CRYPTO CURRENCY: Scam—Sophisticated extortion of money from naive “investors”

Balkantimes.Press

2 years ago

How crypto enthusiasts are lying to themselves about the revolutionary nature of their movement and why bitcoin will never be more than a gambling tool

PLAIN INSANITY

If markets remain the dominant economic pattern of behavior, as technological automation replaces jobs and other human inputs, we will continue to see increased activity in the financial sector, thus moving away from jobs and income that have real tangible economic utility. It is logical to ask: If automated systems create efficiency at the level that less energy and people are needed in the production sector to get things done, and they are reoriented to financial speculation and other forms of financialization such as cryptocurrency trading—why would that be bad? Well, it’s bad because it’s just plain crazy.

The great advances in efficiency that we have seen technologically and thus economically in our society should motivate us to change the structure to take care of everyone, create a safer environment, relieve stress, reduce the work week, and all those things that are talked about. They’re been talking for too long. Instead, today more and more attention is being paid to the engineering of non-productive activities, and we are on the way to the fact that everyone’s job will soon become sitting at a computer and strategically trading money as people do on the stock market. Imagine that one day it becomes the only remaining economic activity, and as absurd as it sounds, financialization trends are moving towards it.

What has happened is that the idea of buying and selling for profit has taken on a life of its own in the abstract. Every year, metaphysical financial assets become more attractive than real production, which is why most corporations today invest a large amount of their excess capital in financial derivatives. The financial sector alone now generates 30 to 40 percent of all corporate profits. The financial services sector, which literally does not have to exist in the physical world in earthly economic terms, is on its way to becoming more profitable in terms of GDP than actual manufacturing itself. Although this industrial branch has grown from 10 to about 40 percent of GDP in the last 50 years, employment in the financial sector has remained at about five percent.

This is a ton of money going to very few people, which clearly shows that the financial industry is one of the biggest drivers of socioeconomic inequality. It is also worth noting that the financial sector, more precisely the trade in financial assets, is the most destabilizing economic force on the planet. The natural boom-and-bust business cycle dynamics of a market economy do not have the ability to single-handedly collapse an economy in the way that the financial system and Wall Street constantly do.

Proponents of cryptocurrencies see the application of blockchain technology as an ideal way to eliminate the dominance of the financial sector, which is logical. If we remove intermediaries, such as banks, through direct peer-to-peer exchanges and smart contracts, this could theoretically reduce the influence of centralized financial institutions, which could ultimately help reduce income and wealth inequality. This certainly makes theoretical sense on paper, but because of these idealistic assumptions, people easily get lost in the theory and don’t pay attention to what actually happens when trading cryptocurrencies, specifically bitcoin.

STOCK EXCHANGE AS A CASINO

Historically, investing in something means that people direct capital to help a production organization, hoping that it will pay off when that company becomes profitable by selling its goods or services. This eventual return is called a dividend and comes in the same amount for each share. However, as the market system evolves, it gradually accepts its most basic structural function – the act of trading. Thus, due to this self-organizing gravity of the system, the idea that a share of the company itself could be priced and then traded for profit became increasingly popular, while dividends became less common. The focus of today’s stock market is, in fact, simply gambling on those shares as a financial instrument whose price is based entirely on the subjective opinions of those who buy and sell.

This kind of game is accepted as normal today; trading in abstract non-existent so-called assets that produce absolutely nothing in the process. News and pundits analyze the stock market every day as if it were a key economic institution, not a deviation from the taste and smell of Las Vegas. People who claim to invest in the stock market, commodity market, or any other financial derivative – bonds, options, futures, and, of course, cryptocurrencies – are not actually investing in the intended sense of the word. You can’t invest in something that doesn’t do anything. These are sophisticated games of chance, where money is taken from other people who are also gambling in the hope of getting lucky.

Buying shares is not an investment, it is a game of redistributing money without creating anything. The market does not create value, it only transfers money between players. Only when a company goes public and sells off its entire stock does it directly benefit from the investment. This is where the direct relationship between the company’s share price and the company itself ends, and public speculation based on subjective information begins.

In real markets in real life, economic value comes from three things: labor, capital resources, and demand. Demand means perceived utility. When you buy a chair, its price will generally reflect the labor energy put into it, the resources used to make it, and the existing demand for it. In the case of shares or securities, the value is determined by subjective feelings but is usually based on news or information that actually relates to the company; performance, business reports, profitability, etc.

However, in the world of cryptocurrency, even that loose, last remaining basic association with something real disappears. Value becomes universally subjective, arbitrarily determined by a wide range of interpretations, whims, feelings, social trends, idealism, and general cause-and-effect dynamics of the crypto participants themselves. In other words, despite the certain benefits of crypto as a currency, any quantification is completely meaningless.

The idea that the value of bitcoin actually reflects some kind of radically important societal shift toward a more sustainable and humane economic pattern is simply stupid and hypocritical. Even if there is truth to the potential of bitcoin or any cryptocurrency to achieve such goals, none of that will happen because the fundamental lure of crypto enthusiasts is asset upgrades, not currency usage. In technical reality, ironically, the only thing that gives bitcoin its value is, i.e., price, i.e., fiat (state) money that is pumped into it. If it weren’t for the gambling interest in taking other people’s money, bitcoin would never have gotten this kind of attention.

Another convenient myth today is the idea that the stock market or any financial instrument, including cryptocurrencies, somehow creates wealth. What is wealth anyway? Some will say that it is an ability, not a result. However, in the traditional conception, wealth is seen as the result of ownership, i.e., excess. Someone with a 50-room mansion or a billion dollars in the bank was considered rich; the more surplus, the more wealth. The fact is that no financial instrument, again, creates anything, but only redistributes existing money. Every financial instrument is just a balloon that inflates and deflates depending on how much money is put into it.

THE ZERO-SUM GAME

Propaganda of bitcoin as “virtual gold” in the sense of storing value, i.e., protection against inflation, is also highly questionable. When you buy gold, it doesn’t do anything magical, but market participants by the inertia of habit push money into it in times of crisis, hoping that it will be less affected by inflation. But inflation still exists, and money is still devalued. All you’re doing is after the price goes up, you’re extracting in your favor the extra money that someone else invested in the same thing after you. So how does it actually play out in some higher benefit? In the strict concept of the idea of securities, there is literally no such thing as a “safe haven for investments”. Something cannot be a safe haven if one side wins and the other loses in a zero-sum game.

Also, given the way today’s economy works, based on the insanity of endless growth and bathed in waves of continuous cyclical crises, it may not be a very good idea to have a deflationary currency—which bitcoin is (limited to 21 million “coins”). Imagine if the government was unable to inject additional money into the system due to the COVID-19 crisis; that would be a disaster. The idea of currency limiting monetary expansion is actually, given the economic (sad) reality, still a terrible idea. Unfortunately, the only tool the government has to correct the inevitable periodic breakdowns of our great financial system is monetary stimulus – a necessary evil due to the fundamental lack of integrity of capitalism itself. Crypto cannot be a solution to inflation.

The fantasy of revolutionary infrastructural change assumes that bitcoin, or some other cryptocurrency, will somehow magically come into the favor of state power to promote it, as many idealists like to say, into the new global reserve currency. Some people assume that just using bitcoin as a substitute for fiat money in everyday life will become so popular that everyone will start doing it, completely absorbing the sovereign currencies. Even if bitcoin were to take over some 80 percent of the world’s currencies, this does not change the nature and position of state power. The fact is that until crypto is accepted to pay government taxes, its full adoption will never happen – therefore the framework of institutional power will always remain.

Without a complete replacement of fiat currency, crypto will always have to be converted back into money for government purposes, thus preserving the existing system. And if the government does decide to adopt cryptocurrencies, as we’re seeing with the rise of central bank digital currency pilot programs around the world, the essence of the decentralized cyber-punk fantasy is lost. Governments will introduce code variations they want and crypto versions that serve the government’s commercial interests.

A significant portion of the crypto community is deluded into thinking that what they are doing is revolutionary, out-of-system activism. And while the distributed ledger of consensus (DLT) and blockchain has the potential to be part of development ideas outside the existing system, the current system has easily adapted them into forms of gambling instruments. All the dominant patterns of behavior surrounding bitcoin do not challenge the very structure of the system, as evidenced by the fact that the gambling aspect of cryptocurrencies is much more commonly practiced among the public than any form of currency use. It is enough to take a look at the recent NFT (virtual unique) mania, as a result of which a digital image of a stone was sold for 1.3 million dollars, and the entire metaverse i.e. virtual reality is conceived as capitalism on steroids.

THE TRADER’S DOPAMINE HIT

There is an old saying: “There is nothing more dangerous than one with righteous ignorance because of the idea that morality is on his side.” In the case of bitcoin advocates, many of them not only believe that they have virtue as partners in the context of some kind of activist excitement to change the world, but this public spectacle and hype are further enhanced by the direct monetary reward of the dopamine hit they receive as they watch the currency’s price rise and their wealth increases.

If someone makes a million dollars owning Apple stock, there’s a very good chance they’ll be a fan of that company on that basis alone, and the same psychological force is at play in the crypto community, where people pathologically lie to themselves about their true motivations. The higher the price of one’s portfolio rises, the more irrational the assumption about the asset’s virtue. Bitcoin enthusiasts actually think that by buying this thing, increasing its price, and influencing others to buy, they are somehow contributing to social progress.

There is rhetoric in the crypto community that bitcoin will even overtake crime on Wall Street. How exactly would bitcoin have prevented the 2008 crisis caused by stockbrokers dabbling in mortgage trading? Can it solve the outrageously abusive bonuses and extreme incomes of hedge fund managers? Will it prevent central bank employees from buying securities for which they have confidential information? Of course, no change in the type of currency will have any real effect on the varying degrees of criminal behavior that we commonly see on Wall Street or in any other domain of the existing system that encourages selfishness, greed, and aggression.

A socioeconomic system does not change simply by replacing one of its main levers. Since, in fact, the very concept of markets and currency, in general, is the underlying catalyst for the disease of power and violence we see every day, they are the ones that must ultimately be removed. This is what system-level change will require if humanity expects to be sustainable in the future and to create social justice and thus social stability.