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Cryptocurrencies and Central Banks

Updated: Apr 12

The 2008 crisis might be the least important problem of the 21st century’s banking system. Decentralized digital coins present a major threat to commercial banks, central monetary institutions, and federal reserves. The saying advises to keep your friends close, but enemies closer. Indeed, commercial banks entered the crypto world with their massive financial resources, playing to be among massive holders. In 2021, Blockdata claimed that 55% of the world’s 100 biggest banks are investing directly or indirectly in companies related to blockchain and digital currencies. Citibank, JP Morgan Chase, Morgan Stanley, BBVA, ING, Standard Chartered… Each holds portfolios worth more than 100 million dollars.


Moreover, Christine Lagarde, president of the Central Bank of Euro, admitted their search on CBDC and stated that over eighty central banks around the world are examining the possibility of having digital currencies. Quite interestingly, Lagarde emphasized the importance of centralization in her press briefing. She claimed that their digital coin research conducted by ECB found aversion for anonymity, a key characteristic of cryptocurrencies. Anonymity is possible through decentralization. The launch of the decentralized monetary web is like the invention of gunpowder. It is powerful, swift, and brutal for many, especially for outdated systems. That is why central banks are trying to create uncertainty, a delay in the transition, and a less capable alternative.


However, there are countries that hope to invest early and grab a bigger slice of the pie. El Salvador proudly became the “Bitcoin Laboratory” of the world by adopting Bitcoin as its legal tender. President of El Salvador tweets, “If it’s for the good, it’s game over for fiat.” Now, all of the eyes are on the country, including the eyes of Fed’s COI, Sunayna Tuteja. Unlike European countries, the US leaves hints about progressive adaptation while keeping being secretive. Tuteja says “It's okay to be skeptical, good to ask tough questions, but no longer acceptable to be ignorant” Also she answers questions about Fed’s approach to cryptocurrencies by saying "Everything is in perpetual beta; there is no more one and done... We have to know that there will be unexpected consequences, both positive and negative, that will not be known until after launch... Security and privacy are very top of mind... We must avoid FOMO." In alignment with Tuteja’s responses, Fed Chair Jerome Powell has previously noted "We are looking to scan and learn." about the topic.


On top of these, what is not common knowledge is that The U.S. government regularly holds auctions for its stockpile of bitcoin, etherium, litecoin, and other cryptocurrencies it seizes. Auctions started in a big way with the 2013 takedown of Silk Road, a dark web marketplace that traded in illegal goods. For years, the U.S. government has maintained a side hustle auctioning off bitcoin and other cryptocurrencies such as the 500 bitcoin it sold to Riot Blockchain in 2018 for around $5 million, worth around $21 million as of 20th January 2022, and the 30,000 bitcoin that went to billionaire venture capitalist Tim Draper for $19 million in 2014, now worth almost $1.3 billion. The US government’s crypto seizure and sale operations are growing so fast that the government just enlisted the help of the private sector to manage the storage and sales of its hoard of tokens. To date, the US has seized and auctioned more than 185,000 bitcoins, now worth around $7.8 billion. By not holding, the US government is missing the opportunity of billion dollars worth of extra cash. Now, it is time for us to ask the important question. Is it really possible that Fed has zero reserves of crypto as they claim nothing? They have the chance to capture a significant amount of the market. Principals are aware of the upcoming change. And apparently, the rest of the banking world is getting prepared for a cold war with their national CBDCs. In these conditions, the US is doing what they know the best: weaponizing. Everything must be kept secret but my claim is Jerome Powell has planned something, and he planned it big.

Author: Bengüsu Nar


REFERENCES

https://twitter.com/lagarde/status/1382991097849376768


https://en.wikipedia.org/wiki/Central_bank_digital_currency


https://markets.businessinsider.com/news/currencies/13-top-banks-investing-cryptocurrency-blockchain-technology-funding-blockdata-bitcoin-2021-8


https://www.forbes.com/sites/kenrapoza/2021/12/28/imagining-a-central-bank-wipeout-of-bitcoin-in-2022/?sh=3a11e74e4d9c


https://www.investopedia.com/el-salvador-accepts-bitcoin-as-legal-tender-5200470


https://www.investing.com/news/cryptocurrency-news/sweden-launches-worlds-second-digital-currency-backed-by-a-central-bank-2612824


https://www.investopedia.com/where-the-fed-stands-on-crypto-and-digital-currencies-5205377


https://www.cnbc.com/2021/12/19/what-the-us-government-does-with-its-secret-bitcoin-stockpile.html


https://www.cnbc.com/2021/12/19/what-the-us-government-does-with-its-secret-bitcoin-stockpile.html




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