FTX and Crypto - My perspective

Since I'm already pretty old and change doesn't come easily to me anymore, I've avoided Crypto until recently simply because it required work, time and research to figure it out. Now I feel that I have a better understanding of what Crypto is and how it works. The recent melt down of FTX has been the impetus to make many others on the sideline ask questions so here is what I think I know:

Bias disclosure:

(Regular readers know that I have regularly advocated against Official, Federal Reserve Monetary Policy which I believe is at best misguided and at worst criminal.)

First off, when I say "Crypto" I mean Bitcoin & Etherium - not the myriad of other coins used. Those coins are also Crypto however, for for this post I'll stick to BTC & ETH.

There is one other Crypto coin however which is used as a secondary means of transacting (buying and selling) other Crypto coins: TETHER. This is a Crypto coin used to buy other Crypto coins and it is pegged to the Dollar 1:1. You might ask, why not just use regular Dollars? - Good question.

So, when you buy BTC you must first turn your Dollars into TETHER and then use the TETHER to buy BTC. So, who issues TETHER and how do I get some if I want to purchase some BTC?

"Practically every crypto exchange supports USDT trade in some form. The makeup of Tether’s reserves and its inner workings are yet to be disclosed in clear detail. Still, the question of who exactly buys Tether directly from its parent company Bitfinex has remained unanswered since its inception way back in 2014."

Does this sound remotely familiar to you?

"Did that last sentence set off any alarm bells? It should have. Alameda Research is the quantitative trading firm founded by Sam Bankman-Fried. Bankman-Fried and his partner in crime, Alameda CEO Caroline Ellison, allegedly propped up their trading firm by plundering FTX customer accounts.
The inner workings of Tether remain remarkably opaque. New Tethers are supposed to only be minted, and added to the crypto ecosystem, when somebody gives Tether Limited dollars to create them. And if that’s how it all worked, Tether would be fine.
But there is no evidence Tether actually works this way. We repeat: There is no proof that Tether stablecoins are backed by the store of tangible assets that is supposed to justify their value.  
Despite first being released eight years ago, Tether has never been audited in any way. It first promised an audit in 2017…to, you know, happen eventually. How is that coming along? As reported by the WSJ, “Tether Says Audit Is Still Months Away as Crypto Market Falters”

Basically my understanding is this: BTC & ETH represent real alternatives to the fully captured and rapidly diminishing fiat currency system where dollars are created from thin air only to then flood the market and create inflation as more currency chases after fewer goods and services. The Block Chain system used to create, track and trade all BTC is a truly independent and marvelously impervious to state interventions. There is no central location but rather a global network of thousands if node-like computers that cannot be controlled by any central authority.

Governments around the world are desperately trying to mimic BTC but they will fail because they want to control it themselves, this is why they are pushing so hard for cash-less societies and government issued digital coins - it's only about control rather than value. There is no way to maintain Value of any currency when the state can just print more from nothing.

I've always wondered why they need me to pay taxes when they can just print money but I digress.....

Crypto will be in our future more than it is now IMHO. Many more businesses will use Crypto especially for trade but also for convenience.

The mechanism(s) used to buy, sell, store and transfer Crypto however are open to so much influence from bad players, as in the recently revealed corruption (facilitated by regulatory authorities), that I believe it's best to keep all Crypto holdings OUT OF EXCHANGES and in secure, private e-wallets. That is, own BTC but don't trust the exchanges - If you don't own the code, you don't own the coin, that simple.

There's more to this by far and I have way more to say on the subject than is humanly possible to write here in this blog post - please call me if you have specific questions; I return all calls.

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