With every story like this that comes out, I am more confident of my view (which was already confident).

The Man is going to exterminate non-CBDC's.

1. Legal and regulatory barriers will be erected
2. Networks will be penetrated (a la Silk Road and ANOM)
3. Prices will be driven lower to reduce capacity/utility

https://www.ft.com/content/8bc0e5e0-2705-496d-a265-acccaffaee87

The UK’s financial watchdog has ordered Binance to stop all regulated activities in Britain and imposed stringent requirements in a stinging rebuke of one of the world’s biggest cryptocurrency exchanges.

The intervention by the Financial Conduct Authority in recent days is one of the most significant moves any global regulator has made against Binance, a sprawling digital asset firm with subsidiaries around the world. The exchange has until Wednesday evening to confirm it has complied with the watchdog’s demands.

The intervention is a sign of how regulators are cracking down on the cryptocurrency industry over concerns relating to its potential role in illicit activities such as money laundering and fraud, and over often weak consumer protection.

[...]

Binance Markets Limited is not approved under the FCA’s cryptocurrency registration regime, which is required for UK groups offering digital asset services.

The entity had applied to become a registered cryptocurrency company with the regulator, but pulled that application last month according to two people familiar with the situation. The watchdog confirmed the application had been dropped “following intensive engagement from the FCA”.

[...]

Yes, they did.

The House Judiciary Committee wrote and voted on legislation to break up big tech firms Apple, Google, Amazon, and Facebook.

Big Tech is the Standard Oil of our times.

There are caveats but this is the substance of it.

Oh, and speaking of things that are "above the law", there's that little thing called "crypto".

It, too, shall be brought "under the law" - much to the disgust of all the internet anarcholibertarians out there.

https://mattstoller.substack.com/p/why-did-congress-just-vote-to-break

It’s been an extraordinary week. On Monday, the Supreme Court ruled against the NCAA for abusing its monopoly over the terms and wages of student athletes. Yesterday, the House Judiciary Committee, which is the body that has jurisdiction over antitrust law, wrote and voted on legislation to break up big tech firms Apple, Google, Amazon, and Facebook. There are problems with the bills, and I’ll get into them. But the underlying content is less important than the political message, which is that breaking up big tech is looking increasingly inevitable.

Meanwhile, the new Federal Trade Commission Chair Lina Khan has taken full control of the agency. She’s hired acting directors to run the bureaus, and announced that the FTC will be holding open commission meetings where the public can watch the commissioners vote and debate things. Open meetings haven’t happened in decades, so this is something of a shock to the agency. There’s even a period where the public gets to talk back to the commissioners. Imagine that. The underlying agenda is pretty aggressive (though in the administrative weeds), and starts with finalizing a rule against lying about Made in USA labels. (If you want to sign up to speak, you can do so here.)

The Judiciary Committee wrote and passed six different bills, two of them being general purpose antitrust acts and four being big tech-specific ones. These bills are an outgrowth of the 16-month investigation into Apple, Google, Amazon, and Facebook, with an analysis of millions of documents and hundreds of witnesses.

This isn’t the end of the process, but it’s the first Congressional vote to actually restructure powerful firms since the 1996 Telecom Act, and the first real Congressional attack on concentrated corporate power since the Bank Holding Company Act Amendments of 1970. Congressman Mondaire Jones summed up the hearing where they voted to do so. “Unless we break these companies up,” he said, “they will continue to be above the law.’”

[...]

In this contest, there is only one assured winner: the Central Banks.

Why?

Because they have jurisdiction, whereas no crypto has any.  You don't escape "the state" by wishing it away.

I'll let the BIS take over - and they don't hold back:

https://www.ft.com/content/b6a3bf06-ad6b-4ab4-9ae3-15aca453f50d

Central banks have intensified their criticism of cryptocurrencies as battle over the monetary system escalates, arguing that digital tokens such as bitcoin have few redeeming features and “work against the public good”.

In a report published on Wednesday, the Bank for International Settlements, the global body for central banks, also dismissed stablecoins — a link between crypto and conventional assets — as an “appendage” to traditional money.

The strongly worded report was the clearest signal yet from central banks that they are ready to fight any effort to undermine their key role in the global financial system.

Cryptocurrency prices are under pressure because of investors’ growing fear that they face increased regulation.

[...]

“Central bank digital currencies . . . offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity. They are an advanced representation of money for the digital economy [and should be] designed with the public interest in mind,” it said.

“It is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes,” the BIS said. “Bitcoin in particular has few redeeming public interest attributes when also considering its wasteful energy footprint.”

The global financial authority also took aim at stablecoins, which are cryptocurrencies pegged to other assets. The BIS said they “attempt to import credibility by being backed by real currencies”, but other than fragmenting financial systems and introducing new difficulties they are “ultimately only an appendage to the conventional monetary system and not a game-changer”.

The BIS also criticised technology companies that choose to become involved in the payments sector, cautioning that some might become overly dominant because of the vast amounts of data they hold. This could result in excessively high costs to transfer money, it warned. Expensive payments are “one of the most stubborn shortcomings” of the current system, the report added.

“The concern is that when big tech firms enter the payments market, their access to user data from associated digital business lines may allow them to achieve a dominant position, leading to fees that are even higher than those charged by credit and debit card companies currently,” the BIS said. 

Sticking with this view.  Any "relief rally" is, I believe, a chance to sell out.

Monero is eating Bitcoin alive; it's the black economy's crypto of choice as it anonymizes sender, receiver AND AMOUNT.  This removes a structural support for Bitcoin.

The energy-burn argument is catching; Millennials & Gen Z are increasingly against it.

I've heard the "institutionalization of crypto" argument but there are growing headwinds, including those less-discussed.  For example, in some countries paying ransoms in crypto is classified as a serious crime (financing terrorism).

I believe that the Powers That Be want to exterminate any crypto that's not a CBDC.

The DLT is a revolution and will be brought "inside the system".

Bitcoin will be wiped out.

Things like Monero will be taken down, just like the Silk Road: https://www.wired.com/2013/11/silk-road/

They're already mobilizing on this: https://www.bbc.co.uk/news/world-57394831

Trade on your own lookout though.  Big Boys' Rules apply.

For full transparency - I was superbullish on crypto in 2020 and turned loudly bearish in Q1 2021.  Some posts are here on RV.  Others are in private chats.

This has come as no surprise to anyone who has been following my crypto enormo-bear comments over the last few months.

BTC/USD at $60,000 is rocket-fuel to the black economy.

At $0 it has no utility to anyone.

My view took a while to form but it is absolutely rock-solid now: central banks, enforcement agencies, regulators and governments want crypto prices as low as possible, to minimize utility, and to erect regulator barriers as high as possible.

Quite how they achieve this in an era of QE-∞, YCC and MMT I have no idea.

But they are now trying -- hard.

For full transparency - I was superbullish on crypto in 2020.  But changed view to enormobear in Q1 2021.

As we approach Q3 2021 I am maintaining bearish outlook on crypto-"currencies" but not on the Distributed Ledger, which will revolutionize the world.

https://www.ft.com/content/3fe7be31-179a-47dd-9a61-8f4ea42b9c62

Global regulators are calling for cryptocurrencies to carry the toughest bank capital rules of any asset, arguing that requirements for holding bitcoin and similar tokens should be far higher than those for conventional stocks and bonds.

Banks with exposure to volatile cryptocurrencies should face stricter capital requirements to reflect the higher risks, said the Basel Committee on Banking Supervision, the world’s most powerful banking standards-setter.

[...]

Among the risks it cited included market and credit risk, fraud, hacking, money laundering and terrorist financing risk.

Some assets, such as stock tokens, would fit into modified existing rules on minimum capital standards for banks. Others, such as bitcoin, would face a new “conservative” prudential regime, it recommended.

Stablecoins — cryptocurrencies pegged to traditional assets such as currencies — would also qualify for existing rules if they were fully reserved at all times, the committee said. Banks would have to monitor that this was “effective at all times”, it added.

All other crypto assets, including bitcoin and ethereum, would go into the new, more strenuous regime. The Basel committee proposed a risk weight of 1,250 per cent, in line with the toughest standards for banks’ exposures on riskier assets.

That would mean banks would in effect have to hold capital equal to the exposure they face, and be prepared if the value of the asset were worthless. A $100 exposure in bitcoin would result in a minimum capital requirement of $100, Basel said.

The standards would apply to assets created for decentralised finance (DeFi) and non-fungible tokens (NFTs), but potential central bank digital currencies were outside the scope of the consultation, it added.

[...]

Some bankers feel the Basel proposals go too far. “If we are going to impose a punitive weighting, what we are saying is we don’t want these assets in the banking system,” said a banking executive involved in the crypto space.

“We’ve all seen what happens when you drive activity out of a pretty well regulated system into the wild west . . . Do the regulators want the adults to do the business, or would they want the teenagers to do the business?”

[...]

How “temporary” is this?  Is it happening in other countries?  Could this be an as-yet mostly un-commented factor (THE factor?) in the latest cryptocrash?

https://www.telegraph.co.uk/business/2021/05/29/banks-block-payments-crypto-exchanges/
 

Banks are cracking down on transfers to cryptocurrency exchanges by suspending payments to the sector amid rising fears that it has become a hotbed for financial crime.

Customers of banks including Barclays, Monzo and Starling are among those to have been blocked from transferring money to cryptocurrency platforms such as Binance and SwissBorg in recent weeks.

Starling, the online bank, has gone the furthest by suspending all payments to cryptocurrency exchanges after noticing “high levels of suspected financial crime with such payment”.

A spokesman said: “This is a temporary measure that we’ve taken to protect customers.

“This is not just an issue for Starling, but for all banks. We apologise for the inconvenience that this has caused for some customers; we will be reversing this measure as we roll out additional checks specifically for payments to crypto exchanges.”

This is what’s driving it: central banks, regulators and police/spy agencies are worried about how crypto fuels the black economy.  The higher it goes, the more can be laundered per coin.

https://www.ft.com/content/4169ea4b-d6d7-4a2e-bc91-480550c2f539

The rise of crypto laundries: how criminals cash out of bitcoin

In the world of online crime, anonymous cryptocurrencies are the payment method of choice. But at some point, virtual hauls need to be turned into hard cash. Enter the “Treasure Men”.

Finding a Treasure Man is easy if you know where to look. They are listed for hire on Hydra, the largest marketplace on the dark web by revenues, a part of the internet that is not visible to search engines and requires specific software to access.

“They will literally leave bundles of cash somewhere for you to pick up,” said Dr Tom Robinson, chief scientist and co-founder of Elliptic, a group that tracks and analyses crypto transactions. “They bury it underground or hide it behind a bush, and they’ll tell you the coordinates. There’s a whole profession.” 

The Russian-language Hydra offers plenty of other ways for criminals to cash out of cryptocurrencies, including exchanging bitcoin for gift vouchers, prepaid debit cards or iTunes vouchers, for example.

The ability to hold cryptocurrencies without divulging your identity has made them increasingly attractive to criminals, and particularly to hackers who demand ransoms after breaking into companies.

So the Powers That Be would rather crypto as a whole goes to zero.  And the best way to do that is remove the bid entirely.

Well, there we have it, folks: FAANGs are now as creditworthy as most governments.

Just when you thought AMZN had run out of ways to cause deflation, here come bonds that yield less than CPI:

https://www.ft.com/content/83107255-d3f2-416b-aba9-37a8cadb0296

Amazon also set a record for the lowest spread on a 20-year corporate bond, 0.7 percentage points, breaking through Alphabet’s borrowing cost record from last year, according to Refinitiv data. It also matched the 0.2 percentage point spread first paid by Apple for a three-year bond in 2013 and fell just shy of the 0.47 percentage points paid by Procter & Gamble for a 10-year bond last year.

Let's just assume that Bezos' new $500m superyacht is "clean transport".

https://www.bloomberg.com/news/features/2021-05-07/jeff-bezos-s-new-superyacht-heralds-roaring-market-for-big-boats

Because AMZN is now in funds to buy 100 of them:

Investor orders for Amazon’s fundraising fell just short of $50bn, according to the people, in a sign of the rampant demand from investors for US corporate debt, even as rising interest rates have eroded the value of higher-quality fixed-rate bonds. Highly rated US corporate bonds still offer interest rates above much of the rest of the world. Amazon’s two-year bond also carried a sustainability label that has become increasingly attractive to investors. The company said the money would be used to fund projects in five areas, including renewable energy, clean transport and sustainable housing. 

Normally it's (offshore) Dollar shortages that the BIS etc. angsts about.  But since when is the offshore Pound once again a big part of the world financial system?

https://www.ft.com/content/ae13495e-fa79-4aff-ad5d-6e5f923a93bd

[...] While technically sterling still qualifies as a hard currency reserve asset, it’s been a long time since anyone had much love for it. 

The Great British Krona, as we have likened it, has been beaten up in the markets ever since the UK opted out of the European Union. But in an unexpected turn of events, the Bank of England announced an intriguing swap arrangement with the Bank for International Settlements on Tuesday which insinuates there could be a sterling shortage doing the rounds: 

The Bank of England (BoE) has entered into a facility with the Bank for International Settlements (BIS) to ensure the provision of Sterling liquidity during any future periods of market stress, complementing the BoE’s existing established network of standing bilateral swap lines.

Under the terms of the facility, the BoE will provide collateralised short-term Sterling liquidity to the BIS. The BIS may use the facility to provide Sterling liquidity to their eligible existing central bank customers. 

Together with the swap lines the BoE has with a number of central banks, this new facility will provide a further liquidity backstop in Sterling to help ease any potential future strains in funding markets. Swap arrangements of this sort are usually structured via bilateral or multilateral frameworks between central banks. 

In fact, we are hard pressed to think of any time the BIS has been used as a go-between intermediary in recent time. The only other swap arrangement that comes to our mind immediately is the equally mysterious gold swap arrangement the BIS undertook in 2010. The rationale for this, it was speculated at the time, was either purely economic (ie the BIS spotted an imbalance in the market and decided to act on it for system stability reasons) and/or intended to mask the real intended beneficiary of the arrangement, also for stability reasons. 

So the big question now is who in the world is currently short of sterling or about to be short of sterling? And why? [...]

A reader comment below offers some ideas:

# Hypothesis 1:
It's all about the dollar. Massive fiscal expansion in the US (backed by lax monetary policy of course, but fiscal was key) has succeeded in raising dollar demand and flooding the world with dollar liquidity. China's exports are booming; European factory orders are at record highs across all sectors; the US is hoovering up the world's (traded sector) productive capacity and paying out dollars. There are shortages in everything (shipping containers, chips, wood...) and dollar prices are rising.
 

So far, the dollar hasn't materially weakened as a result of this, and there isn't much weakening priced into FX futures either. That's probably down to capital markets: even a small currency movement encourages offsetting capital portfolio adjustments. However, perhaps private businesses (the ones with flush order books and lots of fresh dollars coming in) are diversifying away from dollar liquidity into other useful currencies - the euro, the yen, perhaps even the pound. If so, it's unsurprising if the financial system may not have been entirely prepared for this.
 

# Hypothesis 2:
Some rich people (or firms) are on a UK asset buying spree, are moving large amounts of hot money into the UK and need sterling to buy UK assets. It could be Hong Kong residents quietly escaping; it could be Russian billionaires bailing; it could be a rotation away from tech stocks and cryptocurrencies into value stocks (possibly accelerated by the shifting relative attractiveness of capital gains and dividend income for rich Americans); it could be private investors excited by the UK's future as a tech behemoth (or some other fantastical narrative). I suppose this is a broad family of possible causes or contributors, but an actual capital inflow chasing UK assets would be a more bullish (and less inflationary) case than hypothesis 1.
 

# Hypothesis 3:
UK based firms (or multinationals with impaired UK operations) are fire-selling overseas assets or pulling investments from foreign markets and shifting funds into sterling. That may be motivated by a UK credit crunch, by a sudden need to settle debts (or accumulated rental arrears), by the need to repair damaged cashflow or some other (perhaps) COVID-19 related stress factor. It could also be caused by a sense of mounting insecurity in foreign markets and a preference to trim exposure. This one would be more bearish.
 

# Hypothesis 4:
China is driving things. The Chinese economy is now about a quarter larger than the US economy (in PPP GDP terms), and China does about 10-20% more trade with the world (in cold nominal terms). The Chinese economy is booming and now accounts for almost all global GDP growth. Things like swap lines need to be resized accordingly over time. Though it's not entirely clear why this would need to go through the BIS...
 

# Hypothesis 5:
Strange things happen in times of a global pandemic. Nobody knows what's coming next.
 

Can the Exchange do any better?

I've been highlighting for a number of weeks that the SPAC trend in 2020-21 echoes the peak in cash-shell listed firms at the top of the 1999-2000 dotcom boom such as the infamous NetJ.com:

Those of you who have been following our tales on the unbelievable are well aware of the "NetJ.com" phenomena. For the newer readers, this is a NASDAQ listed company whose share price rose from U$1.00 on December 31 to U$8.00 by mid March. At its peak, this company had a market capitalisation of U$85 million. The truly amazing thing about this company was that it had no earnings, no sales, no assets, no staff, not even a business plan. This company was a listed shelf company whose share price rose solely on the hype surrounding its name "do nothing - dot - com".

When we first highlighted the NetJ story, the share price was $4.00 a share. Some of you will recall that although we lampooned the extraordinary rise from 1 to U$4.00, we finished off by asking if anyone were game enough to short sell the stock. Not too surprising, there wasn't a taker. As were with our own thoughts on this subject, the momentum behind the dot com bubble was too strong to lampoon in actual portfolio construction. Furthermore, we remain strong advocates of the benefits and upcoming changes behind the technology revolution. Our concern then, as is now, is that any investment should be focused on its ability to generate income and return based on fundamentals, not on concept nor hype. The NetJ.com only exemplified the latter.

The parallels have only continued to build in recent weeks:

https://www.ft.com/content/5c43db53-4d43-4861-8501-a6b758d0adeb

The mysterious ‘mini-Spac’ that owns a $100m Deli

We have a feeling you may be hearing more from Manoj Jain, a former New York investment banker who moved to Och-Ziff Capital Management in Hong Kong before leaving almost a decade ago to set up investment firm Maso Capital. Jain is working with two vehicles that he believes could help companies in the region gain access to US capital markets. 

One is a $175m blank-cheque company, Duddell Street Acquisition Corporation, focused on targets with “compelling Asian growth potential”.

The other is Hometown International, which owns a single sandwich shop in the dusty refinery town of Paulsboro, New Jersey, yet has a stock market valuation of $100m.

Hometown attained notoriety on Wall Street a fortnight ago when it was named in an investor letter by Greenlight Capital’s David Einhorn as an example of the “quasi-anarchy” that he said had taken hold in financial markets.

“The pastrami must be amazing,” the hedge fund manager quipped. 

We now have our answer.

https://www.ft.com/content/c7c0f11c-b678-491d-9173-fe49ea29b4b8

Spac share prices slump as enthusiasm wanes

Companies that came to market via blank-cheque deals are trading an average of 39% lower

Shares in businesses that went public through deals with blank-cheque companies have dropped by an average of two-fifths from their highs, as appetite for the once red-hot sector of the US stock market cools rapidly.

Of the 41 blank-cheque companies that have completed transactions since the start of 2020, only three are even within 5 per cent of their share price peaks. Eighteen of them have more than halved, and several are down by more than 80 per cent. The average decline is 39 per cent.

The figures come from a Financial Times analysis of data from Refinitiv tracking special purpose acquisition companies that acquired businesses worth more than $1bn, and come against the backdrop of a wider US stock market rally that set a new high in the past week. [...]

The next question is: does the "blank" in "blank-cheque" truly mean blank, as in "nothing", "nada", "zero"?

Interest rates were 20% in Ancient Sumer & Babylon.

In those times, the average lifespan was 28-30.  So you had little time to pay your loan back.

Nowadays the average person lives a least twice as long, so has much longer to repay; plus developed legal systems provide recourse to your estate's assets if you die indebted.  So your lender needs less interest as borrowers are less risky.

So could lower interest rates today (irrespective of CB's/QE) be a function of longer life-expectancy - especially in rich, indebted countries?

This paper covers it in terms of recent history and in terms of propensity to save.  But surely longer life-spans (in terms of recourse) are a factor.

https://www.alliancebernstein.com/library/Why-are-interest-rates-so-low-And-where-might-they-go.htm

US DEMOGRAPHICS

Under the broad term “demographics” are a few key drivers, each of which has a different effect on interest rates. Of all the drivers that structurally influence rates, demographics are the most interesting today because several longstanding trends are stalling or reversing.

Life expectancy—In general, as life expectancies rise, people choose to save more throughout their working lives to fund longer retirements. Those higher savings rates pressure interest rates lower. As life expectancies have risen in recent decades, they’ve pushed rates down.

Fertility—Falling fertility rates work differently but have also pushed rates lower. Lower fertility rates increase the capital-to-labor ratio in an economy, which makes incremental capital less valuable and in turn lowers the demand for funds, and with it, interest rates.

Population growth—Changes in life expectancy and fertility (along with immigration) lead to changes in the population growth rate. Population growth in the US has been slowing since the 1950s. This has two effects:

• Initially, like lower fertility rates, it reduces the value of incremental capital and pushes interest rates down.

 

• But over a longer horizon, it increases the proportion of retirees in the population. Since retirees spend money out of savings, this larger pool of retirees drives down national savings and drives up interest rates.

 

Length of working life and length of retirement—In the US and other developed countries, retirement ages fell steadily in the decades following 1970 and retirement lengths nearly doubled. That meant people needed to save more during each of their working years and/or spend less in each of their retirement years, pushing up savings and pushing down rates.

Employment-to-population ratio—Since workers save and retirees spend, a higher proportion of workers in the economy translates into a higher national savings rate and pushes interest rates down. This is the demographic dividend the baby boomer generation provided over the past several decades. But remember the lagged effect of declining population growth—as more of the population ages, the effect reverses and those retirees put upward pressure on rates (Display 2).

So I'm musing over whether longevity is a missing factor in how people analyse a borrow's risk of default - and therefore the 5,000 year drop in interest rates.

In this analysis the 1970-2000 period was simply a monetary aberration and the underlying longevity & legal trends are unchanged: