More on Crypto

It never ceases to amaze me how little I know. The more I learn the more i recognize how superficial are the things I know.

For example, Bloomberg informed me today that “Indonesia’s Muslim authority says, the use of Crypto is not Shariah compliant and should be banned.” I anticipated that countries would prohibit its use a currency but it had not occurred to me that the Muslim religion would do so.

Given that China has already done so, population 1.4 billion and the Muslim population is about 1.9 billion,  almost half the world is out of bounds using crypto as currency.

As of 20th September, 2021, It was prohibited in Bolivia and Turkey. Egypt and Indonesia had banned it under Shariah law.

How far will it go?

Turkey banned it for reasons related to money-laundering and funding terrorism, and Bolivia as a crime prevention step. It is just a question of time until others follow suit.

I think it is safe to assume Canada will disallow its use for money laundering reasons. They already have a problem with that. The United States will do so to continue their reserve currency position. The European Union, the United Kingdom, Japan, and Australia would follow suit. That would leave India, Africa, Russia, and South America. I expect the larger economies in that group to follow along too.

The impetus

Shariah law is powerful and not to be underestimated. It will not behoove governments to revolt against the edict.

Political issues will drive the United States and the European Union. Each enjoys advantages by having a currency they control.

If all of these are out, crypto currency will be untenable, and the other bigger economies will stop allowing it too.

Why Crypto anyway?

The biggest reason for crypto is governments are untrustworthy. There may be an exception here or there but the vast majority have decided politics is more important than governing. You can assess how far that has gone when you examine the role of the “loyal opposition.” There seems to be almost no consensus on any policy. Recall the Henry Ford maxim, “If two men always agree, one of them is useless. If two men always disagree, both are useless.”  By extension, as political actors now act along party lines and oppose anything the other offers, both are useless

So crypto has a use. It preserves value while they play politics and waste the country’s money. Sound argument except, the useless parts of the government control the laws and anything that restricts their power or acts as a conscience on their foolishness will be unwelcome and soon banned.

Follow the motivation and the ability to make the rules. Neither side of the political spectrum would support crypto so long as it imperilled their own ability to control the country.

An alternative.

Maybe the countries will develop digital currency of their own. They will be highly motivated to do that because it increases their control rather than reduces it. Computers are very, very good at tracking digital transaction. If you think privacy is already lost, wait until you see what is possible with government controlled digital currency.  The Americans are already talking about reporting every transaction over $600. Do you think you could use digital to buy cannabis? Missed your court ordered alimony payment, they might help. Taxes due. Oh my.

The takeaway

There is value in crypto currency but only so long as it is in the wild. As soon as it becomes restricted or made obsolete by government digital currency it will be near valueless.

The motivation for governments to prohibit what we see now and to replace it with their own version is very strong. As they say in physics if it is not specifically prohibited, it will happen. What do you see that might prohibit it?

Keep an eye on who is outlawing it in their country. Panic is generally a bad idea, but when panic is necessary, panic first.

 

 

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