CBDCs are coming to America
Plus Greenpeace tries to shame Bitcoin by making it look metal af
In this issue:
A CBDC is just a government bank
Greenpeace propaganda hilariously backfires
Alameda wasnβt just a fraud they were sexist, too
A CBDC is just a government bank
In the video clip above Senator James Lankford of Oklahoma grills Treasury Secretary Janet Yellen about the consequences of the decision to bail out depositors at Silicon Valley Bank even when they were over FDIC insurance limits.
As Senator Lankford points out the decision to bail out SVB depositors implies that there is a de facto higher insurance limit for deposits at systemically important banks. Rational depositors will seek to move their deposits out of small banks and into larger ones β killing the smaller banks and making the too-big-to-fail banks even bigger.
Realistically, why would anyone keep money in a partially insured account at a small bank when they could be fully insured at a larger bank or earn a roughly ~5% risk-free yield by buying U.S. Treasuries instead? The result is that many smaller banks are struggling to attract and retain enough deposits to survive. Either the FDIC will need to extend the same level of depositor protection to every bank that is given to large banks or the smaller banks will be starved out of the ecosystem.
The fear of this kind of deposit siphoning is exactly why the Fed doesnβt offer checking accounts directly to consumers β why would anyone keep money in an ordinary commercial bank if they could keep their money in the bank that literally cannot fail? Itβs also why the Fed has opposed 'narrow banks' that would invest customer funds in risk-free assets like Treasuries instead of making loans.
If there was a way for customers to bank completely safely they might not want to bank anywhere else. But if the FDIC ends up politically obligated to provide unlimited deposit insurance anyway, the trade-offs change. Calls for the Fed to provide a public consumer banking service have started again.
One way to accomplish that is to have the Fed just operate a retail bank β but honestly, retail banking is a lot of work! Customers are a hassle. It would be nice if there was some way to avoid them. Maybe it would be easier to just release a Central Bank Digital Currency (CBDC) and make it possible for both banks and individuals to store digital cash for themselves. An address that controls a supply of digital dollars is functionally the same thing as a digital bank account directly with the Fed. And that is basically what the upcoming FedNow payment system is β an American CBDC.
Against the backdrop of banking failures the appeal of banking directly with the government is obvious β but the implications of letting the government control your bank account get extremely dark with any serious contemplation. I think Minneapolis Fed President Neel Kashkari described the risks very well last year:
"I can see why China would do it. If they want to monitor every single one of your transactions you could do that with a Central Bank Digital Currency β you canβt do that with Venmo. If you want to impose negative interest rates β you could do that with a Central Bank Digital Currency β you canβt do that with Venmo. And if you want to directly tax customer accounts you could do that with a Central Bank Digital Currency β you canβt do that with Venmo. So I get why China would be interested. Why would the American people be for that?"
Technically CBDCs donβt need to be dystopic. Governments could certainly build CBDCs that encoded freedom and strong privacy guarantees β but obviously they wonβt. Predictions about CBDCs arenβt really technical so much as political. If enough people understood banking and cared enough collectively, we could make a CBDC that was a tool for protecting freedom and advancing American values.
Anyway, buy Bitcoin.
Greenpeace propaganda hilariously backfires
Weβve talked before about how Greenpeace USA accepted a $5M grant from Ripple Labs executive Chris Larsen to lobby for Bitcoin to replace proof-of-work mining with proof-of-stake. Itβs a foolish campaign that misunderstands both Bitcoinβs environmental impact and also how the network actually works.
As part of this misguided effort Greenpeace commissioned environmental artist Benjamin Von Wong to build an 11 foot high laser-eyed skull made of discarded graphics cards1 meant to "raise awareness and spark change." Unfortunately for them they forgot that Bitcoiners actually tend to like goofy edgelord nonsense like giant laser-eyed skulls, so they immediately bombarded the artist with praise and started offering to buy the piece for more than Greenpeace actually paid for the initial commission. It looks like he may end up becoming a Bitcoiner.
Meanwhile Bitcoinβs energy mix is the most renewable it has ever been and mining using flared natural gas is removing ~0.7 Mt methane per year, roughly the equivalent of planting ~11M trees. The mistake Greenpeace made was choosing an artist that genuinely does care about the environment.
Other things happening right now:
In addition to being one of the largest financial crimes in history it turns out Alameda Research was also super sexist. Imagine committing wirefraud for your boyfriend only to find out that he was paying himself ~367x more than you and he was paying all your male co-conspirators at least ~4x more. No wonder she decided to testify for the prosecution.
On Friday former CEO of Terra Labs and recent international fugitive Do Kwon was caught and arrested trying to board a flight out of Montenegro. He has been charged with fraud for his role in the collapse of Terra/Luna by both the United States and South Korea. In retrospect, Terra/Luna was the first tiny domino to fall in the cascading failures of 3AC, Voyager, BlockFi, Celsius, FTX, Silvergate, Silicon Valley Bank, Signature Bank of New York and Credit Suisse.2
The Perth Mint accidentally sold diluted gold to China and then tried to cover it up. Meanwhile, the London Metal Exchange accidentally sold JP Morgan Chase some nickel that turned out to just be bags of rocks. Precious metals are tricky!
Amusingly, they had to use generic graphics cards and not actual Bitcoin mining equipment, which are too valuable to use as waste material.
And probably others we havenβt discovered yet!