Why the BIS and Central Banks Need a Disclaimer

bitcoin futures

The following piece is our view on one of the most controversial reports on cryptocurrency we’ve seen yet. We have been bombarded by people asking us our view on this report.

And we believe it’s crucial that as many of your read our view as possible. You should get both sides of the argument. Too often you are bombarded with mainstream drivel that simply doesn’t give you the full picture.

We’ve already published our view to subscribers of Secret Crypto Network and Crypto Tech Investor. And our subscribers to these crypto-specific newsletters regularly get the inside track on our thoughts, views and understanding of everything crypto.

But we think this deserves to be shared with a wider audience, so on with our retort to the controversial report…

The BS report

I think they made an error…

You might have seen in the news a report on cryptocurrency from the Bank for International Settlements (BIS).

How could you miss it, really? The most viewed article on the Australian Financial Review (AFR) website at the time of writing has the headline:

Is this scathing report the death knell for bitcoin?

Let us answer that question here for you now. No, it isn’t.

In fact, after reading it, we think it’s more a ‘BS’ report than a report from the BIS.

We’re not going to dissect the entire 114-page (including references and endnotes) report here. We’ll let the broader community do that.

But it’s clear that this lengthy report was put together over a period of time, and from our view, they probably started working on it early this year. And we all know that with the speed of crypto, the report is already out of date.

And, in our view, it’s wrong. In fact, it’s your classic mainstream ‘fear, uncertainty and doubt’ — or FUD.

The BIS analyses cryptocurrency, along with the problems and risks they see. And some of their claims are valid. But you also have to put their perspective…into perspective.

They come from a background where, according to them, a ‘central authority’ is crucial in the operation of a monetary and payments system. The very idea of a decentralised system or a lack of central authority is foreign to them.

They also make the mistake of speaking about central banks as ‘trusted’. But you also need to ask the question: trusted by whom? And trusted to do what?

If you’re talking about the manipulation of currencies to affect economic ‘stability’, then yes, that’s a central bank function. But their track record is pretty poor.

Add to the mix that the purchasing power of a dollar decreases over time, and you soon realise that money isn’t a store of value in the sense that it should be. Certainly not how the BIS describe it.

What people — like the BIS — need to get their head around is that ‘money’, as we know it, is changing.

Where’s the central bank disclaimer?

As a financial services business, we often have to put a big, fat disclaimer into our work. It usually reads:

Past performance is no guarantee of future performance.

And that’s true.

You shouldn’t rely on what something has done in order to figure out what it could do. But where do you see that disclaimer at the central bank? What about the dollars in your pocket — is there a disclaimer on that $20 note?

Your ‘money’ (by which we mean dollars and cents) will be worth less tomorrow than it is today. That’s a fact. That’s the impact of inflation that the bank ‘targets’ every year.

Now you might not see it on a daily basis, because the number doesn’t change. But your money’s purchasing power does. And tomorrow it will purchase less.

Now this isn’t to say crypto — currencies or assets or whatever — is the perfect solution. We’ll get to those issues in a moment. But the BIS, and other ‘traditional’ financial system institutions, suffer from a bad dose of arrogance.

The current financial system is far from perfect. It’s far from ‘trusted’. And perhaps they should consider the fact that the world has a money problem — both from how it’s created, and how it’s abused.

Furthermore, the BIS idea that bitcoin and the ‘quest for decentralised trust has quickly become an environmental disaster’ is laughable.

A couple of weeks ago I was in Canary Wharf, London. This is where a lot of major financial institutions operate.

It was night, and every one of those buildings had floors and floors with lights and computers on. They would have data centres whirring away in the background or remote locations. Their lifts and security systems are on the go 24/7.

Let’s also not forget these institutions exist in billion-dollar buildings that, for half the day, are unoccupied. I saw the same thing last time I was in Melbourne. And Toronto. In fact, every major city I go to is like this.

Where’s the assessment of the ‘environmental disaster’ the current financial system effects? Best not cast stones in a glasshouse, we think.

These BIS points of contention are simply fear mongering. They lack depth of research and understanding of the broader ecosystem. They reek of mainstream, superficial analysis carrying an incredible amount of bias.

For example, lightning networks are mentioned once in an endnote. The idea that crypto cannot scale is quickly put to bed with the potential of lightning networks. But it’s an endnote on page 112 and 114.

Crypto isn’t perfect though

Now of course, as we said, crypto in its current guise isn’t a perfect solution. But it’s an alternative system trying to fix a broken system. It’s trying to build a better way.

Nothing is ever going to be a perfect solution. But at least with crypto you can work towards as close to perfect as you can. And you can do it fast, with the combined knowledge of anyone, anywhere.

The beauty of crypto is that anyone can take part in it. If you want to contribute to the codebase of a project, most of the time you can.

It’s because it’s open source. If you want to develop your idea on the Ethereum protocol, you can.

But when was the last time you had a chance to contribute to the development of the economy? When could you apply innovation to the cash issued by the central bank?

When was the last time you got to influence the creation of financial products the banks put together? Our guess is never.

But through open source, distributed networks, you can. Crypto is a technology revolution. And it’s more than just finance. It’s infrastructure, data, it is identity — the monetisation of information, and more.

You can create with it, disrupt and effect change with it. You can develop it, work on it, and make it better. It’s not a stagnant thing. It’s evolving, improving, expanding and changing.

Yes, it has issues and right now it’s not the answer we all seek. But when you see the progression and the grunt work of the people working on it, you can see the huge future potential.

The likes of the BIS can write 1,000 reports. It’s just their view. And maybe they’re right. But in this case, we don’t believe they are. Not based on what we read in their report. We think they simply don’t get it. Maybe they never will…

 

Regards,

Sam Volkering,
Editor, Secret Crypto Network

Sam Volkering

Sam Volkering is Editor for Money Morning and its small-cap, cryptocurrency and technology expert. Find out what he has to say here with all his latest articles.

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