"You’d Have To Shut Down The Internet" To Ban Bitcoin, Says SEC's Hester Peirce

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by Tyler Durden
Sunday, Apr 11, 2021 - 09:11 AM

Any government efforts to ban Bitcoin would be “foolish,” said Hester Peirce (aka “Crypto Mom”), a very Bitcoin-friendly commissioner at the U.S. Securities and Exchange Commission (SEC), during a MarketWatch virtual conference earlier this week, according to Cryptoslate reporter Liam Frost.

"I think we were past that point very early on because you’d have to shut down the Internet,” Peirce said, adding, “I don’t see how you could ban it. You could certainly make the effort. It would be very hard to stop people from [trading Bitcoin]. So I think it would be a foolish thing for the government to try to do that.”

Not only that, but the government would immediately wipe out $2 trillion in net wealth - the market cap of the crypto sector - an event that would have profoundly deleveraging consequences, and since much of that wealth is now backed by debt, for example all those debt-funded purchases of bitcoin by Microstrategy, such a move by the government would immediately destabilize the all important debt market.

The statement came on the heels of Ray Dalio, a billionaire investor and founder of Bridgewater Associates, arguing that there’s “a good probability” that governments around the world would ban Bitcoin and other cryptocurrencies.

Dalio told Yahoo Finance:

“Every country treasures its monopoly on controlling the supply and demand. They don’t want other monies to be operating or competing, because things can get out of control. They outlawed gold, that’s why also outlawing Bitcoin is a good probability.”

However, according to Peirce, the main issue for authorities—at least when it comes to cryptocurrencies—is to find an approach to regulation that would be productive and non-restrictive at the same time. She noted:

“We’ve seen other countries take, I would say, a more productive approach. We really need to turn that around. And I’m optimistic, with a new chairman coming in with a deep knowledge of these markets, that is something we could do together—build a good regulatory framework.”

At the same time, Peirce also pointed out that she doesn’t know when—or if—a Bitcoin exchange-traded fund (ETF) will finally be approved in the U.S. Recently, we’ve seen a new wave of major investment companies, such as Fidelity Investments, SkyBridge Capital, and VanEck, filing their applications for Bitcoin ETFs with the SEC.

The regulator, however, never approved a single filing of this kind so far, which as discussed earlier, may be a good thing for not only bitcoin but the entire nascent DeFi ecosystem where hundreds of billions in very real money is now intertwined.

There is another reason why the government may have no intention of (ever) banning bitcoin: as Artemis Capital's Christopher Cole wrote recently echoing what we said back in 2016 and 2017, "Bitcoin has emerged as a "shadow" monetary tool, a type of liquidity overflow to prevent even bigger asset bubbles in conventional assets such as commodities, stocks and housing.

As Cole tweeted, "right now [bitcoin] helps Gov by serving as a vol buffer for the middle class so money devaluation flows into a purely speculative asset and less into home prices or other goods."

Said otherwise, cryptos now represent some $2 trillion in excess liquidity that would otherwise be invested in housing or stocks, making both of these respective asset bubbles that much more prone to bursting, and bringing the entire asset-bubble dependent socia-economic and financialsystem closer to collapse. However, thanks to bitcoin, there is a substantial buffer allowing Powell to keep printing indefinitely.

This benign side effect of bitcoin which paradoxically allows the Fed to perpetuate its ultra-easy monetary policy for much longer, "explains lack of regulation" although once we hit hyperinflation and bitcoin goes offerless, regulation will come for one simple reason: it will be tantamount to deleveraging the system by trillions in a heartbeat (recall the market cap of all crypto assets is now above $2 trillion) and rising.

Regulation of crypto is a structural risk to investors/speculators

Regulation of crypto can be seen as 2nd order monetary tightening tool by Gov to tame inflation

All of the above doesn't invalidate ownership of the asset but requires deep thought on risk-reward

This is a sound warning for bitcoin bulls, but it only applies when inflation gets truly out of hand, but that is unlikely to happen until lat 2022 or early 2023 assuming the Fed keeps rates at zero and barely tapers as it has been predicting it will do. That's nearly two years of upside potential for the best performing assets of the year, decade, century and millennium.