Amidst all of the bullish talk about cryptocurrencies we know that a strike back from the banking system and its owners is coming. In fact, the attack as I see it is well underway.
And it began with the attack on the credibility of Bitcoin Cash and it’s continuing with the insane pump of Ripple and any coin which has direct ties to old money. What I want to posit today is how the next crash in the cryptocurrency markets can, and likely will, play out.
To lay this out you have to believe a few things are true.
- The major money center banks have all been trading Bitcoin and other alt-coins for a long time. They have substantial books to push and pull the price.
- The futures market is used to control the price during daytime hours in the U.S. and Europe.
- Bitcoin’s failure to implement ‘Segwit 2x’ and its current dysfunction was intentional in order for Blockstream to offer a ‘solution’ to a ‘problem’ that needn’t have existed.
- Lightning Network is simply a backup control plan in case Ripple isn’t adopted by the marketplace as the crypto-settlement and exchange layer. It creates a second layer of centralization off-chain.
- Legislation and regulation to date has been designed to allow money to flow into the crypto-markets but not back out again.
Ripple, otherwise known as ‘BanksterCoin’ among we crypto-enthusiasts is the stalking horse of the cryptocurrency industry. It’s meteoric rise in price coincides with Bitcoin’s peak and subsequent meandering. It was done, timing-wise, to see articles like these (here, here and here) written as we ring in the new year.
The Bitcoin Trap
Look at the situation in Bitcoin. After the failure to implement the New York Agreement, something that didn’t have to be an all-or-nothing proposition, Bitcoin spiked from $5000 to a high near $20,000 in less than a month. Transaction fees soared, exchanges became illiquid, getting alt-coins off some exchanges was difficult as many were revealed (at least in the short term) to not have supply of the underlying assets people were ‘trading’ in their pools.
Services like Changelly and Shapeshift have much smaller lists of coins available for easy exchange than they did a month ago. Try buying tokens like WAVES, STEEM, Golem, NEO or Komodo on these services. You can’t. They can’t source actual tokens or the gateways to exchange them are down.
The best way to kill a market is to get retail investors buying the peak and selling into it. Such is the stuff bear markets are made of. It’s imperative to break retail investor sentiment down. That’s how markets are brought to heel. Then rotating out of that market into the next market you want to promote. This is what the banking industry does with its sell-side ‘analysis’ all the time.
I have a rule, when Goldman-Sachs says “Buy” I sell and vice versa. In my Universe, rightly or wrongly, Goldman and their ilk are still trading against its recommendations and its clients. And if it’s not allowed to do so anymore wink wink because of Dodd-Frank then in the unregulated crypto-markets you should bet that they, J.P. Morgan and the rest of them are.
So, it’s easy to believe in an irrational pump of Bitcoin to $20,000 and the subsequent rotation out and into Ripple, boosting its price and profile, while leaving ‘teh newbz’ hanging at the top. Add in Bitcoin futures trading to help the tail wag the dog, insane transaction fees that have everyone wondering what’s so great about this Bitcoin if it costs $30 to move $100 and you have a set-up for carnage.
The spike to $20,000, in my opinion, was created by the very hinckey roll-out of rival Bitcoin Cash by Coinbase last month. The goal there was to sow confusion and undermine Bitcoin Cash as an alternative to Bitcoin. Again, if you want control over the entire market, you do so by killing off real competition.
See, folks, all of this confusion and carnage comes from not having any kind of centralized control. But, hey, there’s this new cool thing called Ripple which solves all of that and the price is going bonkers!
Trap Set.
To Ethereum and Beyond
That’s the past. That’s where we are as we enter 2018. Now what?
In response to this, Ethereum begins another push towards $1000. Now, Ethereum has its own problems that are technology-based. Ultimately, its blockchain is only as secure as the code of the tokens issued on it.
We’ve seen this in reality a couple of times, including the hack because of bad code that forced a fork of the Etherum blockchain which created Ethereum Classic (ETC) and Ethereum (ETH).
While I fully believe that one (or many) of these Ethereum-based projects is likely to create another event like that one, the pure cynic in me says, “Why wait?”
If you were the bad guys wouldn’t that be your plan in the first place? Create a crypto-project using ERC-20 tokens that resolve and clear on the Ethereum blockchain with the intention of breaking it. Invite investor money in, say fifty million dollars. A reasonable, but not insane amount of money.
Then let the code run until such time that it will cause maximal damage to Ethereum and the whole crypto-community. The token goes up four or five times because that’s simply what is happening across the space.
At that point you’ve created a $200+ million meltdown and negative headlines galore.
At this point Bitcoin is neutralized and controlled, Ethereum is discredited and something like that would cause a major panic which is exploited by the same prop trading desks that blew the bubble up in the first place.
If you time that with a spike in Ripple, the banker-acceptable coin, and crash it too, you’ll take down most of the industry in almost no time. The psychological damage from a scenario like this will create bear market not unlike the one created post Dot-Com bubble.
And like that bust, only those companies that are willing to play ball with Wall St. and Washington D.C. will be promoted and allowed to thrive.
Trap Sprung.
If you don’t think Wall St. isn’t thinking in these terms then you aren’t a serious crypto-investor. This is the nightmare scenario, or one like it.
The Slipstream Solution
This is why I continue to bang on about the need for decentralized exchanges where the kind of manipulation described above is harder, if not impossible, to pull off. I fundamentally do not believe most of the ‘liquidity’ that exists on exchanges like HitBTC, Bittrex, GDAX, etc. exists.
Between the false liquidity created by Tether and the potential for running fractional reserves it’s not hard to posit. It doesn’t take the weight of the entire Bitcoin market to raise the price. It just takes one guy willing to buy the ask. Once sellers lift their offers in response to a wave of buying things go up quick, especially with programmatic, algo-driven trading.
These exchanges who are not holding all deposits as smart contracts off-exchange with 100%+ reserves like BitShares are vulnerable to major price rises creating liquidity problems, which only adds to the perception that the industry is amateur-hour.
Another solution aside from Bitshares is Komodo’s BarterDEX, which exclusively trades through cross-chain atomic swaps and has no need for a third party intermediary. Both of these, to me, represent where the industry needs to go to avoid us ending up with Ripple and Goldman still running the show.
Remember, no one is operating BitShares’ exchange. It’s completely blockchain-based. It has a fully-tradeable profit-token, OBITS, which distributes monthly profits from the exchange back to the token holders (current yield is around 4%). There is no central pool of liquidity that requires ever-growing ties to credit-providers. The network only manages assets that have been deposited onto it.
Projects like AriseBank (full disclosure I bought into its ICO), I think, deserve a look. AriseBank partnered with BitShares to provide the back-end technology to facilitate currency-swaps and brokerage services. This is billing itself as the world’s first truly decentralized bank, designed to compete directly with the major banks and provide a new business model for banking altogether.
So, as 2018 plays out we as traders and investors need to be aware of the dangers of centralized liquidity and move our liquidity off of them, supporting projects that will build the kind of infrastructure Bitcoin’s initial design was supposed to support.
So many people who have gotten into cryptocurrencies in 2017 will not have an exit strategy in 2018 when the fan gets hit. As we saw in the peak in December getting your money into or off of Coinbase was a nightmare.
Viewing the market structure through this lens provides a way to siphon off some of the energy the banks are propelling cryptos with to not only fatten your wallets but bring validity and stability to the markets and businesses that will carry on the fight before it’s yet another case of “Meet the new boss, same as the old boss.”
For more background look at these articles:
https://tomluongo.me/2017/12/23/was-coinbases-bitcoin-cash-rollout-a-designed-hit/
https://tomluongo.me/2017/12/04/bitcoin-futures-and-the-need-for-control/
https://tomluongo.me/2017/11/16/the-foundation-of-the-next-cryptocurrency-bull-market/
and my archive at Crypto News:
https://www.crypto-news.net/author/tom-luongo/
I'm sure happy that you are dialed in on this stuff. I am fully convinced that TPTB are threatened by cryptos and will seek to control that space - it's just a matter of how and when.
Another stellar article GGG...and probably one of the most important at this exact time in this industry..i wrote about Ripple a few months ago, coming from the Retail/Finance sector, and my call was a good one, but as far as the concept of crypto and what it represents, decentralized exchanges and barter with swaps is so crucial right now...the biggest concern i had was that a lot of Banks are closing people's accounts when the deposits are coming from a crypto exchange...this to me was the Achilles heal of this revolution...all the government has to do is cut off the Fiat side and it will put a stick in the spokes of the wheel and make it crash..now with the Arise collaboration, this circumvents the need to tie into the major banks and now people can feel safe going into fiat for specific expenses or other personal reasons...this is such a massive shift and makes Bitshares one of the most undervalued coins in the marketplace-IMO..thanks for being such a great supporter and ambassador for Steemit and Bitshares friend..always look forward to your articles..cheers
Thank you for such a great comment. I hope to all get out I'm wrong, to be honest.
I am a lot less jaded than you. I don't see crypto as a direct threat to banking or vice versa. There is room for both and the two are not mutually exclusive. Ripple is its own thing. Personally, I like Ripple. It solves several serious problems. It will supplant SWIFT and ACH, and will likely work as an add-on to traditional financial transactions the way most transactions operate today anyway. When you swipe your card at a POS terminal, you have a merchant acquirer, you have a payment network, you have a merchant bank and you have a customer bank. All of these processes are interconnected to allow for verification of funds and authorization of a purchase. The current system is slow and outdated. Ripple can fix that.
I see BTC as the gold standard. A store of value with little practical applicability. It is too cumbersome. In less than a decade it is already outdated tech. Litecoin is silver. Another store of value that seems stable in spite of past pump and dumps in both those currencies. Ether will address contracting. And the host of other altcoins that have a purpose will thrive in their niches. It is the tech that matters to me, not the coin. The coin is the vehicle for driving the tech. And the tech will eventually disrupt every sector of our economy. That is a good thing. And I think the banks see the writing on the wall. Banks won't go away. Many will coopt different aspects of the technology. They have to. But I don't believe there is a vast conspiracy afoot. It is the logical progression of new technology disrupting traditional financial models.
I'm hip to all of those things @coldsteem, I think you've read enough of my work to know that, functionally, I agree with you about all of the things you said about BTC,LTC and ETH. But, the power structure can and will do everything in its power to ensure both their survival and their control. It's who they are.
The wrong people are getting rich and they don't like it.
I hope I'm wrong about all of this and even if I'm right I don't think they win in the long run but they can definitely forestall any effective shift for a few more years and take a lot of people's money in the process.
The banks are insolvent. The EU sovereign debt crisis will hit them hard soon and maybe they'll be too distracted by it to pull this off ... or maybe, they'll pull the plug to recoup a few hundred billion in real cash to shore up their reserves?
Are they that smart? Maybe?
I'm sort of on a middle road. I do know your position and our points of agreement, which are far more than any points of disagreement.
I believe change is inevitable and unstoppable. The technology must supplant the current system because the archaic system is crumbling. It is slow, it is ineffective and vulnerable. Blockchain changes the entire paradigm. When I first read the white paper in 2010, I knew this technology would change the world. I first addressed a large gathering of the financial sector on this issue in 2011. I wrote a white paper on it as well.
I see a future where traditional finance retains some power and decentralized finance slowly increases it's effectiveness. Maybe completely at some point, but I doubt it. There are benefits to having systems in place that coordinate between entities the way Ripple and traditional finance do.
I am excited about the prospects outside of banking. Contracts, complete transparency in voting, medical and medical records, etc. There is a whole world to be explored. I will be talking more about a project I am working on once we get it off the ground. Another potential game changer that traditional bankers may not like, but still with one foot in traditional finance. I wish I could say more about it now. But in due time...
I agree with you that Ripple solves a lot of problems and am skeptical about the application of blockchain to everything, when why not just use an encrypted database.
https://www.crypto-news.net/while-blockchain-exploded-in-2017-has-it-grown-up/
I'm unconvinced about medical records, honestly. But, I'm with you on everything else. My partner in publishing my monthly newsletter is a CEO of a small company trying to solve medical records problems and in his mind we're a long way from any functional solution if it's even necessary.
Also, I appreciate your great dialogue, as always. I am one that will state my mind, but not in a way that is disrespectful or rude. It is one of the great differences of Steemit that we can have honest discussion without the drama of evil-book. You, as always, are a gentleman.
And that's because Steemit rewards you for not being an asshole. If you want an audience treat them well. Abusing your customers is not good for repeat business. And back atcha. This is the platform for being the best version of yourself as opposed to the saccharinized version to ensure you aren't destroyed and humiliated by some fuckwit who doesn't know you but thinks he has a right to piss on your carpet. {insert Big Lebowski reference here}
Carnegie 101... adding stake to one's commentary is Steemit's 'killer app' as it were.
One more thought...on banks closing accounts. I have spoken to many banks about this issue. Usually the smaller ones. They are still figuring out crypto and are not averse to it. They have government regulations that require them to report things like money laundering. There is a fine line between genuinely moving money into the system (like most of us are doing...my bank, by the way, has no issue with me buying crypto) and operating a money service business. When that line is crossed, there are a whole set of regulations that kick in. The banks are merely protecting themselves from heavy fines. The ones with a zero tolerance policy are hurting themselves. But most aren't necessarily averse to crypto. They are more worried about fines and regulators.
Curated for #informationwar (by @openparadigm)
Relevance:Banksters!
This is a must read for the crypto community.
Great article again with some sound logic and interesting concepts.
I read an article today about how the Aussie big banks are closing and refusing business accounts where any sign of cryptos are visible - including the exchanges. Obviously trying to stifle the market.
There is no doubt something is coming! The difficult part will be working out what form it takes and being able to recognise it in time to take some actions??
Did you happen to look at the Tokia ICO and whitepaper? If they are legit and can follow it through, they have a really good concept. I just haven't had time to dig into it yet.
Yeah, I saw the Australia report as well. And no, I haven't looked into Tokia, so I don't have an opinion, sorry.
Fore-warned is fore-armed, just keep your eyes open. I'm thinking the March to May time frame will be a good time to hit the market as a lot of potential real-world financial shit will be hitting the fan, i.e. the EU.
Love your post. Most informative. I do agree that there are big major players trying (or is) rocking the crypto space with their massive resources and time-tested methods to swindle money from the public (novices)....
Great post; thank you. I have only been in this space 6 months and DYOR is the name of the game. Those who consume fake news are going to be big losers.
Thanks to Steemit and contributors like you, I have come up to speed fast! There is no way I would be investing in Ripple.
What an exciting time to be here. A paradigm shift in banking, finance, taxation, regulation and indeed all things as we know them.
You have given the good explanation of pump-dump scenario in recent time.
Woo ... it's a beautiful post. this can be made a good example and useful ... thank you your posts make my experience increase maybe some of the users steemit support my opinion about your post ... once again thanks.
This is a nice write-up there. But ripple...... Let's watch how the show runs with caution
cryptocurriencies is world best trading system now
how do you think or your prediction about bitcoin price in 2018 whether it will be increasing or going down.
I just want to survey some people's opinions
It is a good read. But can you elaborate, how Bitshares / BarterDEX can circumvent the liquidity dilemma, if they dont deal with fiat in the first place?
These exchanges end sanctioned market manipulation known as HFT - High Frequency Trading, which is simply spoofing and paint-taping writ large.
They use that 'liquidity' to puff up markets and move them up and down with a fraction of the money that is actually up for trade. In short it's fraud. Most of the orderbook of these exchanges has zero intention of ever being hit as they disappear before you can hit the bid/ask.
Their computers are faster than yours.
The end to this is making them have stake in their position. BitShares forces listing fees on them. BarterDEX requires you have the coins and must wait in a time-locked contract for the other side of the trade to confirm and post a fee to do so as collateral.
This ends 90% of the problem. Then since neither are trading off-blockchain there isn't the bullshit of moving from coin to coin without ever confirming the change in ownership. The exchanges are running fractional reserve systems and settling on the blockchain at regular intervals.. say every hour or two, a lifetime in the crypto-markets where a coin can move 10-20% and leave the exchange short of funds.
Liquidity meet trap.
Read this post of mine from this summer on spoofing:
https://tomluongo.me/2017/08/07/will-cryptos-end-spoofing-or-enable-it/