Sauron Remains Undefeated

Concealed within his fortress, the lord of Mordor sees all. His gaze pierces cloud, shadow, ear
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  1. With the kindly little old grandma as figure head, ahhh isn’t she so cute, what an adorable little thing, I bet she even bakes apple pies in her spare time.

    But as with any great cartoon character, you know the demon inside that is going to break out from her granny costume, is going to be of mythically bad and evil proportions.

    I think she was intentionally put in place at Treasury so she can lead the upcoming Great Reset project that has been under planning for several years. It will be relatively easy for an innocuous soft-spoken little old granny to enact the Great Reset and bring the sheep along for their fleecing.

  2. We need hobbits, but we’re unfortunately all human warriors, rangers, and mages.

  3. So I am a little skeptical. There has to be a reason (since you state it isn’t to collect taxes or to fight terrorists, etc.) besides just being able to “see” all the money in the world. “Seeing” the money has to lead to something useful (I don’t believe that the Treasury just loves knowledge for its own sake) for the Treasury and the government. Perhaps to keep an eye on potential political rivals to the government, perhaps a means to direct money flows in the general direction that the Treasury would like, or something else. So tell me for what use do they want to put the knowledge of “seeing all money”.

  4. If you think of the Treasury as part of the Intelligence Community… And what isn’t these days?

  5. Crypto does not have an actual use case that can be made to the broader public. When the public generally understands and likes a thing we care about it being regulated and want the rules to enhance the value of the thing. We like airbags and prescription drugs, so we want to those things to be overseen by people who aim to improve them. Most people don’t have a clue what crypto is good for, other than illicit activities, so the public kind of doesn’t care if it gets regulated into oblivion. The crypto community is this small, strange pocket of people that exist on The Twitters as far as the average person knows, so why are they going to get exercised by new regulations?

    The people who needed to make the case for crypto all got sucked in by the NGU wing of the community and after all was said and done they ended up much richer but with no public support for the basic reason the technology exists. Once BTC became a casino chip the only people who cared about it were the ones who needed the chip to still be some simulacrum of legal tender, at least long enough for them to turn it in to the gal behind the cage. After that what happens to it is of little concern.

  6. This is a really great summary at a macro level.

  7. Hmm. I think the world at large is at risk of missing the fundamental “use case” for crypto. By searching for some very specific and novel/interesting use case it is easily missed that crypto is more like…alternative “water to swim in”. Perhaps that explains why the use case still seems elusive to most.

    I am personally wedged right in the middle, demographically speaking. I am too old to have properly participated in the dawn of the “metaverse” with its various gaming environments and digital tokens. But I am young enough to understand the principles and I am raising small humans that are already immersed in it. For a valuable perspective, I very much recommend reading this article by a young man called Piers Kicks.

    You don’t have to agree with or even understand it all, but it will make you go…hmmm…which is valuable in its own right. Suffice to say that the younger generation is already well versed with the concept of the metaverse. And as Piers Kicks writes in this article, “in hindsight, it will be obvious that crypto’s role in the metaverse was the most imperative yet least explored by those speculating on its emergence.”

    So, cryptocurrencies are basically “metaverse water” . And that sounds like a fairly exciting use case to me.

  8. Thank you for the suggested reading, I’ll definitely take a look at that.

    As for the use case within the metaverse–and I have commented on that particular phenomenon before–I think you’re right. But it also very much proves my original point that crypto has no use case to the broader public. The metaverse is essentially Boomer repellent, which culturally is very interesting, but that puts it outside the place where the vast majority of today’s wealth resides. It’s an interesting generational dynamic and I’ll be very curious to see how it all plays out. I’m in a similar demographic as you and feel like I get it, but also I absolutely do not get it.

  9. I agree that the metaverse is not boomer-friendly at the moment. But if there is one trend I am paying attention to, it is the accelerating speed of change, and the metaverse will be announcing its arrival to everyone sooner rather than later. As an IM in a private wealth management company I know very well where wealth is concentrated at the moment…by comparison, my clients make me feel young and youthful every day…

    But I also know that we (my company) spend most of our time tailoring our offering to the next generation and I have no choice but to agree with this tactic. (I mean…I think it is futile and I fully expect to become irrelevant once the generation of clients that value human interaction dies off, but if I had to choose an area to focus on I would focus on the next generation as well.)

    I belong to a small group of investment managers who entered into the field due to a sincere interest in stock markets, but relatively quickly realised that my role is primarily to hold my clients hands while they expose parts of their wealth to market forces. It is a small group, because most of my colleagues were either never actually interested in markets (the professional relationship managers…) or they are still deluding themselves into thinking that our compliance departments would actually allow us to do anything with our clients’ portfolios that would result in alpha. But I digress…

    I absolutely do not get all aspects of the metaverse either. But I get that the use case for the internet was pretty narrow in the 80s as well. Until it wasn’t. Crypto as a whole (not individual coins etc) seems similar. It is about imagining its potential as…infrastructure. As “water”. Which is why I don’t have any problems understanding why governments would like to get a head start on regulating it…

    Thanks for your thoughtful response.

  10. The use case for Bitcoin is really simple. It is an asset. It is a piece of property. It is a new asset class that many people think will stand up well as store of value when USD fiat collapses and is displaced as global reserve currency.

    The collapse of USD fiat as a global reserve currency is not controversial. If you look at history is is inevitable. The exact date of collapse is not knowable. If may be next week, next quarter, next year, or maybe it won’t happen for a decade? No one knows when. We just know it will happen. And it may not occur on a single day. It could just be a continuing multi-year trend. Triffin Dilemma guarantees USA will be running trade deficits into infinity while USD remains as global reserve currency. This situation is unsustainable politically and economically.

    So what are you doing to protect your wealth in face of USD fiat no longer being world reserve currency at some time in future ?

    If you are sitting and doing nothing with a large pile of USD in cash, you are an ostrich.

    If you are taking actions to get your wealth into assets other than BTC that you think will be good stores of value (e.g. gold, farmland, etc.), good for you. No one is forcing you to like BTC now or buy BTC now.

  11. Internet 3.0 is a commonly referred to analogy on crypto-twitter. The Metaverse concept is interesting to me as I was an early internet adopter/gamer of internet 1.0 in the 90’s. Crypto as assets are only the beginning. The sooner we move away from NGU, the less we have to render unto Caesar.

  12. Crypto cast as just a basket of currencies makes a lot more sense to me than the Utopian narratives that are so common. Maybe branding should start with that angle.

  13. Avatar for Zenzei Zenzei says:

    I’ve always found participating in these debates challenging because to me Crypto is just one use case, amongst many, for Blockchain.

    Its sort of like discovering electricity and using it first for lightbulbs and then discussing the use case for electricity through discussing the use case for lightbulbs.

    It misses the whole point of what electricity could be. Crypto is just one of the first “things” to come out of Blockchain. We are not even in the first inning of that game. Hard to reach definitive conclusions about what the 4th or 5th inning are going to look like, never mind the end game.

  14. The difference between Bitcoin and fiat is becoming more stark as Money Printing for USD fiat has gotten out of control in last 24 months (look at M2 growth), whereas Bitcoin has mathematical hard limit of 21M coins. The difference is very simple. USD fiat is printing without limit (which is devaluing the fiat currency), and Bitcoin has a hard limit.

    Crypto in general (or Blockchain if you prefer), has a lot of other types of projects that have different goals and objectives than Bitcoin. 1000’s of other coins, some projects may make sense, some won’t, Darwin will decide which survive. Just like all the internet start-ups in 2000, most won’t survive. The small number of coins that survive will grow large from network effects.

    Bitcoin is a special case as a store of value asset.

  15. Blockchain and crypto open the door to some fascinating use cases that literally can change the world. Right now it’s the wild west and it’s probably 90% noise. But some of it is going to stick.


    • A world without the need for passwords
    • Instant secure transfers of funds to anyone around the world with fees next to nothing.
    • Microlending to anyone in the world with no counterparty risk - you become the bank and earn a decent return.
    • 1.7 billion unbanked people around the world. Nearly all of them have smartphones. Access to capital will literally change their world.
    • A decentralized financial system that eliminates all the middlemen

    It is possible with blockchain.

    I was early on the Bitcoin bus. I purchased 3 bitcoin when it was about $300. Had my secure tokens and wallet with MtGox. MtGox went belly-up and my Bitcoins are forever lost. That made me get off the Bitcoin bus pretty quickly. Since then, I’ve be an ardent critic. But some recent conversations have got me to see it from another angle.

    Bitcoin is blockchain
    Bitcoin may be trash
    Not all blockchain is trash

    There’s some valuable stuff there - could be epic.

  16. The ‘store of value’ argument is betrayed by the volatility that it has displayed over the last three years. Nobody wants to store value and then lose 20% overnight. Without the vol it could absolutely serve the purpose you describe. But with the current environment it’s just a casino chip that is essentially a put on humanity. Not a bad bet!

    Do you want the honest answer?

  17. Volatility is not a surprise in early days of a new asset class. Volatility might be a valid argument of why BTC may not be ideal as means of transaction at this time. Store of value and means of transaction are different objectives. In terms of store of value, no one who has bought BTC and held for any four year period has ever lost value. Sounds like a perfect store of value per my assessment. Please name any other asset class that has a 100% perfect track record where no one has ever lost any money if they held the asset for any four year period. If you can name such an asset, I will agree that the asset you suggest is similar to or better than BTC as store of value.

  18. Over the last 20 years? Ammo, specifically 7.62x39 or 5.56. Paintings stolen from the Gardner museum, though you might run into a liquidity issue on those ones.

    Your assessment assumes that a person will hold something for a random and arbitrary amount of time though. What if someone chose to store their wealth for one quarter in BTC, starting on 4/13/2021? They’ve lost 50% of that wealth. We can play this game all day, I imagine. The reality is that BTC is the face, for better or worse, for a technology that really does seem to be revolutionary. Hard to sell that to the public when it’s early innings.

  19. Avatar for Zenzei Zenzei says:

    You are ignoring sample size in the conversation which really renders the statistics a little bit meaningless.

    If you’re going to be comparing an asset class over a life of 20 years (being kind to BTC) to an asset class with a life that spans several thousands of years, maybe it is useful to do some sort of adjustment for the statistical significance of one series versus another.

    I don’t love or hate Bitcoin, for the record. I am a total blockchain fanboi.

  20. Store of value vs the USD is a very western Anglo-centric perspective. Store of value vs many other currencies is a different ballgame. Again, that is only using the crypto as an asset aspect of the technology. As has been pointed out many times, the underlying technology of blockchain and cryptocurrency is opening doors into LOTS of other areas. Chain of title for instance is an amazing area ripe for disruption. And I don’t just mean cars, and real estate.

    Chain of title is currently undergoing a very large crowd sourced experiment called NFTs. While the jaded veterans among us may sneer at hipsters throwing their stimmy checks at spending real world wealth for the title to a digital piece of art, what many miss is the overall experiment into how we can assign an immutable title to intangible things. If that can be applied to intangible things, there is a whole host of real world problems it can also solve. Take for instance the real estate title issue.

    Most westerners have ZERO concept of how difficult it is to operate in a trustless environment when transacting large sums of money. Think about how you verify land ownership in the US, and then throw everything you know out the window. How do you KNOW the “seller” of the land/house/car is the Seller? Do you have a slip of paper that “proves” they are the Seller and it is stamped by a local government title office? LOL! Guess what? There are FAR more “paper” acres in the land title offices of emerging market governments (if they even have a land title office that is) than there are ACTUAL physical acres of land in the country! Blockchain can actually prove through an immutable ledger the entire chain of title for that property. Imagine the value created by disintermediation of just one country adopting a blockchain for their version of the Register of Deeds.

  21. If you plan to spend within 90 days, BTC is a really bad idea. The only idea obviously worse would be putting your money into a lottery ticket. But four years is not arbitrary. It is the halving period, which has demonstrated impact on price via Stock to Flow model. Institutions are rapidly onboarding for the store of value they can get from Bitcoin, for money they need to hold/manage across multiple years and decades. Eventually the store of value capabilities of BTC will be obvious to all, but right now we are still in early adopter phase so it isn’t obvious to all. It is a touch ironic that many of the folks who have the easiest time immediately grasping the store of value attributes of BTC currently live in Argentina, or Venezuela, or Turkey, or Nigeria, or Lebanon, or El Salvador, or Mexico, or Ecuador, etc. Many in the US are blind to the real world issues of fiat currencies in other countries, due to privilege US has had of UDS fiat being world reserve currency for 80 years. That run is almost over. As an outcome of USD fiat losing its position of world reserve currency folks in US are going to become acutely aware of the dangers and downsides of fiat currencies. Wake up call is coming. History will repeat, due to human nature.

  22. “provide data for accounts with total annual deposits or withdrawals worth more than $600.”

    This is a big win for Sauron, and therefore also a big win for the larger corporate persons among us. At the expense of pretty much everybody.

    That’s a lot of information they’ll be collecting, just think of the contracts for Amazon. The data centers, etc.

  23. Avatar for robh robh says:

    If you are audited (never a pleasant or inexpensive experience), the IRS has the right to ask you for copies of all of your banking records. If you refuse, they can/will subpoena the records from your bank. Of course, they can only subpoena the bank accounts they know about.

    So I suppose the reasoning behind this proposal is four-fold: (1) So when they audit you they can be sure to get the info on 100% of your bank accounts’, (2) Boost compliance from people who realize that the IRS now knows about all of their accounts, (3) generate a lot more audits by running screens/algos/AI on all that banking data, and (4) have more embarrassing information to leak to ProPublica on famous wealthy people (Jeff Bezo’s monthly Amex bill!!!) in furtherance of the then current Dear Leader’s political agenda.

    There are over 400mm consumer checking accounts in the US ( and certainly hundred of millions more consumer savings and commercial checking accounts. Given that most of the 2mm SAR reports sent to Fincen annually seemingly just end up in a drawer somewhere, I’m not sure the IRS will really be able to do much with the data at the end of the day.

    @Landvermesser — It certainly could make the Pentagon’s JEDI cloud contract look like small potatoes

  24. Setting up Palantir for a nice fat new Gotham contract with the IRS.

  25. Avatar for Zenzei Zenzei says:

    This resonated strongly with me.

    Growing up in Colombia as part of an economically successful family required swiss bank accounts. Not to avoid taxes (that was the side benefit) but for personal security. The rebels were not doing well in the war and needed cash. So they developed two businesses - providing protection to narcos and kindapping people for ransom. They also had been at it for so long that most financial institutions in Colombia were leaky as a sieve and revealing financial data was like putting a target on your back.

    (And for another day, this is not spinning fantasy. My father was kidnapped for forty days and rescued by Colombian Security forces. Several of my friends' fathers were also kidnapped. One was held in the jungle for a year in a hole. I don't live there for a reason).

    I remember the early days of Swiss banking secrecy, of bearer bonds, etc, etc. I am still a client of Banco Santander in Switzerland - they have been an outstanding partner to us for 30 years and I see little reason to abandon a good institution. I have also witnessed for 30 years the slow inexorable war of treasury against the swiss banking institutions. I remember the stories of foiled early attempts because, LOL, too many US politicians hid money there.

    Over time, though, the world shrank. You could figure out when a Swiss Banker was traveling through Miami airport and nab him. Then you could threaten him with never seeing the light of day or helping treasury out. Personal security always trumps (see my opening) and so slowly it fell.

    9/11 was the start of the real offensive though. Once the AML laws were put in place and the Eye of Sauron was given greater vision - the FedWire system was weaponized and millions upon millions of dollars were held in transit until the correspondent bank and the receiving bank and the sending bank could all agree that they could trace the client.

    FATCA was the nail in the coffin. In 2010, in order to pay for the HIRE act (you know the billions to try and restart the economy), Treasury snuck in FATCA to pay for it. And FATCA fundamentally said - if you hide US money offshore in your financial institution we will cut you off from the Fed Wire system and the US $. And for any global financial institution that was a death blow.

    Foreign banks were so freaked out that some shut down all US based bank accounts. US expats in London complained of an inability to bank anymore in the UK. And by the way I am not just talking banks. Financial institution was very broadly defined and it weighed heavily on the investment industry as well.

    Which brings me around to credit cards…with the notoriety of South Dakota recently we all now understand why our credit cards are issued there. No financial restrictions. Which may also explain this most interesting of services where you can basically get a credit card number on the fly use it once and then burn it. Or keep it.


  26. Are we sure that the vol on BTC is on BTC, given that it’s denominated in US dollars? But more importantly, your keen hypothesis that BTC might be a put option on humanity. Option prices are much more volatile than the underlying when out of the money, which I believe it would be in your hypothetical.

  27. A win?
    This quote though:
    “Today’s new proposal reflects the Administration’s strong belief that we should zero in on those at the top of the income scale who don’t pay the taxes they owe, while protecting American workers by setting the bank account threshold at $10,000 and providing an exemption for wage earners like teachers and firefighters,” Yellen said in a statement.

    Don’t worry, we’re ignoring the wage earners, like government employees. LMAO

  28. Avatar for robh robh says:

    Come on-- show me any family that doesn’t spend $10K a year on rent, mortgage, food, car payments, etc. This was never about catching billionaire/millionaire tax cheats-- it was always about taxing the underground economy.

    There is a reason why the Treasury wants to retire the $100 bill (and why the ECB retired the €500 bill) and wants to regulate/monitor crypto.

  29. Avatar for bhunt bhunt says:

    Completely agree. This has always been about taxing the cash/Venmo/underground economy.

  30. Yes. In re-reading the rules, I don’t think this is much of a win (although better than before I guess). I didn’t realize the $10,000 was total transactions for the year, I thought it was only $10,000 balances (ie - if you have an account with over $10,000 then your transactions get reported, but that is obviously not the case in my rereading).

  31. If the user keeps their Venmo balance within the Venmo system the whole time and never transfers it to a bank, maybe they could evade the reporting rules as proposed. But considering I have no idea how Venmo has set up their bank deposit holdings for users (not their crypto but actual US dollar accounts) that’s a pretty strong guess.
    If Venmo has a large single account and they are keeping track of all the internal “journals” on their system but not actually making transfers between accounts then it wouldn’t get reported but if I transfer cash from my bank to “my” Venmo account and it goes into Venmo’s general account to be held for my person, that’s legally not a same name transfer. That’s me transferring money to Venmo who holds it for my name benefit, which means its not same name and will get reported and aggregated in the proposed rules as I understand them.
    If Venmo does have personal accounts for each user (and considering I have a Venmo and don’t really remember going through any sort of Patriot act verification with them so I would be surprised if it that’s how it works) then the transfer from my outside bank to my Venmo account wouldn’t get scooped up in reporting but rather the Venmo transfers themselves would as they would be going from my personal Venmo bank account to the personal or corporate Venmo account of someone else.
    Either way, they’re scooped up. If Venmo is truly and solely using blockchain tech to transfer within their system and not bank protocols, then a user could be unreported if they never send their money outside the Venmo system (assuming I’ve read the order correctly-big if).
    Last caveat, they say they won’t be looking at W-2 paycheck direct deposits so I don’t know if Venmo’s electronic transfer (ACH) counts as a direct deposit or not. If I had to guess, they don’t.

  32. Avatar for robh robh says:

    The Treasury’s proposal in the 2022 budget (that Congress appears to be basing this provision in the reconciliation bill on) on p. 88 - -

    This requirement would apply to all business and personal accounts from financial
    institutions, including bank, loan, and investment accounts,2 with the exception of accounts
    below a low de minimis gross flow threshold of $600 or fair market value of $600.
    Other accounts with characteristics similar to financial institution accounts will be covered under
    this information reporting regime.

    Venmo is clearly an “institution” and I highly doubt would fall under the private (hardware) wallet carveout.

    Of course no one has actually seen the bill, so who knows what the final regs will look like.

  33. I just checked my Venmo account and it looks like at some point I did verify my Identity with them. So it is probably more likely they do have individual accounts for each user, which makes it more likely that they will have to report all transactions between users that are able the threshold. Considering that before I got married I used to accept rent from my roommates every month using Venmo, I’m sure I’d get auto flagged for an audit considering my transactions would have been above threshold and not reconcile immediately with my tax return.

  34. Avatar for robh robh says:

    @jtpocean Nah-- this will only be to catch tax-dodging billionaires. Nothing to see here-move along.

  35. Avatar for bhunt bhunt says:

    I play in a weekly online poker game with a dozen friends, and we use Venmo to settle up at the end of the night. The host is responsible for handling the ins and outs. So if you lose money you pay the host and if you win money the host pays you. All in, probably $1,000 goes through the host for any given game. This is all linked to the host’s bank account, because it’s nuts to leave a lot of money in your Venmo account. I’ve probably hosted 12-15 of these games over the past year. I’ve won a couple of $k over all of the games, hosted by me or not.

    This all ends under this law, because I’m not going to track and report my poker winnings and losses for taxes, and I’m sure as hell not going to have 10x that amount flowing through my bank account. This makes me really sad, and it is ABSOLUTELY what this law is trying to accomplish.

  36. “Similar reporting requirements would apply to crypto asset exchanges and custodians.
    Separately, reporting requirements would apply in cases in which taxpayers buy crypto assets from one broker and then transfer the crypto assets to another broker, and businesses that receive crypto assets in transactions with a fair market value of more than $10,000 would have to report such transactions.”
    "The Secretary would be given broad authority to issue regulations necessary to implement this proposal." (Emphasis mine).
    (pg. 88-89).

    Looks like the treasury may be anticipating your moves.

    Either way, there is no way Venmo moves off SWIFT completely. Like @bhunt said there is no way I’m leaving thousands of dollars (or even hundreds of dollars in my case) with Venmo and outside my personal bank account for more than a day at most.
    So sure, there are theoretical ways around (maybe) the reporting but in practical terms, this is meant to capture underground economy money movement and get it taxed and audited.

  37. Avatar for robh robh says:

    I can assure you that Treasury/IRS is very familiar with Venmo (and CashApp and Zelle and ApplePay) and if these “apps” do not provide the disclosure that will absolutely be called for in the bill they will either be shut down or put on the AML naughty list and all of the other regulated entities (banks, credit card issuers, etc) will be barred from interfacing with them.

  38. “I belong to a small group…” E.L. That sounds so much like my career except I decided to retire before I became irrelevant.

  39. Fake News. This statement is completely false. Every HF and PE fund that I know of or invest with has extremely stringent AML rules. Rules that extend to beyond stupid places. This is just opportunism to put even more regulation on AML in place.

    Under current law, private equity firms and hedge firms do not need to verify their investors’ identities or how they made their money - requirements that U.S. banks have followed under the anti-money laundering Bank Secrecy Act, passed in 1970, and other anti-corruption laws. The rules are known as “Know Your Customer,” a due diligence process for assessing and monitoring a customer’s risk and verifying identity.

  40. This is my gut feeling as well but my day to day interaction with hedge funds and PE funds is limited.
    So, sounds like is Sauron looking to widen his gaze. Never let a crisis go to waste.

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