Crypto Will Be Put Under the Microscope at June 30 House Hearing

By Pam Martens and Russ Martens: June 4, 2021 ~

Bitcoin GraphicThe House Financial Services Subcommittee on Oversight and Investigations, chaired by Congressman Al Green of Texas, will hold a hearing on June 30 titled:  “America on ‘FIRE.’ Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?”

The announcement of the hearing came yesterday, the same day that Wall Street On Parade reported that the Federal Trade Commission was witnessing a skyrocketing increase in crypto scams. The FTC wrote on May 17:

“Reports to the FTC’s Consumer Sentinel suggest scammers are cashing in on the buzz around cryptocurrency and luring people into bogus investment opportunities in record numbers. Since October 2020, reports have skyrocketed, with nearly 7,000 people reporting losses of more than $80 million on these scams.”

The Subcommittee has not yet posted its lineup of witnesses for the hearing. Republicans, who are the minority party in the House at present, can be expected to call at least one of the shills for crypto. Democrats will likely call witnesses from academic and investment circles.

One of the biggest crypto critics has been Nouriel Roubini, Chairman of Roubini Macro Associates and a former senior economist for international affairs in the White House’s Council of Economic Advisers during the Clinton Administration. Roubini has also worked for the International Monetary Fund, the Federal Reserve, the World Bank, and was Professor of Economics at New York University’s Stern School of Business from 1995 to 2021.

In a Bloomberg TV interview in April, Roubini gave this scathing critique of Bitcoin and other cryptocurrencies:

“Bitcoin or other cryptocurrencies – currency is a misnomer, they’re not a unit of account, they’re not a scalable and widely-used means of payment. With Bitcoin you can do five transactions per second; with the Visa network you can do 25,000 transactions per second.

“It’s not a stable store of value over wealth or goods and services. And it’s not a single numero as you have thousands of tokens and, therefore, it’s like going back to barter. There’s not a single numero to have price transparency.

“So, they’re not currencies. And if and when soon they’ll be central bank digital currencies, they’re going to dominate for payment services – not only cryptocurrencies but also private forms of money like deposits in the banking system or online payment services.

“The question is whether they are assets. You know, for something to be an asset, it has to provide you some income, like stocks or bonds or loans or real estate. They don’t provide you any income. Residential real estate provides you housing services. Gold provides you, not income, but used as an industry or jewelry as utility. While Bitcoin is not having any income, doesn’t have any uses, doesn’t have any liquidity services, doesn’t have any utility. What’s the intrinsic value of it? It’s just a self-fulfilling bubble.”

Another criticism of Bitcoin is the insane level of volatility in its price. Nassim Nicholas Taleb, author of The Black Swan, Tweeted on February 12 that he’s dumping his Bitcoin. Taleb explained: “I’ve been getting rid of my BTC [Bitcoin]. Why? A currency is never supposed to be more volatile than what you buy and sell with it. You can’t price goods in BTC. In that respect, it’s a failure (at least for now). It was taken over by Covid denying sociopaths w/the sophistication of amoebas.”

A must-call witness for the hearing will be someone with an in-depth understanding of the blockchain technology on which these cryptocurrencies are built. The potential future uses of blockchain as a cutting edge technology has been repeatedly cited as a defense for allowing these cryptocurrencies to proliferate – now reaching an insane $1.7 trillion market cap.

One man who has an enormous wealth of information on the weaknesses of blockchain is Stuart Madnick, Professor of Information Technologies at the MIT Sloan School of Management, professor of engineering systems in the MIT School of Engineering, and co-director of Cybersecurity at MIT Sloan.

The 2020 winter issue of MITSloan Management Review carried a breathtaking assessment of blockchain’s failings by Madnick. The list of failings was extensive. But as it pertains to U.S. markets, the following weakness should cause heart palpitations at the Securities and Exchange Commission:

“A traditional, centralized system simply stops if the computer fails. In a blockchain system, the software operates simultaneously on such a preponderance of servers that even if one or more servers fail, the system continues running. That has obvious benefits. But it also means there is no central on-off switch, and, to put it plainly, there are times when you need to shut things off. The U.S. Securities and Exchange Commission, for instance, mandated the creation of ‘circuit breakers’ after the May 6, 2010, flash crash that saw the S&P 500 drop 8.6% in a single day. The system now automatically shuts down trading if there is a sudden, steep market decline. In contrast, blockchain systems are not intended to ever stop.

“Even if an attack is discovered on a blockchain system, servers around the world still operate. In the example of the software flaw on the Ethereum system, in particular the smart contract for the distributed autonomous organization (DAO), there was no way to stop the intruder from continuing to siphon off money. The ad hoc solution, such as it was, was to have a group of ‘good guys’ use the same flaw to siphon off the money faster than the ‘bad guy’ and then return as much money as possible to its rightful place.

“Blockchain’s transparency may have made matters worse during the race against the clock. There was an active public blog, mostly used by smart contract developers, where suspicions about possible flaws were posted for over a month. The blog probably aided the attacker in learning about the suspected flaw and how to exploit it; furthermore, by monitoring posts, the attacker knew when the hack had been discovered and, hence, when it was time to disappear. In the end, about $50 million was stolen….”

The House Financial Services Committee should follow up the June 30 hearing by calling witnesses from U.S. intelligence services, demanding transparency on the anonymous people who started this crypto craze, who are providing 100-to-1 leverage in crypto trading and exposing the dominant players in the whipsawing prices of Bitcoin futures.

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