Crypto death knell heard by those who know it

I recognize that sound. The sound of a concerted government message being delivered across partisan lines presaging the demise of yet another bubble by bailing out bank customers and stemming massive losses. This time, the bubble is crypto.

People immersed in the crypto universe live in a constant state of denial. For them, all content that suggests Bitcoin’s days are numbered is bullshit, and only HODL (hang on for dear life) is the acceptable mindset.

Just as other episodes in stock market history have obliterated – or more accurately, transferred – the wealth of countless would-be “investors” and self-imagined “traders” to the mandarins of mass hysteria in top-floor offices around the world.

From tulips to Securitized Debt Obligations, (SDOs) the flavour of the month is all that ever changes. It is also noteworthy that the scale of the wipeout is commensurate with the duration of the pump.

Take the internet bubble, for example.

Gaining momentum throughout the late nineties – largely on the previously unprecedented billions pumped into anyone who could cobble together a likely internet story in a public company, it took 10 years to build but only a week to destroy.

Here are the Chat-GPT4 generated estimated losses from that massive wealth transfer exercise:

1. Technology Stocks – Approximately $5 trillion in losses
2. Telecommunications Stocks – Approximately $2 trillion in losses
3. Dot-com IPOs – Approximately $1.755 trillion in losses
4. Internet Infrastructure and Service Providers – Approximately $1.755 trillion in losses
5. Biotech Stocks – Approximately $1.15 trillion in losses
6. Semiconductor Stocks – Approximately $945 billion in losses
7. Internet Advertising Stocks – Approximately $685 billion in losses
8. E-commerce Stocks – Approximately $375 billion in losses
9. Wireless Communication Stocks – Approximately $345 billion in losses
10. Networking Stocks – Approximately $295 billion in losses

The next bubble after that was the housing market crash which triggered the panic selling of all of the synthetic derivatives like SDOs, Credit Default Swaps, and the full range of fabricated instruments of mass financial destruction that were unleashed on the naive and gullible investing public at the time. This bubble only took 6 years to build, which helps to explain why its listed losses total far less than the Internet bubble losses.

Here are the top 10 financial instruments and the damages they caused as provided by Chat-GPT4:

1. Mortgage-Backed Securities (MBS) – $1.2 trillion in losses;
2. Collateralized Debt Obligations (CDO) – $542 billion in losses;
3. Credit Default Swaps (CDS) – $333 billion in losses;
4. Asset-Backed Securities (ABS) – $300 billion in losses;
5. Structured Investment Vehicles (SIV) – $170 billion in losses;
6. Auction Rate Securities (ARS) – $150 billion in losses;
7. Bankruptcy Claims – $75 billion in losses;
8. Leveraged Loans – $50 billion in losses;
9. Commercial Mortgage-Backed Securities (CMBS) – $48 billion in losses;
10. Preferred Stock – $40 billion in losses

If you compare these major financial wealth transfer exercises against the original monster collapse of all time – the 1929 stock market crash, the dollar value of that historic event are minuscule compared to the modern episodes:

1. Stocks – Approximately $30 billion in losses
2. Real Estate – Approximately $14 billion in losses
3. Bank Deposits – Approximately $3 billion in losses
4. Business and Corporate Bonds – Approximately $2.5 billion in losses
5. Government Bonds – Approximately $2 billion in losses
6. Public Utility Stocks – Approximately $1.5 billion in losses
7. Mortgages – Approximately $1 billion in losses
8. Foreign Investments – Approximately $1 billion in losses
9. Agricultural Commodities – Approximately $1 billion in losses
10. Luxury Goods – Approximately $1 billion in losses

These figures obviously reflect 1929 dollars, so if adjusted for the inflated monetary supply of today, they would likely emulate the scale of the more recent crashes.

The common theme in all of these crashes is the legitimacy at the time of the financial instruments being proffered under the guise of the law, only to become more comprehensively regulated after the crashes, like closing the barn doors after the horses have stampeded away.

In the case of this crypto era, which we could argue got its start in the popular imagination around 2011 when there was only Bitcoin and Ethereum, we are witnessing precisely the same pattern of massive run-up in valuation of the entire category, and now, 12 years in, we are starting to see the warning signs that have always preceded the collapse en masse of the entire sector: the banks most exposed to them becoming brittle and collapsing.

This time is different though.

Because crypto actually did usher in the era where we were all made comfortable with the notion of a digital currency, even though we could easily prove that the percentage of transactions conducted digitally has been increasing since Chargex in the 80’s.

And now, the governments have recognized that, contrary to the initial representations of its original promoters, crypto transactions are not, in fact, anonymous, or secure, or private. In fact, they are the opposite of all those things, making crypto the best tool of government surveillance since the cell phone.

Which is why, once the Central Bank Digital Currencies are established and the system of international payments has worked out all the kinks, the crypto complex which will then come to be known as the “illegal” crypto segment will ultimately generate a similar list of losses ranked in dollar value by HODL enthusiasts who either failed to be students of history, or else failed to generate a sufficiently reliable pattern recognition sensibility.

This time is different also because the ability of central banks to offset the massive losses piling up now with massive injections of stimulus counterfeiting is not very present, thanks to the rampant inflation and soaring interest rates that central banks have caused in the first place.

So hang on to your hats. This is going to be like watching the Burj Kalif fall one brick at a time, then overnight.

Original article: Crypto death knell heard by those who know it

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Source: https://midasletter.com/2023/03/crypto-death-knell-heard-by-those-who-know-it/