Christopher Giancarlo was the head of the US Commodity Futures Trading Commission (CFTC) when the Bitcoin (BTC) bubble popped in 2017 – and according to him, the US allowed the introduction of BTC futures in order to flatten the BTC market.
Earlier this year Giancarlo told an audience, “One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC and the (National Economic Council) director at the time, Gary Cohn, believed that the launch of bitcoin futures would have the impact of popping the bitcoin bubble. And it worked.”
The ex-CFTC head didn’t comment on whether or not the US government had engaged in ongoing operations to manipulate the crypto markets, but it appears that cryptos are making waves at the highest levels of power.
Precious Metals Have Been there Before
While government officials have been less open about price suppression schemes in the precious metals markets, the Gold Anti-Trust Action Committee (GATA) has been working for decades to expose corruption in the precious metals futures markets.
The evidence that GATA has gathered is compelling, especially when we look at the size of the short positions that banks like JP Morgan Chase have controlled in the gold and silver futures markets.
Given the comments by Giancarlo, it is fair to ask if the US government is taking a page from the gold and silver price suppression handbook, and running plays in the up-and-coming crypto markets. Global governments have every reason to dislike cryptos, especially nations that control a reserve currency – like the US Dollar.
Cryptos Enter the Market With a Bang
Many people have compared cryptos to precious, but there are some pretty big differences between the two asset classes. One of the biggest is how long the assets have been in the marketplace, which makes comparative technical analysis difficult.
We can say that both cryptos and gold have reacted favorably in terms of price after global central banks began to supply free money to the markets during Q2 2020, which does reinforce the correlation between the two assets.
Gold prices are currently butting up against all-time highs in USD terms, but BTC prices remain well below the highs of late 2017. Ethereum (ETH), the world’s second most valuable token by market capitalization, is sitting at less than ¼ of the price it hit in late 2017.
Much like the dot.com bubble of the late 1990s, the past peaks in crypto prices may look cheap when compared to their next run-up in prices – which is exactly what is happening with the NASDAQ.
It isn’t difficult to see that the price of assets on the NASDAQ has exploded in the wake of 2008’s massive money printing experiment and even more so over the last few months.
The support that central banks give to equities is de-facto government intervention in the markets, which may be one of the reasons why cryptos have lagged precious metals since the crash earlier this year.
Central Banks Aren’t Buying Cryptos – Yet
All the talk this year has been about Central Bank Digital Currencies (CBDCs), but the real action has been in central bank gold accumulation. Central banks bought more than 650 tones of gold in 2019, and according to a recent survey, many plan to keep buying.
The reasons for this gold buying are simple – central banks know that the global financial system is unstable, and the relationships between the world’s largest economic powers are falling apart.
CBDCs only make sense in a world where one central bank would accept the fiat promise of another, which makes CBDCs look like a weak idea given the outlook for geopolitical stability. No central bank has ventured into buying decentralized currency, but that may change over the next few years.
From Outcast to Vital Asset
Major cryptos like BTC and ETH have some pretty incredible advantages and may make a lot of sense for companies, large financial institutions, and central banks. In a world where sanctions are on the rise, central banks themselves may need assets that are totally apolitical, and relatively anonymous.
Let’s say a central bank in Africa needs to do business with both the US and China – without dealing directly with the banking system in either nation. Cryptos make this easy. Any transactions can be cleared in a major crypto, and the cryptos can then be sold in a neutral market for whatever assets the central bank wants.
A system like this is already being used by real estate developers and buyers in Dubai, who are using Bitcoin to pay for new projects, and then clearing the transactions via Huobi, even though the use of cryptos for these kinds of payments is illegal in Dubai.
After 50+ years of relative complacency in the geopolitical arena, a major conflict between China and just about any nation would create difficult conditions for central banks, which could be one of the biggest drivers in the crypto market over the next decade.
Government Intervention Will Fail – and Cryptos Will Scream Higher
It is important to note that the futures contracts that were used to stomp the 2017 Bitcoin bull run were cash-settled.
A cash-settled BTC futures contract isn’t connected directly to the market that determines its prices, and it won’t ever result in the buying or selling of actual Bitcoins. Why this was able to push BTC prices from around $20,000 – to under $3,000 at the current bear market lows is open to debate.
On a longer-term basis, these unconnected futures contracts are unlikely to satisfy the demands of banks and governments who want exposure to the crypto markets.
Much like the uptick in demand for physical gold, 170 tones of which has been delivered to the COMEX this year for physical delivery, crypto buyers will want the private keys that operate directly on the blockchain.
If efforts to suppress crypto prices are to continue, governments and central banks will first have to own the cryptos they want to sell – which requires massive on-market buying. Any move into the token markets by major institutions will result in prices that may be hard to imagine at the moment, although they may be closer than anyone thinks.
Sources
https://www.coindesk.com/trump-administration-popped-2017-bitcoin-bubble-ex-cftc-chair-says
https://www.gata.org/taxonomy/term/23
https://www.forbes.com/sites/simonconstable/2020/06/12/central-banks-set-for-gold-rush–over-financial-crisis-fears/#7d5e6aeeebc1
https://gulfnews.com/your-money/saving-investment/dubais-real-estate-is-now-taking-a-fancy-to-bitcoin-read-to-find-out-how-1.1583413679738
https://cointelegraph.com/news/huobi-exchange-partners-with-uae-real-estate-firm-to-enable-crypto-payments
https://nationandstate.com/2020/07/25/a-record-170-tons-of-physical-gold-were-just-delivered-on-the-comex-heres-why/
