Are Central Planners Trying to Suppress Bitcoin’s Price?

This opinion editorial is by Seb Bunney. He is co-founder of Looking Glass Education, and author of Qi of Self-Sovereignty. “History is not a repeat of itself, but it does rhyme.” — Commonly misattributed to Mark Twain. Recently, I have been wondering if we are witnessing a rhyming history. If you have ever had the opportunity to look into our monetary history, then you might have come across Executive Order 6102. It was a devastating attack on the sovereign individual as well as the free market. This event drew the United States citizens away from gold and into the U.S. Dollar and assets that the U.S. government benefited from. What was Executive Order 6102? What was Executive Order 6102? The Fed was exempted from this restriction by Executive Order 6102. It could coerceively obtain more gold than it would otherwise be able to by restricting gold’s usage and buying it back at a government-determined exchange rate. In addition, the Fed was able to coerce people into buying U.S. Dollars during periods of monetary expansion and central banking intervention. This Executive Order was in force until December 31, 1974 when Congress legalized private ownership for gold coins, bars, and certificates. I want to share my understanding of Executive Order 6102. Luke Gromen takes you on a fascinating journey through the past and present macroeconomic environment in his book “The Mr. X Interviews Volume 1”. While the book covers many fascinating events, one particular event stood out to me. Groman refers to a December 10, 1974, leaked document from U.S. State Department. Here’s a portion of that document: “The main impact of private U.S. ownership, according to dealers’ expectations, is the formation of large gold futures markets. The dealers believed that futures trading would be more important than physical trading. The expectation that large-volume futures trading would lead to a volatile market was also expressed. The volatile price movements would reduce the initial demand for physical holding, and most likely eliminate long-term hoarding by the U.S. citizens. The government knew that promoting the gold futures markets would cause a significant increase of price volatility, decreasing its desireability, and reducing long-term hoarding. This document was also dated 21 days before the government reinstated individual ownership of gold. What does this mean? People should not be discouraged from storing their hard-earned savings in a safe vehicle like gold. Investors are exposed to greater risk and volatility when investing in equities or corporate bonds. People have two options: U.S. dollar or government bonds, both of which benefit the government. The government has demonstrated that it doesn’t need to issue an order like 6102 to ban gold holdings. To achieve the same effect, it only needs to decrease gold’s desireability. What does this have to do with the above quote? In October 2021, the Securities and Exchange Commission approved the first Bitcoin futures Exchange Traded Fund. An ETF is a regulated investment vehicle which simplifies the purchase of its underlying assets for those who are less financially able. You can purchase the SPY ETF to get exposure to the popular S&P 500 without having to buy 500 stocks. The futures market on its own is not cause for concern. But when the SEC prohibits individuals and corporations from purchasing BTC through regulated channels, only allowing futures-eTFs, it becomes a problem. Let me clarify. For many years, companies in the Bitcoin industry applied for a “spot Bitcoin Exchange Trade Fund” but to no avail. You could invest $100 in the ETF to purchase $100 worth of bitcoin, giving you direct exposure. This would allow pension funds, corporations, asset mangers, etc. to have easier access bitcoin. This is not available in the U.S., however, futures ETFs are. This could pose a threat for bitcoin, if not already obvious from the gold futures explanation. A bitcoin futures ETF is not bitcoin ownership. Instead, they have exposure to an ETF that holds bitcoin futures contracts. This futures ETF purchases futures contracts to deliver bitcoin at a later date. As the date nears, it rolls the futures contract, sells the old contract, and purchases a new contract. If you don’t understand the ETFs, don’t worry. It is not important to understand the functionality, but rather the drawbacks. It is important to understand two features of futures ETFs that are different from spot ETFs. If you want to purchase something at a specific price in the future, then you will pay a premium. The longer you wait to lock in a price the more premium you will pay. Premium is increased each time the contract is rolled. This is called roll yield. As the date approaches, it will sell the contract and purchase a new one. This is called rolling. This rolling has the side effect that any premium paid decreases as the contract expires (roll yield). This causes a decline in the ETF’s value and is extremely unfavorable to long-term holders. This decay encourages short-term trading, volatility, and short selling of ETFs as a portfolio hedge, which in turn suppresses the price. Can you see the effects of futures ETFs in action Below is Willy Woo’s chart. The approval date for the first futures ETF came in October 2021. Source: We saw a significant increase in futures dominance immediately before the inception of the first regulated ETF for futures. The futures market currently controls 90% of bitcoin’s value (green line in chart above). As with gold in the 1930s and 1970s, there is no way for individuals or corporations to store bitcoin long-term. The only difference is that the government can now covertly suppress any aspects of the economy it deems unfavorable. But, there is hope. Many corporations and individuals are persistently pledging for approval of a spot ETF to allow them to get direct exposure to bitcoin. This begs the question: Does bitcoin still represent a bastion for free markets and self-governing individuals or is it under the control of central planners? These opinions are not necessarily those of Bitcoin Magazine or BTC Inc.

 

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