The Coming Battle For Crypto (starts this week)
There are some risks uh with uh stable coins. Right now. Are there not? Are there concerns you have about stable coins, theres concern of how current stable coins are being used? If we can trust them and fear that central banks will abuse them, and this has led the fed to consider regulation and the possibility of creating their very own cryptocurrency. As of now, there are no regulations for cryptocurrencies on the federal level. I think the issue stable coins are a lot like money, market funds or bank deposits or the narrow bank, depending on the terms of them. That kind of thing, but without the regulation, its like the wild west, still kind of like how there were no safety regulations on cars until 1968. The fed is recognizing that cryptos are getting more and more popular over time and the longer they wait. They realize the harder it will be to regulate in the future. Now these new regulations could be as small as requiring more reporting to the government or as large as outright banning cryptos altogether, and this is whats making crypto holders a little bit nervous. Chairman of the fed jerome powell says that cryptocurrencies have failed their attempt to become a form of payment with cryptocurrencies its its not that they didnt aspire to be a payment mechanism, its that theyve completely failed to become one except for people who desire anonymity. Of course, salty much jerome, although he does recognize that stable coins, specifically via central banks, are a promising solution to his concerns.
Here we need to do some defining. What is a stablecoin put simply a stablecoin is a cryptocurrency that is pegged to some kind of reserve asset. This could be things like a commodity, the price of gold or more commonly the us dollar. A us dollar, stable coin is built to always be worth exactly. One dollar and whoever is issuing that stable coin should theoretically have one dollar in the bank or one dollar worth of assets for every one coin issued a few examples of these are usdc die and most popularly usdt stablecoins, particularly usdt dont, have the highest level of Trust, though, lets talk about tethers lets talk, tether tether has become very important. Tether is whats called a stable coin. This cryptocurrency has quietly risen to the third largest in the world by market cap. It is a digital token that is meant to be a one to one surrogate for the us dollar theres some controversy around it theyre, essentially poker chips. They were issuing phony tether because there is no transparency in tether thats. The problem, but tether is not 100 backed by u.s dollars in a bank account 13 of their assets. This is 13 of 60 billion is invested in secured loans. We have no idea what kind of loans those are or who theyre too, this group of uh individuals who run tether have a bit of um lets, call it uh to be charitable a mixed reputation. I have a lot of mixed feelings around how tether has been managed going forward.
Theyre, not sure they see each other in the market, stable, unstable point, and i could care less about tether right. Its a joke, bitfinex and tether would be forced to end all transactions with new york residents and pay a combined 18.5 million dollars in fines after hiding roughly 850 million dollars in losses around the world. Now that we know what a stable coin is, we need to discuss central bank digital currencies, also known as cbdcs. A cbdc is a cryptocurrency issued and managed directly by a central bank of a country like the fed in the united states. In this case, the fed is considering building a us dollar stablecoin to compete with existing stable coins like usdc, usdt and dye. The fed has major concerns with the growing popularity of cryptocurrencies concerns that they feel may be solved with a cbdc, so lets discuss why the fed is considering starting their very own. Stablecoin first off is control and developing standards. You wouldnt need stable coins. You wouldnt need cryptocurrencies. If you had a digital us, currency crypto means hidden, and that is the great advantage that cryptocurrencies will have over a federal digital currency uh because they are designed to be crypto hidden from the us government, especially the irs 85 of central banks. Around the entire world are currently looking into a stable coin pegged to their native currency. This leaves mr powell and the fed in a bit of a pickle. They have this massive emerging monetary technology that they have no puppet string attached to.
If the fed is late to the game, this could mean the us dollar loses dominance over time. Think about it. This way the u.s dollar is the most dominant currency in the world. Charts like this show exported goods are often invoiced in u.s dollars. Even if the shipment isnt going to the united states thats dominance, now lets say: chinas cbdc really takes off or facebooks dm coin becomes the primary unit of trade. This means the us dollar just lost a whole lot of goodwill backing its name. Money is a story, and the strongest story has a large advantage in the world wide economy. However, this isnt their only concern the fed is worried about a monetary system made up of tens or even hundreds of stablecoin cbdcs from banks all across the world. That could be too fragmented and lead to issues like those in the free banking era of the mid 1800s. In this time, currencies were issued in the united states regionally and could have different values based on the creditworthiness of a region or a bank. However, many are quick to point out that this argument actually needs modern corrections. Then we have the problem of commercial banking using a non regulated system. The fed is worried that, with a less transparent system, meaning one that they dont have complete control over this could lead to misuse by commercial banks which dont get me wrong. Big banks dont exactly have the best reputation in the first place.
The heat is coming down on the bankers. Goldman sachs are agreeing to pay an additional 2.6 billion dollars in fines. The german lenders been fined almost 630 million dollars over a russian money laundering scheme. Global banking giant hsbc agrees to a record payment 1.92 billion dollars. Yes, that is billion with a b to settle accusations of money laundering. Today, deutsche bank was fined 150 million dollars for their associations with jeffrey epstein and then finally, of course, the fed is worried about the safety of the system. More and more, the fed has talked down on crypto assets, with cryptocurrencies its its not that they didnt aspire to be a payment mechanism, its that theyve completely failed to become one except. The fed feels that they could make a safer system and a safer currency than those currently in the open market. Now, whether theyre the best at this job or not, doesnt seem to matter a whole lot to your average crypto holder. Distrust for the fed actually seems to outweigh the distrust for a third party stablecoin by a large margin. A poll on this channel showed that more than 70 of people would rather use a third party instead of a cbdc. I think that says a lot, but this actually makes sense to me, because, when i think about this, my initial knee jerk reaction is that the fed should be able to make the safest system of a crypto peg to their own dollar.
I mean its its literally their thing. However, i quickly remember that the whole reason for cryptos in the first place is to separate money from government. I mean that thats kind of the whole point less regulation now im not conspiratorial but lets put on our tin foil. Hats here for a minute, because one can think of endless ways: a bad acting government could control a society of people with their own cbdc. If that became the primary currency, the fed already has a lot of power to sway the economy. They can affect change by just adjusting the supply of money, but the fed doesnt have as much control over the velocity of money. This is how much money is actually being spent and transacted a government needs to have power over both the supply of the money and velocity of the money to have total monetary control. Now, im not saying this will or even might happen, but theoretically a central bank could issue a cbdc and then later slap an expiration date on it were sorry, your currency has expired. Goodbye lets say they wanted everyone to spend a thousand dollars in order to bump up the velocity of money and help out the economy. Theoretically, they could program a 30 day expiration date on the dollar, making you spend that money or lose it. Thats total control over the monetary system now whats next, a dystopian future crashing cryptos, probably not extremes by definition, are very rare to happen and, frankly, we wont know much until the fed releases.
The report on cbdcs. The report was first expected mid summer, but was then pushed back to september and is now expected early october. The delays are a result of conflicting opinions of members at the fed. We expect to publish a report around could be early september or plus or minus right in, in that time frame were going to address digital payments broadly so that means stable coins. It means it means crypto assets. It means a cbdc of the appropriate regulation and, in the case of a cbdc, a central bank, digital currency, laying out questions for the public to respond to about what you know, what good it can do, what what the costs and benefits of it would be. We want it, we want to have begin really a major public consultation across many different groups, including congress, of course, so the futures a bit uncertain right now. However, if i were to bet, i believe the most logical outcome for the fed would be to have their own cbdc, impose some regulation on existing stable coins to ensure reserves and make sure that consumers are safe and impose regulations on commercial banking with cryptos again to Help ensure the safety of consumers. This would address the feds concerns of losing dominance of the u.s dollar and, having quote unquote a safe, stable coin. It lowers risk to consumers by increasing banking regulation and makes existing stable coins more competitive. However, time will only tell as to what exactly ends up happening, but i can assure you it will be interesting, so you made it to the end of the video.
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