by Greg Barker
Wednesday, 15
September 2021
Debate
07:30

Buying Bitcoin may backfire on the Taliban

Its price is unpredictable from one day to the next
by Greg Barker
Taliban fighters discuss monetary policy in Kabul presidential palace

Following its botched exit from Afghanistan, the U.S. has launched a new, all-out offensive on the Taliban’s finances, halting cash shipments destined for Kabul, influencing the World Bank and the IMF to cut off financial aid, and blocking access to Afghan government accounts — which conveniently reside at the Federal Reserve.

For the world’s pre-eminent superpower, repressing the Taliban’s bankbook is just another day at the office. Over the last twenty years since-9/11, the U.S Treasury Department has grown into the largest, most devastating monetary armament, exercising its various offices, with alphabet-soup style names, to disrupt, dismantle, even destroy enemy financial networks.

From quashing bad banks that fuelled North Korea’s “Office 39” to cutting off Hezbollah-backed Iranian institutions from the global financial system, the Treasury’s “Eye of Sauron” has been a highly effective tool for the U.S. empire.

Now, though, it faces a new kind of adversary: cryptocurrencies, in particular Bitcoin. As the Biden administration continues to limit the Taliban’s financial ability to use U.S. Dollars in global trade, cryptocurrencies such as Bitcoin have been touted as a potential workaround.

But Bitcoin’s supposed benefits aren’t as sound you might think. It’s only anonymous or “censorship resilient”, for instance, if you’re not Ross Ulbricht, a Colonial Pipeline hacker, or anyone else the U.S. security agencies pursue with a vengeance.

What’s more, as a rogue state, partial anonymity is soon outweighed by Bitcoin’s instability as a currency. Essentially, you take on the unique risk of holding your reserves in a global currency free from regulation and oversight, which means any other entity across the globe can not only influence but monopolise Bitcoin. In turn, this would give said entity undue control over the cryptocurrency’s price.

While the dominant narrative portrays that Bitcoin has become the go-to hedge against inflation, causing the masses to pile in and drive up its price, we’ve seen rising speculation from individuals outside the mainstream crypto bubble, who claim only a few crypto insiders have been fuelling Bitcoin’s epic rally.

Ultimately, we don’t know whether Bitcoin’s price is going to drop or keep rising. Both sides remain adamant they are right, but nobody really knows who or what has been fuelling Bitcoin’s rapid rise. The crypto bear’s hypothesis — that crypto insiders have been fuelling the latest boom — is feasible, and if true, will prove disastrous for anyone who has adopted Bitcoin to skirt the legacy financial system. 

It’s almost inconceivable to imagine the impact of a scenario in which the Taliban use Bitcoin to bypass U.S. sanctions and watch their net worth plunge more than 80%. Then again, if Bitcoin does indeed ‘go to the moon’, and the Taliban takes a punt while other powers keep dismissing it as fool’s gold, we could see them become the next Saudi Arabia. Only this time, backed by a fluorescent-orange digital coin.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at @concodanomics.

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Paul Smithson
Paul Smithson
1 year ago

An interesting take on things, although some would argue that Bitcoin is a lot safer than the dollar, whose days as the global currency of choice are coming to a rapid end. Unlike Bitcoin, the dollar is infinitely dilutable and it is unlikely that Biden will turn off the printing presses that are devaluing the true worth of the dollar on a daily basis. It could be argued that using a currency that is volatile but trendng upwards makes more sense than using an old-school currency that is losing value each year.

Jon Hawksley
Jon Hawksley
1 year ago
Reply to  Paul Smithson

No. Was it ever possible tulips would be the go to money today and not end in the tulip mania in 1637? I posted more bitcoin on yesterday’s Tyler Cowen article. UnHerd needs a cryptocurrency briefing to its authors. If the Taliban do buy cryptocurrency they will be stolen or lost.
The Taliban will trade in dollars through banks outside of the US until they can work out what noises they need to make to get funds released.

Paul Smithson
Paul Smithson
1 year ago
Reply to  Jon Hawksley

Surely the days of comparing crypto currencies to tulip mania are long gone. You might be right, and I do have reservations, although at this stage I’d prefer to be long on bitcoin just in case.

Galeti Tavas
Galeti Tavas
1 year ago
Reply to  Paul Smithson

“although some would argue that Bitcoin is a lot safer than the dollar, whose days as the global currency of choice are coming to a rapid end.”

Yea, like Saylor, but listening to him is crazy.

But predicting the end of the USA $ as Reserve currency is premature – as all Fiat currencies are in the same state and none fit to become the ‘Reserve’, but also hold Dollars – and so the $ collapsing takes the globe with it. Some people (crazy Gold Bugs, but real people) say it will ultimately go back to a Gold Standard, as it has through history when a fiat currency collapses – and that would mean $40,000 gold – so maybe get an oz to keep in your sock drawer.

Bitcoin is pretty divisible, diluteable, at 100,000,000 Sitoshis to the Dollar. But how about other Cryptos? 12,000 of them have been created, and almost all are worthless. Tether is hanging on in a cloud of suspicion (it tethers bitcoin in the sense 80% of all bitcoin exchanges from Fiat to Bitcoin and back take place in Tether; a $ Stable Coin with no audit showing how backed it is, and at least half the backing is in corporate paper of unknown quality)

Bitcoin is Tulip Mania without the Tulips (as at least the T Mania had actual Tulips as the basis – a commodity, a real thing – bit coin has nothing)

cslarson
cslarson
1 year ago

Great that this topic is being tackled but it lacks insight into what is actually possible because it limits discussion to Bitcoin.
Crypto is much more than the volatile Bitcoin. Notably, most of the competition is really around challenging Ethereum, where smart contracts have allowed the development of a rich defi ecosystem, that rivals and innovates beyond traditional finance. It’s worth engaging with what that offers and revisiting the questions addressed in this article because there are crypto assets that do not have the drawbacks mentioned about Bitcoin.
Stablecoins are intended to have a stable value. They range in all manner of properties – centralised ones are backed by $ in a bank account (usdc, usdt), decentralised ones can be pegged to the $ but backed by a volatile collateral (this works), and others like rai and float that are decentralised but not pegged to the $.
This is an important topic to engage with but the media really needs to upgrade it’s understanding.

Galeti Tavas
Galeti Tavas
1 year ago
Reply to  cslarson

I want to hear of De-Fi, but mostly of CBDC, and what that means to the private banking industry when wallets accounts are held with the Central Banks.

With private banks no longer creating money by loaning it into existence, as they have for centuries, the Central Bank will just ‘Create it – and Repo it back’.

The net result I can think of is UBI will be the result, as all money is held in these wallets, it can be distributed all over, instantly, and without anyone being able to opt out.

Give a Trillion a year out in UBI, then charge negative interest on all accounts of holders making more money then ‘Poverty’ to pay it.

Time out money that is not spent, end savings, and so end income inequality….

Give cash incentives to direct spending – like 10,000$ for a new electric car. or disincentives, like increasing taxes on gas – or as the wallet is on your phone it is geo-located every second, so charge by mile traveled in Carbon Tax – it just disappears from your account, or appears if you stay home….

Make mortgages from your wallet – it has your credit and social credit score as every penny in or out is logged – as well as who you mix with, and everything…. job, travel, vices,

It is MMT and Social Credit, and a dark dystopia indeed.

Galeti Tavas
Galeti Tavas
1 year ago

Ha, fit right in with the ‘Silk Road’ Dark Web open drug market which used Bitcoin as the money.

That Silk Road’s founder is serving two life sentences, and all his bit coin harvested by the FBI, is not promising though.

Everything I hear of Bitcoin, and I read a good bit on it, makes me more convinced that it exists as long as the USA wishes it to, and if/when at some point it outlives that; it is toast.

But as far as the Taliban, I think the USA should put them on a decent allowance. We had a big enough budget there for decades, keep it going at an extremely reduced amount. The country has no real economy, and driving it to desperation is a bad idea. Better we be friends than not.