Why Governments Will Not Ban Bitcoin

Tyler Durden's picture

Authored by Charles Hugh Smith via OfTwoMinds blog,

Those who see governments banning ownership of bitcoin are ignoring the political power and influence of those who are snapping up most of the bitcoin.

To really understand an asset, we have to examine not just the asset itself but who owns it, and who can afford to own it. These attributes will illuminate the political and financial power wielded by the owners of the asset class.

And once we know what sort of political/financial power is in the hands of those owning the asset class, we can predict the limits of political restrictions that can be imposed on that ownership.

As an example, consider home ownership, i.e. ownership of a principal residence. Home ownership topped out in 2004, when over 69% of all households "owned" a residence. (Owned is in quotes because many of these households had no actual equity in the house once the housing bubble popped.)

The rate of home ownership has declined to 63%, which is still roughly two-thirds of all households. Clearly, homeowners constitute a powerful political force. Any politico seeking to impose restrictions or additional taxes on homeowners has to be careful not to rouse this super-majority into political action.

But raw numbers of owners of an asset class are only one measure of political power. Since ours is a pay-to-play form of representational democracy in which wealth buys political influence via campaign contributions, philanthro-capitalism, revolving doors between political office and lucrative corporate positions, etc., wealth casts the votes that count.

I am always amused when essayists claim "the government" will do whatever benefits the government most. While this is broadly true, this ignores the reality that wealthy individuals and corporations own the processes of governance.

More accurately, we can say that government will do whatever benefits those who control the levers of power most, which is quite different than claiming that the government acts solely to further its own interests. More specifically, it furthers what those at the top of the wealth-power pyramid have set as the government's interests.

Which brings us to the interesting question, will governments ban bitcoin as a threat to their power? A great many observers claim that yes, governments will ban bitcoin because it represents a threat to their control of the fiat currencies they issue.

But since government will do whatever most benefits those who control the levers of power, the question becomes, does bitcoin benefit those holding the levers of power? If the answer is yes, then we can predict government will not ban bitcoin (and other cryptocurrencies) because those with the final say will nix any proposal to ban bitcoin.

We can also predict that any restrictions that are imposed will likely be aimed at collecting capital gains taxes on gains made in cryptocurrencies rather than banning ownership.

Since the wealthy already pay the lion's share of federal income taxes (payroll taxes are of course paid by employees and employers), their over-riding interests are wealth preservation and capital appreciation, with lowering their tax burdens playing third fiddle in the grand scheme of maintaining their wealth and power.

Indeed, paying taxes inoculates them to some degree from social disorder and political revolt.

I was struck by this quote from the recent Zero Hedge article A Look Inside The Secret Swiss Bunker Where The Ultra Rich Hide Their Bitcoins:

Xapo was founded by Argentinian entrepreneur and current CEO Wences Casares, whom Quartz describes as "patient zero" of bitcoin among Silicon Valley’s elite. Cesares reportedly gave Bill Gates and Reed Hoffman their first bitcoins.

Their first bitcoins. That suggests the billionaires have added to their initial gifts of BTC.

The appeal to the wealthy is obvious: any investment denominated in fiat currencies can be devalued overnight by devaluations of the currency via diktat or currency crisis. Bitcoin has the advantage of being decentralized and independent of centrally-issued currencies.

I submit that not only are the wealthy the likeliest buyers of bitcoin for this reason, they are the only group that can afford to buy a bunch of bitcoin as a hedge or speculative investment. Lance Roberts of Real Investment Advice recently produced some charts based on the Federal Reserve's 2016 Survey of Consumer Finances (SCF) report-- Fed Admits The Failure Of Prosperity For The Bottom 90%.

Put another way: how many families can afford to buy a bunch of bitcoin?

Here is a chart of median value of family financial assets: note that this is far below the 2000 peak and the housing bubble of 2006-07:

Here is mean family financial assets broken out by income category: note that virtually all the gains have accrued to the top 10%, whose net worth soared from $1.5 million in 2009 to over $2.2 million in 2016, a gain of $700,000.

The Fed's 2016 Survey of Consumer Finances is a treasure trove of insights into wealth and income inequality in the U.S. Here are the highlights: Changes in U.S. Family Finances from 2013 to 2016.

As you'd expect, the report starts off on a rosy note: GDP rose by 2.2% a year, unemployment declined to 5%, and the median family income rose 10% between 2013 and 2016.

Blah blah blah. Meanwhile, on page 10, it's revealed that the top 1% receives 24% of all income, and the families between 90% and 99% receive 26.5%, for a total of 50.5% of all income flowing to the top 10%.

The top 1% owns 38.6% of all wealth, and the families between 90% and 99% own 38.5%, so the top 10% owns 77% of total wealth.

On page 13, we find that the total median net worth of all families between 40% and 60% went from $57,000 to $88,000, a gain of $21,000, while the median net worth of families in the 60% to 80% bracket rose from $166,000 to $170,000, a grand total of $4,000.

Meanwhile, back in La-La Land, the median net worth of the top 10% soared by $468,000, from $1.16 million to $1.62 million.

Which family has the wherewithal to buy a bunch of bitcoin at $5,900 each as a hedge or investment, the one that gained $4,000 in net worth, the one that gained $21,000 in net worth or the one that gained $468,000?

You see the point: the likely buyers of enough bitcoin to count are the politically powerful financial elite. If any politico was foolish enough to propose banning bitcoin, a few friendly phone calls from major financial backers would be made to impress upon the politico the importance of blockchain technology and cryptocurrencies to the U.S. economy.

Heck, the financial backer might just suggest that all future campaign contributions to the politico will be made in bitcoin to drive the point home.

My vision of cryptocurrency, laid out in my book A Radically Beneficial World: Automation, Technology & Creating Jobs for All, is of a truly decentralized currency that directly funds work that addresses scarcities in localized community economies. The reality of existing cryptocurrencies is that they are probably being snapped up for buy-and-hold storage by the wealthy.

Those who see governments banning ownership of bitcoin are ignoring the political power and influence of those who are buying enough bitcoin to matter.

*  *  *

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Raffie's picture

Exactly why no ban.

jcaz's picture

Why would they?  They created it......

Creepy_Azz_Crackaah's picture

Why should they ban it? Like Russia, they'll create their own crypto-currencies (it is publicly available open source code after all - the gubmint can't screw up copying that too badly). U.S. Bitcoinistas will then have to sell their bitcons for dollars then buy official size and weight USCoin to pay anything gubmint related. Governments should not ban crypto currencies, Beanie Babies, tulip bulbs, or any other YUGE money maker for the masses.

Escrava Isaura's picture

Bitcoin is a giant private Ponzi scheme. Government should keep away from that burning potato.

Billions of dollars will be lost.

Just wondering who is going to jail when it falls.

 

Kafir Goyim's picture

I have used the argument that the OP used for how bitcoin could survive (if enough powerful people own it, it will survive)

The counter to that arguement is, howver, China.  I'm sure there were powerful men in China that owned it, yet they have banned the bitcoin exchanges, which is all that is needed to marginalize it to the point of irrelevence in your country.  (No need to kick down doors.  It becomes a toy if you can't easily convert it)

Too bad the OP did not discuss China and it's obvious contradiction to his thesis.

Oldwood's picture

So if Bitcoin is only speculation for the rich, is it the same currency as stocks in Bershire Hathaway?

PersonalResponsibility's picture

I guess there's no way to buy 1/1000 of a bitcoin -cough-

" each bitcoin is divisible by up to 108"

Now shut the fuck up people. (Note, I own none)

 

 

Endgame Napoleon's picture

They need places to park their money, rather than taking the risk and exercising the creativity to start a business that employs their fellow citizens. It is sort of reverse Randianism. Bitcoin is kind of interesting as a concept, though, in that it is a computer program serving as currency. I do not see how anyone can safely assume that government enployees won’t mess up source code. Look at the Obamacare website. Maybe, they crafted that from scratch.

Rickety Rekt's picture

The volume China kicks in is far less meaningful than it used to be. China is a nothing burger, an opportunity to BTFD

 

Kafir Goyim's picture

That's nice.  But that wasn't the point.  The point was, why did they ban it if rich guys can keep them from banning it?

Endgame Napoleon's picture

China is a more authoritarian government. They can ban whatever they want to, regardless of the rich and their influence. Like the article suggests, it is a play-to-pay system. If you are single and childless with no money, you really know that. Even the non-voting poor, including illegal aliens and and other welfare and child-tax-credit recipients who do not vote or do not bother to vote have much more pay-to-play power than a childless, single citizen without money who always votes.

That is because businesses make money off of the pay-per-birth, womb-based freebies, like free or reduced-cost rent for mommas, free EBT groceries and the $6,269 refundable child-tax-credit checks for sex and reproduction in April. Have you ever looked at the figures for how much farmers make in the food stamps program? That is just one example.

Almost all of the welfare and taxfare goes to citizen and noncitizen parents, either single mom citizens or immigrant households with a sole, male breadwinner, who work the welfare-reform-required 20 hours per week, not working hard so that they stay below the income limits for welfare.

So, if they can get the single mommas to buy bitcoin with their $6,269 child tax credits, rather than using their tax-cash reproduction reward checks to treat their latest boyfriend to a Florida beach vacation because they do not have to worry about covering rent and groceries with their pay, bitcoin will be fully ingrained in the pay-to-play system from top to bottom.

sessinpo's picture

China ban meant nothing if you are wealthy. The blockchain is simply a ledger of transactions that one can access anywhere. If there is a restriction like lack of network access, a wealthy person could simply travel to a neighboring country and access their bitcoin there.

The temporary (and it is temporary) ban only affected the non wealthy. In a sense, it is just like how the wealthy or corporations use government to stifle competition with regulation. It also gave the government time to work on regulatory rules and it made it look like they were doing something while the communist congress was in play.

It is.interesting to note that the founders of NEO coin were advising the politicians on the ban

tmosley's picture

Dunno, but all communists deserve to die in the Holocaust.

IH8OBAMA's picture

Woops.  Almost did it again.  Gave you a RARE UpVote Escrava.

Jordan Belfort, the infamous "Wolf of Wall Street" penny stock broker, told The Financial Times in an interview published Sunday that initial coin offerings are the "biggest scam ever."

Decay is Constant's picture

...the gubmint can't screw up copying that too badly...

 

Seriously?  Everything they touch turns to crap.

Creepy_Azz_Crackaah's picture

But on the 32nd try of LaToucha's cousin's brother's software company operating out of his mom's basement making $17 million per try, he'll get it right at some point. Much like the roll-out of the Obamacare exchange software.

No doubt the honorable congresswoman Frederica Wilson's 2nd cousin will profit handsomely from it as well.

buyingsterling's picture

Of course they will ban it, if it ever looks like it will compete with other fiat currencies. They'll simply make it illegal to pay for goods and services with bitcoin.

Yukon Cornholius's picture

Just like how making weed and blow illegal has prevented the masses from using them.

mkkby's picture

When Goldman or visa/mastercard come out with a crypto, that's the one I'll buy. They'll make sure it's accepted everywhere.

Bitcoin is accepted nearly nowhere. That is why it is not a medium of exchange. It's *value* fluctuates wildly. That is why it is not a store of value.

When a better one comes along, bitcoin will just fade away to nothing. Gov can easily shut down the exchanges, but the real threat is a better version.

Xredsx's picture

One must understand that government policy touches everything, to understand that we are finally coming to a crossroad for the very first time in human history. Either humanity dies, or total freedom from rule makers. It's freaking brilliant and who invented the internet anyway? Seriously, the days when the population depended on its government for information is over.

Kafir Goyim's picture

 who invented the internet anyway?

The United States Military invented the internet.  Don't use it.  It's all part of their plan to cause depopulation in the west by saturating the men with so much porn they can't be bothered to reproduce.  Stay away from it.

LawsofPhysics's picture

Crap. Well, at least it makes sense...

Xredsx's picture

It could be worse though. The military could also be building killer robots in this interconnected world. While the tech companys are racing towards A.I and pushing for this transhumanism agenda. And yet, when people mention Bible prophecy........

Solosides's picture

Please pinpoint the exact bitcoin central office and central server rack that will be taken down by the government.

Stuck on Zero's picture

The article is pure strawman stupidity. The government will not ban bitcoin. The government will penetrate, regulate, twist, stifle, tax, control, inveigle, infiltrate, and otherwise pervert the very core of BitCoin through 14,000 pages and 391 pieces of legislation in the Federal Register. It can't help itself.

VD's picture

also, an american fam can buy a fraction of a btc, which this author clearly does not comprehend.

gatorengineer's picture

Yes, and make demand on payment of that fractional bitcoin, what do you get paid in JOO bucks....

Remember the gold standard, when the worthless paper promised delivery in gold? and had full faith and credit.

and yes of course all those places selling a fractional bitcoin own that many. right?  

Just like paper gold but for retards (a virtual claim on a virtual commodity), as opposed to paper gold which at least is a paper claim on a physical commodity.

 

Insatiant's picture

When you buy (fractional) bitcoin, you do so from someone who owns it, either directly or through an exchange - so, yes.

dumbhandle's picture

Bitcoin is obsolete. The price is still rising, but it won't be for long. Ethereum does everything bitcoins does, but faster, cheaper, and better.  Ethereum is adding private transactions as well, which makes it fungible. Bitcoin is not private, so it is not fungible. Who cares what happens to Bitcoin. It is going away soon enough.

tmosley's picture

>Private transactions on ETH

Glad I have some. Might get more. Might hurt Dash and other anonymous cryptos.

JustUsChickensHere's picture

For me, the primary advantages that DASH has are InstantSend (Point of Sale support without a second layer like Lightning), and a transparent distributed governance system.

 

The privacy part of DASH is fairly rightly dismissed by the purists in the Monero community. It works, but you still need to be careful with OpSec in ways that you do not need to do with Moonero.

fiatliberty1776's picture

Ethereum has way too many obstacles to overcome that have yet to be solved and a blockchain that is growing out of control. Proof of stake not implemented yet and perpetual inflation will be hard to sell compared to bitcoin's set 21 million. Plus it is way more centralized development wise than bitcoin and no longer immutable since the DOA disaster. Really good at facilitaing ICO scams though so good luck with that. Now that bitcoin has segwit many new apsects will be introduced to enhance privacy. 

LawsofPhysics's picture

Won't change a thing...

"Full Faith and Credit"

same as it ever was...

AlexCharting's picture

Bitcoin and fiat money share the same problem... most wealth concentrated in a few hands. 

ejmoosa's picture

I bet they said the same thing about gold back in the day.  And yet the government banned it.

tmosley's picture

58% of btc addresses have less than $6 worth. Dust.

If you bought any significant amount, you'd be in the top 1%.

espirit's picture

As an aside, I'd bet that any hodler with a substantial stake will be dumping before a hard fork.

Noone worth a salt would risk being a bagholder on the 1MB block side if the potential exists to get wiped.

Yes, like with a cloth.

tmosley's picture

Hodlers get both branches, though.

espirit's picture

Half of nothing, is still nothing.

...and developers aren't going to be all smiles ;)

HungryPorkChop's picture

Bitcoin is bouncing around between $5,000 and $6,000.  I'm sure if you had 5 or 10 Bitcoin's you wouldn't be calling it nothin'.  LOL 

 

espirit's picture

 So how's that Bitcoin Cash working out for you?

Thought so... lol.

Drawing some parallels to the Ag/Au ratio here, but I don't think we want to go there.

tmosley's picture

We got BCH for free, so great!

Insatiant's picture

My concern with the hard forks is their potential of having a demonitization "printing press" effect.  You do get both chains, so perhaps net even (or better) on the surface, but if it keeps happening it takes away one of bitcoin's good arguments IMO.

tmosley's picture

I consider the competition to be quite healthy. Get access to new techs for free. Just hodl the "free" coins and if something goes wrong with the Bitcoin main chain, then the money will likely migrate to one of the forks, or one of the major alts (which I also own and stand to profit from mightily should BTC fail).

PN7's picture

Bitcoin Cash is working out fine for me.  I swapped all my "free" BTC for Bitcoin just prior to the recent boom.

affirmed_78's picture

No the problem with fiat is it's controlled by governments and central banks.  Bitcoin has transparency.  Everyone had the same opportunity to buy it at 10 cents a coin, but it took extreme awareness, conviction and know-how at that stage, which I unfortunately did not have.

LawsofPhysics's picture

Other crypos do what bitcoin does and don't cost as much of that government fiat!

Guess who can print as much government fiat as they want?  The primary deal banks. They have been interested in digital currency since the dawn of the computer!

"Full Faith and Credit"

same as it ever was!

abyssinian's picture

correction... most wealth concentrted in few SMART hands.... and those smart enough accumulated enough in the last few years to become much wealthier... where as the retarded bashers still bashing on here daily....