When will Bitcoin Start Being Used to Fund Speculative Attacks?
When will bitcoin start being used to fund speculative attacks on weak fiat currencies? The Nakamoto Institute famously predicted that a $50 billion Bitcoin market cap would be necessary before it could effectively be used to fund such attacks.
We are close to that.
I see such speculative attacks as being the primary driver of the next huge spike in bitcoin's price.
Thoughts?
This got me thinking... what if it's already being done right now in countries experiencing a currency collapse? Reminds me of this great scene in the movie Sneakers:
Heh. I forgot about that one. Need to give it another read.
I'll look into it too thanks.
Very interesting thought. They can't raise interest rates on bitcoin to counter such a move either... They will fight like hell to figure out a way to regulate Bitcoin for reasons such as this. I hadn't thought about this before. Thanks for helping bring the possibility to light! :)
It's very interesting post!!
I Like your work .. Bitcoin is the future _))
How does one attack a currency?
I feel like this is good news but don't follow your meaning at all.
Essentially, by borrowing massive amounts of money in one currency, then selling that currency in favor of another (such as bitcoin), thus driving down the price of the former and up the price of the latter. See the link in @lukestokes comment to my post for more details.
If not sufficiently defended against, speculative attacks can be the end of a fiat currency.
The normal way for central banks to defend against such attacks is by raising interest rates so high that speculators can't afford to borrow vast quantities of the currency. But that might not work against Bitcoin for the reasons noted in the linked article just referenced.
All the more reason more people should consider shorting the USD with BitShares. :) A world without fiat currency is a world closer to peace and the end of war.
Just read your post from a month ago. Interesting and I think I'm across shorting the pegged version of a crypto, but I'm still wrapping my head around the idea of attacking a fiat currency.
Surely buying it up drives it's value up, so subsequently dumping it just drops the price back to normal?
Or does the central bank act to prevent deflation and keep prices stable, leaving itself vulnerable to a dump?
No, you don't buy the fiat currency currency first, you BORROW it. Then sell it. So there's no buy, just a sell. Imagine if everyone in Venezuela borrowed as many bolivars as they could (like billions and billions) and then dumped them all at once in favor of dollars. This drives the price of bolivars down and dollars up. Just google the term "speculative attack" to learn more. It strikes terror in the heart of every central banker.
Thanks Sean. I've read up on this a bit now, and it's very interesting.
Central banks have reserves of other currencies with which they want to maintain parity, even if their local currency is weaker.
As reserves are depleted, they have to give up and float their weak currency, which makes paying back loans in that currency much cheaper.
I can see how this would work if there were a country trying to maintain a dollar:bitcoin ratio; it'd be a blood bath.
Are you suggesting that people may borrow a weaker currency in order to buy bitcoin, and keep piling on until the currency is destroyed?
So Ecuador would be a prime candidate?
"Ecuador’s approach has been to reject cryptocurrencies and instead created its own electronic currency. The Ecuadorian government launched its own official cryptocurrency called the Electronic Money System (“Sistema de Dinero Electrónico”- SDE). Although the use of SDE is mandatory for public institutions and private banking, it has not been well adopted by the general population."
http://www.lexology.com/library/detail.aspx?g=cb3ffeb8-1782-4fbb-b958-7f31aac23917
Their reserve bank has pegged it to the USD.
Could we all borrow Ecuador's state sanctioned crypto, and sell it for USD until they're forced to float it?
Although this would require a mechanism for borrowing the state crypto.
Thanks for this article, very mind stimulating. I love the cryptos and the metals. I spent several hours putting this mining stock investigation together. I hope you find it of value. I think silver and gold may be ready to start moving up again very soon. This is an article I wrote breaking down some mining companies, the better of which should outperform the metals themselves by a wide margin. https://steemit.com/money/@motowngold/i-think-gold-and-silver-are-staging-for-a-run-here-are-some-mining-stock-ideas