Fed President Neil Kashkari gets it wrong… crypto illegal activity is a red herring… will the government ban crypto?

 

If you missed it, last night, Luke Lango held his much-anticipated 1 to 30 Wealth Summit, and frankly, the feedback has been extraordinary.

Luke detailed what’s behind the powerful force that’s helping more people become millionaires faster than ever before.

He then took it one step further, providing a blueprint for finding hidden small-cap gems, capable of 30X returns. These are the type of stocks that help shave years off reaching complete financial independence.

Luke even gave away the name and symbol of a stock he believes will make investors 30-times their money this decade.

If you missed last night, click here to watch a replay. The video won’t be available for long, so check it out while you can.

***Crypto is “95% fraud, hype, noise and confusion”

So said Minneapolis Federal Reserve President Neel Kashkari on Tuesday.

From MarketWatch:

The central banker said he doesn’t see any use case for bitcoin, the world’s No. 1 crypto, and referred to the broader digital-asset sector as one that is largely tied to fraud and hype.

Such a comment suggests one, or both, of two things: an eyebrow-raising lack of vision, and/or a fear of the disruptive power of the blockchain/crypto ecosystem.

After all, next month, El Salvador will go live with legislation that makes Bitcoin legal tender. So, there’s at least one use case right there.

Of course, Kashkari is the individual who, in March of 2020, told 60 Minutes that “there is an infinite amount of cash in the Federal Reserve,” so maybe we should expect him to miss the bigger picture.

Kashkari also fell back on a tired attack on the crypto sector – it’s mostly used for criminal activity.

From Barron’s:

Pressed on his stance on digital assets at an economic summit Tuesday, the president of the Minneapolis Federal Reserve claimed the crypto space bankrolls illicit activities and is full of scams.

Now, yes, there are absolutely scams with altcoins…just as there are scams on Wall Street, the housing market, insurance, travel, banking, you name it…

But painting the entire crypto sector with the same broad stroke is naïve at best, and intentionally misleading at worst.

According to a research report from Chainalysis, in 2019, criminal activity accounted for 2.1% of all cryptocurrency transaction volume. That was about $21.4 billion worth of transfers.

Last year, that percentage dropped to just 0.34%, or about $10 billion in transaction volume.

But in a vacuum, these figures don’t provide much context. Is this a lot or a little relative to other areas of the economy that might not be so saturated with criminality, as our politicians suggest?

***How about we look at the volume of criminal activity connected to fiat currency?

Well, the United Nations estimates that between 2% and 5% of global GDP, between $1.6 to $4 trillion, annually is tied to money laundering and illicit activity.

We just saw how last year’s criminal activity in the crypto sector came in at just 0.34%, or about $10 billion in transaction volume.

In other words, the amount of criminal activity used in crypto transactions is significantly smaller than the amount used in fiat currency. And that’s true whether we compare absolute dollars or relative percentages.

And yet it’s Kashkari and even Treasury Secretary, Janet Yellen, who paint cryptos as little more than tools of criminality.

Here’s Yellen from back in January:

I think many (cryptocurrencies) are used, at least in a transaction sense, mainly for illicit financing.

And I think we really need to examine ways in which we can curtail their use, and make sure that anti-money laundering (sic) doesn’t occur through those channels.

You just saw the actual numbers. Do Yellen’s comments ring true?

Again, the issue isn’t whether or not there’s fraud in the sector. There is. But how much fraud? And how much relative to other mainstream sectors? And is there enough to justify curtailing trade in cryptocurrencies?

Last year, Rand Corporation ran a study on use cases for cryptocurrency and privacy coins.

The report found that despite the “perceived attractiveness of cryptocurrencies for money laundering purposes . . . an estimated 99 per cent of cryptocurrency transactions are performed through centralised exchanges, which can be subject to AML/CFT regulation similar to traditional banks or exchanges.”

***What we’re seeing from government officials is a case of selection bias

If Kashkari and Yellen are truly focused on eliminating criminal activity and money laundering, they have far bigger problems than the crypto sector.

From a 2020 report by SWIFT (Society for Worldwide Interbank Financial Telecommunication):

…cases of laundering through cryptocurrencies remain relatively small compared to the volumes of cash laundered through traditional methods.

As just one example of these “traditional methods,” let’s rewind to January of this year when FinCEN announced a $390,000,000 Enforcement Action against Capital One.

Why?

The banking giant was engaged in both willful and negligent violations of the Bank Secrecy Act (BSA) and its implementing regulations.

From Forbes:

Capital One admitted to willfully failing to implement and maintain an effective Anti-Money Laundering (AML) program to guard against money laundering.

Capital One also admitted that it willfully failed to file thousands of suspicious activity reports (SARs), and negligently failed to file thousands of Currency Transaction Reports (CTRs), with respect to a particular business unit known as the Check Cashing Group.

The violations occurred from at least 2008 through 2014, and caused millions of dollars in suspicious transactions to go unreported in a timely and accurate manner, including proceeds connected to organized crime, tax evasion, fraud, and other financial crimes laundered through the bank into the U.S. financial system.

***This isn’t really about protecting you from fraud, it’s about protecting our politicians from a loss of control

Governments control fiat currencies. And they like this control.

The problems begin when governments abuse their fiat currencies – possibly treating them as though their cash reserves are “infinite,” as some might say…

After all, history shows us that governments don’t, in fact, have infinite cash. And when they try to play that game, currencies crumble.

So, when smart citizens see signs of reckless central bank policy, they look for alternate storehouses of value. Governments don’t like alternate storehouses of value that threaten a fiat currency.

Take 1933, when Executive Order 6102 made it a criminal offense for U.S. citizens to own or trade gold. And why’d this happen?

Here’s billionaire hedge fund manager, Ray Dalio:

[B]ack in the ’30s in the war years … because cash and bonds were such bad investments relative to other things, there was the movement to those other things, and then the government outlawed them. They outlawed gold.

Now, the full story is a bit more complicated than Dalio’s simplified version. Given the Gold Standard, the U.S. government needed more physical gold if it hoped to print more dollars. But Dalio’s point is true as well.

***Dalio is concerned we could see a similar ban again

Here he is, speaking of Bitcoin:

It is an alternative store-hold of wealth. It’s like a digital cash. And those are the pluses.

So, I think that it would be very likely that you will have it under a certain set of circumstances outlawed the way gold was outlawed.

I believe that while the government may want to ban Bitcoin, doing so would present many challenges – not least of which are the horrendous optics. It’s one thing for a totalitarian regime like China to ban Bitcoin. It’s completely different if Washington D.C. tries it.

But even if they do, I’m sure financial institutions in El Salvador would be happy to help you open an account to store your crypto assets.

The bottom-line is that cryptocurrencies are now a global phenomenon. This means a ban in any specific country will simply lead to crypto capital sloshing around the globe, finding a home in a country without the same legislation.

A true ban on cryptocurrencies would require a global, unified effort from all sovereign governments. That’s all but certain not to happen.

Interestingly, the more that governments try to crack down on crypto, the more valuable they will become, as these crackdowns validate the very reason for their existence.

***As adoption continues to snowball here in the U.S., keep your ears open for negative comments from government officials, and be sure to translate them correctly…

“It’s too volatile.” “It’s not a safe storehouse of wealth.” “It’s replete with scams and criminal activity.” “There are no use cases.”

All of this means the same thing…

“We don’t want to lose control.”

So, is there a real threat here to crypto investors?

Well, yes, our government could make being an investor vastly more challenging, with tons of headaches and work-arounds. We just saw the first steps toward this headache earlier this month, when an 11th-hour cryptocurrency tax provision that was tacked onto the infrastructure bill.

As we noted here in the Digest, the issue isn’t so much the tax, it’s how the legislation will bog down the crypto sector with bureaucratic red tape that stifles growth.

This is something to keep your eyes on. If we see broader threats to the crypto sector materializing, you’ll read about them here in the Digest.

That said, cryptos can’t be stopped at this point. At least, on a global level. And the good thing is we now live in a global economy.

Of course, that won’t stop our government officials from painting crypto in a frightening light.

Frankly, you should be more frightened of “infinite cash.”

Have a good evening,

Jeff Remsburg