month.

Bitcoin is an Act of Faith

Not to worry, the Fed and the ECB would never, ever, in 100 years collude against a currency threat.

Besides you still have peer-to-peer bargaining which is fine if you want to buy a car and can find someone who is willing to sell you a car for Bitcoin.

Would it Even Take a Ban?

My questions were never realistically answered. But here's a new one: Would it even take a ban to destroy Bitcoin?

The correct answer is no.

  1. The threat of a ban could do it.
  2. $1,000 limits or even $10,000 limits on transactions could be enough to pack a huge price wallop .
  3. What about taxes?
  4. What is stopping the EU, US or China from immediately taxing all Bitcoin sales at 30%, 40%, 70%?
  5. Demonetization can scare the little guys off. How will the whales respond when their $1 billion is now worth $50 million?

Please think a bit more about point 5. Might not these whales dump when they see governments acting against Bitcoin?

Here's a better question: Are the whales dumping in advance right now, cashing out because they realize the supply of greater fools has already been exhausted?

Answers Please!

Believe what you want, and you will, if you are a true believer because Bitcoin is Now an Act of Faith impervious to logical flaws.

Meanwhile, I just tossed a half-dozen more questions on the table.

Have a crack at them, but please come up with something better than a third-grader retort and Amazon Gift Cards as the means to avoid a central bank crackdown.

Mike "Mish" Shedlock

Comments (28)
No. 1-17
Latkes
Latkes

Amazon doesn't have to sell you the gift card for bitcoin. The scheme would work via US dollars. Use dollars to buy the gift card and then sell the gift card for bitcoin. I doubt this can be scaled though.

tz3
tz3

What if they demand people turn in all their guns, and ban transferring them, or buying or selling them. Or Marijuana. Or Fentanyl. Or like Gold where you are supposed to report it on an IRS Form.

Then there's Etherium. Tether. And a dozen others.

I think Venezuela bans all but their petro, and using subsidized power for mining. howz that working out?

There would also have to be an actual law. Theorizing about what might pass the house, senate, and get signed and survive court challenges has a problem.

Wyoming was and might still be the most Crypto friendly state and is creating their own bank because of the "Chokepoint" problem. So where is the constitutional authorization for preventing two Wyoming entities from trading money or goods for bitcoin, then sending the stuff - lots of Wyo LLCs already exist and there might be a quick setup website.

For that matter, have you asked why physical cash is still a very big thing? Why we don't track "remittances" to mexican drug lords? I think they will leave some crypto there because the CIA or other agency wants it there.

333one
333one

"If the music industry is ever threatened by Napster they will destroy it." And they did. And album sales plummeted anyway.

Latkes
Latkes

Banning guns and drugs increases their prices because of danger premium.

Banning BTC transactions lowers the price and decreases participation because it makes it too inconvenient to most. Miners will leave.

Herkie
Herkie

Bit coin is a fraud and should have been treated like one form it's inception.

Wu Tang Financial
Wu Tang Financial

What if the US bans BTC? Answer: the price would go down, and Bitcoin would continue to exist. Not sure what point you're trying to make by proposing unlikely hypotheticals.

Wu Tang Financial
Wu Tang Financial

How many people with a quarter million dollars in BTC will take a $500 flight to the Caribbean to cash out if necessary? Answer: all of them.

Wu Tang Financial
Wu Tang Financial

What is stopping the EU, US or China from immediately taxing all blog revenues at 30%, 40%, 70%?

Stuki
Stuki

Iran is such a totalitarian dump in its own right, it may never do so no matter how much it may inconvenience its sworn enemy, but there are indications some of the more enlightened Sunni Jihadis are getting around to encouraging private citizenry to own and carry arms.

In territory held by those enlightened guys; which will undoubtedly expand over time; good luck preventing exchange of crypto for non-virtual goods and services (like guns, gold...)

airballs
airballs

Once the dollar is that weak that the government is threatened by BC, other countries will be enabling bitcoin transactions to bury the dollar for good.

Axiom7
Axiom7

The question isn't stated correctly because it is tautological. If Bitcoin was SUCH a threat that world central banks united to try to ban it, it would have to be because fiat currencies were approaching hyperinflation, which would imply gold and bitcoin would be soaring in value (relative to the price of hyperinflation fiat). By then it will be too late. But if the USA banned it tomorrow the price would obviously plummet. But that is tautological. They wouldn't ban it unless they perceived it was an imminent threat and if it was an imminent threat that would be because the value had become immense.

But your question is silly I could say the same about the stock market - what would happen if the Fed reduced their balance sheet to ONLY $4 trillion? So buying stocks is a leap of faith as well.

leicestersq
leicestersq

What would happen to the price of Bitcoin if the US did not allow merchants and banks to make Bitcoin transactions? ---------------------

There is a very good answer elsewhere on this board, and that is the price of bitcoin would fall. And as the poster goes on, it wouldn't stop people using bitcoin, just that the price would be lower.

I think that what Mish thinks it is possible for authorities to simply destroy bitcoin completely. I am not so sure. What it comes down to is power. Do the authorities really have enough power to take bitcoin down, or at the very least, to drastically lower its price? In order for the authorities to exceed in their aim, they must have more power than bitcoin does. I will argue that it isn't certain that they do.

First thing to consider here is inertia. In order to move against Bitcoin, the authorities need to invest time and resources into a plan to close bitcoin down. That doesn't come cheap and it wouldn't be certain to succeed. You can chalk this inertia problem as a power that bitcoin has.

Secondly, can the authorities act in a lawful way? It isn't clear to me that a Central Bank can sanction anyone for using Bitcoin unless the law is on their side. That they could change the law to be on their side is far from clear. Further, in the US I would suspect that the constitution would be on the side of Bitcoin if anyone did try and pass a law to ban it. After all, banning it just because it was a threat to what you do is clearly a restraint of trade and restrictive on individual choice. Any botched attempt to move against Bitcoin without a solid legal basis could be bogged down and defeated in the courts. Again, this is a power that Bitcoin has.

Where the Central Banks can wield big power is through their threats not to support organisations that trade in Bitcoins. This power has been used against Iran and Russia amongst others, in particular the threat to remove the ability to use SWIFT transactions. There are many companies that would be put instantly out of business if such sanctions would be put in place, so you can be sure that they would toe the line. This is a great power for the authorities if they choose to wield it. They need to be careful though, as if you try and use your power like this, organisations that are wholly dependent upon something such as SWIFT might seek ways to become less dependent, reducing your future power.

It is also difficult for Central Banks to shut down Bitcoin transactions overseas. As long as someone somewhere values Bitcoin, it will have a market value of some sort. Reducing demand from the US might put a temporary dent into Bitcoin, but probably wont kill it. Overseas branches of corporations might choose to trade in Bitcoin overseas and US law might overreach itself if it were to ban how someone transacts in a different country. What you would ideally need to destroy Bitcoin is a coordinated attack by all Central Banks at the same time, in conjunction with the legal forces of those countries to close it down. The cost of such action would be beyond prohibitive, so that is going to be extremely unlikely.

The reach of Bitcoin will also give it power. If mainstream banks start using it, they aren't going to be too happy about transactions in it being banned. The more people and organisations that use it, the harder it will be to get any agreement to do try and crush it. Just because a few people at a Central Bank want to get rid of it wont help if the world is using it.

Perhaps the closest parallel I can think of to illustrate what would happen is the prohibition. They had to change the constitution in order to bring it about. The power of booze was strong though, too many people wanted it and too many people were able to make money out of it. The force needed to close the business down was trampled on by the force wanting to transact in the product and eventually the prohibition ended. It isn't certain to me that Bitcoin would win out like alcohol if it came down to a fight, but I cant see it being an easy win for the Central Bank(s) either.

Bitcoin is strong, it has power.

Heran
Heran

What if bitcoin transaction (as bitcoin itself cannot be banned) was banned? What if gold was banned (like Republic of China did in 1948)? What if the sun will not rise tomorrow (see Bertrand Russell’s chicken)?

msurkan
msurkan

The same argument could be made against gold. You can't easily conduct transactions in gold and governments have frequently banned it's use (and ownership).

I am not a Bitcoin fan but I don't see that these arguments about potential government bans is all that persuasive. If anything, bans likely indicate there is financial stress that is encouraging people to get their money out of the local currency. This is exactly what's happening in China. China's attempts to ban Bitcoin are more bullish than bearish.

Aloha Big Al
Aloha Big Al

The government can effectively destroy Bitcoin as an effective currency even if it lives on in the fringe. Most likely history will be repeated. If you look at our US currency prior to the Civil war, there were many state issued and even private currencies. As electronic currencies play an important part in the internet of connected devices, and blockchain is valuable technology, one electronic currency will likely emerge that will replace or absorb the current field of challengers. I believe that one will have the support of the gov't.

Rod_Bitcoin
Rod_Bitcoin

Hi Mish

  1. The same will happen as when they outlawed gold, drugs, prostitution, which is that it became dangerous to transact, black markets arose, gangsters got involved, and a "danger premium" was added to the price.

  2. there will be jurisdictional competition. For example, the South Korean government has just issued instructions to have bitcoin and derivatives listed. Which means that you will be able to take your bitcoin and cash out in a different country, just like you could smuggle your gold out of the USA and cash it out somewhere else (when gold was illegal). https://decrypt.co/15990/government-body-wants-bitcoin-listed-on-korea-exchange

  3. politicians and large financial institutions are already dipping their toes, it will be very unlikely to happen. Good luck

roark183
roark183

This question poses the hazard of using a blockchain crypto currency. There are crypto currencies that don't use a blockchain. Such a currency is CloudCoin.

No blockchain = No transaction record = Nothing for the IRS, FBI, NSA or anyone else to track. With CloudCoin the only ones aware of the transaction are the buyer and seller.

The platform used by CloudCoin is also going to be used for an untraceable email service. Details yet to be worked out, but it won't use encryption, as encryption can be cracked using quantum computers.