The Coming Crypto Crash

 Driving down to our son's graduation, my wife had a podcast on (actually multiple, but that's my cross to bear) that I think was Ezra Klein interviewing Zeke Faux, author of Number Go Up, which is about the crypto "industry." Faux went into as much detail as public information allows about the unprecedented corruption from the Trump Family and crypto.

Basically, crypto is not an actual thing. There's no physical presence. You "make" some crypto and then people buy it like a stock, hoping it will go up. If you had bought Bitcoin in 2009, you'd be pretty well off today. So it behaves very much like a security, but it also functions as a currency. However, as a currency, there is literally nothing crypto can do that is better than what existing currencies do.

Except crime.

As Krugman notes, crypto behaves very much like the bank notes of the 19th century. Banks issued private notes that were of variable value, based on the reliability of the bank. The First Bank of Louisville might be a reputable bank or it might not, and a citizen of Memphis might not know which it was. The result was repeated panics and bank runs and a financial system that repeatedly faced depressions and rampant instability. 

So, to recap, crypto provides no function that existing money provides, except to do crimes. It is basically an unregulated industry that has billions or trillions in assets. It is "worth" nothing real. 

This seems set for a crash, and I've been predicting that Trump's naked corruption and - as it turns out - deep ties to crypto has set us up for a bubble and subsequent collapse.

Before "Liberation Day" my thinking was that this crypto bubble would be the thing to launch us into a recession. Now, with tariffs already roiling investors, how many will put money into crypto - perhaps to circumvent tariffs? 

In the end, bubbles always burst and crypto seems a perfect storm. It's disappointing that Democrats can't see that, but they probably feel like they can't alienate donors in Silicon Valley. No one should vote for this bill, because the bubble will burst. When it does, though, it will be the president's party that suffers, I suppose.

If the bill does pass, we could see the bubble expand this summer and then crash as early as this fall.