Bitcoin Price Suppressed By Government Agencies – Bitcoin Magazine
This is an opinion edit by Cebu Bunny Co-founder of Looking Glass Education and author of the Qi of Self-Sovereignty newsletter.
“History never repeats itself, but it often rhymes.” — A commonly misunderstood quote from Mark Twain.
Lately, I wonder if we’re rhyming history.
Those who have had the chance to delve into the history of our currency may have come across a little-known policy called Executive Order 6102. It was a grave attack on sovereignty and the free market. An event that drove US citizens away from gold and towards US dollars and assets from which the US government would benefit.
What is Executive Order 6102?
During the Great Depression, President Franklin D. Roosevelt issued Executive Order 6102 on April 5, 1933, prohibiting the hoarding of gold coins, bars, and certificates within the contiguous United States.
At the time, the Federal Reserve Act of 1913 required that 40% of newly issued dollar bills be backed with gold. Executive Order 6102 freed the Fed from this restriction by restricting the use of gold and forcing it to acquire more gold than usual by buying it back at an exchange rate set by the government.
Additionally, pushing people from gold to the US dollar helped strengthen the dollar during a period of monetary expansion and central bank intervention.
This executive order was in effect until December 31, 1974, when Congress again legalized private ownership of gold coins, bars and deeds.
Having understood Executive Order 6102, I wanted to shed some light on the thinking of modern government.
In his eye-opening book, The Mr. X Interviews: Volume 1, Luke Gromen takes readers on a journey through the past, present and future of macroeconomic environments. The book details many fascinating events, but one in particular stood out to him. Groman cites a leaked document from the US State Department dated December 10, 1974. Below is an excerpt from that document.
“According to dealer estimates, the main impact of U.S. private ownership is the formation of a sizable gold futures market. Also expressed was the expectation that a large volume of futures trading would create a highly volatile market.Secondly, the volatile price movements would reduce initial demand for physical holdings and increase the number of US citizens. It would most likely invalidate the long-term hoarding by
Fundamentally, the government knew that promoting the gold futures market would significantly increase gold price volatility, making gold less attractive and less long-term hoarding. More importantly, the date of this document was 21 days before he allowed individuals to own gold again.
What does this mean?
If people are no longer willing to store their hard-earned savings in stable means such as gold, people should look elsewhere. Stocks and bonds expose investors to greater risk and volatility, so people have two options. Government bonds or US dollars, both of which benefit the government.
Governments have shown that they no longer need to outright issue orders like 6102 to ban gold holdings. To get the same effect, you need to reduce the desirability of gold.
What does this have to do with the quote above?
In October 2021, the U.S. Securities and Exchange Commission (SEC) approved the first Bitcoin futures exchange exchange-traded fund (ETF). For those less interested in finance, ETFs are regulated investment vehicles that simplify the purchase of underlying assets. For example, buying the SPY ETF gives you exposure to the hugely popular S&P 500 without buying 500 individual stocks.
The futures market itself is nothing to be alarmed about, but problems arise when the SEC prohibits companies and individuals from buying BTC through regulated means and only allows futures ETFs.
Please let me explain.
Companies in the Bitcoin industry have been applying for “Bitcoin Spot ETFs” for years to no avail. If this spot ETF is approved, when he invests $100 in the ETF, he can buy $100 of bitcoin held by the fund, giving him direct exposure to bitcoin. This will make Bitcoin easily accessible to pension funds, corporations, asset managers and others. However, this is not yet available in the US. Futures ETFs only.
If it’s not already clear from the gold futures description above, this could pose a threat to Bitcoin.
When you buy a Bitcoin Futures ETF, you do not own Bitcoin. Instead, they own exposure to ETFs that hold Bitcoin futures contracts. In other words, this futures ETF buys a contract to deliver Bitcoin at a future date. As the day approaches, you roll futures contracts, sell old contracts, and buy more new contracts.
If you’re unfamiliar with how these ETFs work, don’t worry. The point here is not to understand the features, but to understand the drawbacks.
It is essential to understand two characteristics of futures ETFs versus spot ETFs. In a normal functioning market, if you want the right to buy something at a certain price in the future, you pay a higher premium than the current price. The further in time you want to lock in the price, the more premium you pay. Each time the contract is rolled, more premiums are paid. This is called roll yield.
Even if the price of Bitcoin remained the same for the entire term of the futures contract, the value of the ETF would still decline as the ETF paid a premium to purchase the right to buy Bitcoin in the future. As the day draws nearer, you sell contracts and buy new contracts in time.
A by-product of this rolling is that the premium paid decreases as the contract nears maturity (roll yield). This causes a decline in the value of the ETF, which is very unfavorable for long-term holders.
As a result, the decline encourages short-term trading, increased volatility, and shorting ETFs as portfolio hedges, keeping prices in check.
Is it possible to really see the effect of these futures ETFs? Below is Willie Woo’s chart. The approval date for the first futures ETF was October 2021.
(sauce)
Right before the first regulated futures ETFs launched, there was a significant increase in futures dominance. Currently, the futures market determines 90% of Bitcoin’s price (green line in the chart above).
In summary, like gold from the 1930s to the 1970s, there is no regulated way for individuals and businesses alike to efficiently purchase and store Bitcoins for the long term. The only difference is the era of censorship, where governments can covertly suppress rather than overtly suppress what they see as disadvantageous or infringing on certain aspects of the economy. But all hope is not lost.
Many people and companies are tirelessly seeking approval for spot ETFs as a way to gain direct exposure to Bitcoin. But this begs the question: Is Bitcoin one of the last bastions of free market and self-sovereignty, or is it already under the control of central planners?
This is a guest post by Seb Bunney. Opinions expressed are entirely his own and do not necessarily reflect those of his BTC Inc or Bitcoin Magazine.
Bitcoin Price Suppressed By Government Agencies – Bitcoin Magazine
Source link Bitcoin Price Suppressed By Government Agencies – Bitcoin Magazine