The Capital
Published in

The Capital

Wall Street and Bitcoin: Are They Using Old Tricks to Force a New Big Short?

Wall Street isn’t known for their altruism or their love for Bitcoin, so what if they wanted to take control of BTC — or take it out of the picture?

Wall Street sign in front of the stock exchange building.
Image courtesy of Canva

Do you trust Wall Street? Me too! I’m kidding. I trust them as far as I can throw a ton of gold. After the 2009 housing bubble, wounds are still fresh. Many people haven’t recovered, and not even a single banker went to jail. So, the bad guys won, and the good guys lost. Could it happen again?

Wall Street might be setting up Bitcoin for a big short like the housing bubble of 2009. They have created speculative products for Bitcoin. Their friends in big corporations have bought into Bitcoin, and now there is more paper Bitcoin than actual Bitcoin. They have set the stage for a big short on Bitcoin. In addition, they are fleecing their pockets while robbing the retail investor once again. It could be the crypto-pocalypse all the doom-sayers have been predicting. Wall Street is notorious for more scams than the 2009 bubble. Why wouldn’t they take advantage of market conditions once more? I believe they will and soon, but the retail investor doesn’t have to lose this time. Wall Street doesn’t possess all or even most Bitcoin globally, and as long as that remains true, they are rendered impotent in sacrificing the everyday investor for their gain.

This article will address how Wall Street has set up BTC for a big short, how they’ll execute it, and why it will fail.

Wall Street and their friends never supported Bitcoin and never will

Wall Street bankers and their supporters have attacked Bitcoin since its inception. After all, Bitcoin was birthed from the 2009 housing bubble that Wall Street took advantage of. For a normie to introduce an alternative form of currency contrary to Wall Street’s ability to control it was an insult to their dominance over economic forces in America. The creation of Bitcoin was akin to the alleged etymology of workers throwing their sabots (wooden shoes) into machinery to stop production in protest of unrelenting horrible work conditions. Satoshi Nakamoto would be the first worker to rally other workers to force the machines to stop. However, Wall Street wasn’t having it and began a campaign to “inform” the public of Bitcoin’s vacuous attempt to be taken seriously. Even Wired magazine spread Wall Street’s message of mistrust about Bitcoin in 2011. And the messaging hasn’t stopped with the latest coming from SEC Chairman Gary Gensler, who wants desperately to place controls on Bitcoin and all crypto, classifying them as securities. Yet, Gensler’s SEC Gestapo isn’t the only force after the embattled coin. Warren Buffett, Peter Schiff, Paul Krugman, and Bill Gates continually wail about Bitcoin’s doomed future from atop their mountain of blood money, which isn’t surprising given their fortunes ties to Wall Street. However, are forces at work against the grandfather of cryptocurrency right in some respects even if their goals are dubious?

Buffett and the gang, along with Wall Street veterans, have been in the finance game for decades, so they must know their stuff. Hundreds of years of combined experience sit in financial positions of power, and they certainly know more about money than you or I ever will. Buffett built his fortune from his first investment at 11 years old, buying a few shares of Cities Service Preferred. He is now worth $100.8 Billion. Gates created his first “quick and dirty operating system” (QDOS) back in 1981 and would soon start Microsoft. He is now worth $131.7 Billion, and the list goes on. With all this experience in building fortunes, it would seem logical to listen to their advice. For instance, how often do you turn to an experienced person in a particular field to help you make decisions or solve problems? For example, wouldn’t you take your car to an auto mechanic for repair if you didn’t possess the skill? As for Gensler, it’s the SEC chairman’s job to protect investors. And with cryptocurrency’s volatility and anonymity, which leads to rampant criminal activity, do we not need regulations? Well, perhaps, but it’s about trust, not expertise.

If you take your car to a skilled mechanic, and you discover they lied to you about the bill, you’d find another. Why? Trust is everything. Our old sense of survival still has us looking out for predators, and if we spot one, we steer clear. That old survival instinct translates to our sophisticated and nuanced lives. Therefore, when Wall Street or an individual financial expert makes an apparent show they are not looking out for your best interest, why would you trust them? Also, we aren’t speaking of a slight breach of trust. During the 2009 bubble, it’s estimated nearly 10 million families lost homes, savings, and their futures while Wall Street bankers made billions. That’s where trust dies. Again, we have a survival instinct, and if we see someone benefit from our suffering, that tends to sting a bit, and it isn’t easily forgotten. So, it doesn’t matter how much of an expert you are in your field. Once you manipulate and use someone to your advantage, their trust is over and broken. According to a Pew Research study, 77% of Americans believe there is “…too much power in the hands of a few rich people.” The percentage was 60% back in 1941 to give you an indicator that sentiment has only worsened over nearly a century. And it’s with good reason. Wall Street hasn’t shown any reason it’s interested in ethical practices. Their goals are wealth creation for themselves, and they achieve it through controlling and manipulating assets and markets. However, they don’t have control over Bitcoin, and that’s a problem for them. Yet, they might have found a solution.

What are Wall Street’s old tricks regarding stocks and gold?

There was a time when brokers traded physical stocks across the floor or “pit.” In the early 1970s, they saw trading as unsustainable and called for a change to the process. Soon, brokers stopped trading real stocks and used an IOU system while physical stocks remained in a storehouse. Slips of paper went back and forth across the floor, simplifying the trading process, and it made life easier for the brokers to conduct the ever-growing business of the stock exchange. However, it didn’t solve all problems. There was the matter of delayed reconciliation of trading results. For example, there was a time when the stock market was open only four days out of the week with one day for reconciliation. This reconciliation was dubbed “T” or trade plus however many days it took to reconcile. Back in the seventies, the stock exchange lingered around T+8 days. Therefore, if you called your broker and they made a trade at your request, it took eight days for the trade to take place. So, what happened to your stock during those eight days? Nothing. That is until XXXX had the idea for a new product to sell to clients: securities lending.

London, England realized that if a stock isn’t traded and isn’t in play, perhaps a broker could lend the stock to another broker as long as the lending broker reconciles before the eight days are over. Well, brokers made it work like a charm, and they could “make bets” with these stocks in limbo and short a stock if it’s on the decline. Then the eighties came along with the creation of NASDAQ, a fully electronic trading platform. NASDAQ’s speed lowered trading reconciliation tremendously, and soon T+8 became T+5, until today where the stock exchange sits at T+2. Also, with the coming of Bitcoin, trades happen near-instantly, so what gives? Why does it still take two days to conclude a transaction on traditional stock markets? The truth is Wall Street could have been making trades much faster decades before now, but they’ve fought hard against it. The reason: securities lending and shorting. They don’t want to lose that market. And why would they? It’s a benefit to them which means a blessing to you.

In 2020 total securities lending revenue equaled $4.57B. According to this article by Brown Brothers Harriman, the goal is to generate funds to offset the rising cost of regular market trading fees. According to the SEC’s website, the trade fees for most securities are set at $22.10 per million. In the scope of a day’s trading, that’s a lot of money. So it makes sense for a business to offset costs in any way they can, and securities lending seems to fit the bill. Also, it has the added benefit for retail investors to generate extra income while their trades are in “lending limbo.” After all, it’s a stroke of good business to find new and creative ways of maximizing your client’s returns. And retail investors have benefited from securities lending. If you use Ameritrade or ETrade, for example, lending your shares is straightforward. It only takes a few clicks, and their automated systems do the rest. So why lend out your long-term stocks for a short? “It is an excellent idea,” says Charles Trzcinka, a finance professor at Indiana University’s Kelley School of Business. “Long holders are optimistic, and if they can make money from idiot short sellers, then go for it.” So, perhaps securities lending isn’t so bad after all. Well, it doesn’t have to be, but like with all things, it depends on how you use it.

Suppose Warren Buffett takes a short position on a company’s stock holding at a steady pace. His words get around. “If Buffett is shorting company X, then something’s amiss. I’m shorting them too.” And they tell two friends and so on. Suddenly, company X’s stock starts to drop, and many other firms pick up shorts along the way. Everyone who shorted makes money, and the company goes out of business, and an untold amount of people lose their jobs. That kind of market manipulation is what is unjust. It’s like betting someone will die then making sure it happens. It’s black hat tactics, and it’s criminal. And that is only regarding stocks. There is a different game played when it comes to physical assets like gold.

The Fed, Wall Street, and the world’s central banks possess most of the gold in America. While the total gold in America stands at 8100 tons, central banks hold 5620 those tons. Along with other international holders, these entities control the movement of physical gold. Once upon a time, owners of gold had it physically, but as time went on, it became too bothersome. Therefore, XXXX created the first gold certificate. The certificate states your ownership of the gold even though the gold is not in your possession. Called paper gold, it gives flexibility for trading, fractionalizing, and storage. Imagine the logistics of storing one ton of gold versus sliding a certificate in your files. However, the issuance of gold certificates now outpaces physical gold by 293 ounces to 1. That means for every actual ounce of gold, certificates exist claiming 293 ounces. If there were a run on gold, financial institutions couldn’t honor their commitments and would (in theory) default to pay their dues (or the Fed would print more money). So, you might think, “how is this imbalance possible?” It’s due to the bank’s ability to move gold around as needed for liquidation. The scenario of everyone cashing out is unlikely. Therefore the banks move physical gold around to meet the owner’s needs. The same occurs in banks with cash deposits. Fractional reserve banking is where the bank only needs to hold 10% of its entire deposits, and they can do what they want with the rest, such as investments. Again, if there were a cash run on the banks, they could not meet their obligations. So, how does all of what we’ve discussed relate to Bitcoin?

Wall Street banker’s Bitcoin products treat BTC like gold creating a climate for shorts

Now that we understand securities lending and shorting and how gold and cash fractional reserves work, how does it all tie in with Bitcoin? In 2017, the world’s largest futures exchange, the CME Group, created the first Bitcoin futures contract. Later, other groups started margin and leverage products to run the gambit of speculative trading for BTC. What do these products mean? Much like gold, institutions can now create more Bitcoin on paper than there exists. While these products build flexibility and the potential for extra earnings to offset trading fees, it means Wall Street can suppress Bitcoin’s price. Aside from emotional market volatility Bitcoin experiences, Wall Street can control the price of Bitcoin by flushing the market with more Bitcoin than exists, thus lowering the cost. Earlier this year, JP Morgan ran an article predicting Bitcoin would hit $146,000 by the end of the year. I don’t lend credence to most predictions, and I didn’t lend it to theirs. However, I began to wonder if it wasn’t a Freudian slip or dog whistle. It could be the truth Bitcoin should sit at $146,000 or even higher right now. Yet, what good to the lords of Wall Street is a bustling cryptocurrency they can’t control? So, now their friends can buy Bitcoin for lending as shorts to brokerage friends while high profile exchanges sell speculative products keeping the price in control. It should work much like the housing crisis, and Wall Street will benefit while retail investors suffer by selling off their BTC in a panic.

Yet, that’s a big stretch. Wall Street is packed with savvy and intelligent financiers. After all, offering Bitcoin products is the road to mass adoption. It’s what every Bitcoin investor wants to see. Perhaps they could even see Bitcoin as legal tender, such as in El Salvador. Bitcoin isn’t a small market. As of this writing, the BTC market cap sits at over $848B. Why wouldn’t Wall Street want to get involved with that market and make some money for themselves and you, their clients? Also, many big companies have invested in Bitcoin, such as Tesla and Square. Even JP Morgan, who once derided Bitcoin, is now offering its token (JPM). So, the situation looks good for Bitcoin, not bleak. Wall Street creates speculative products for retail buyers to earn extra on their holdings. Major corporations are buying into Bitcoin, reducing supply and increasing demand, thus driving up the price, making more for investors. It’s great. Except, in my opinion, it’s not.

Wall Street plays games like this every 4–7 years in America. There’s always a crisis to aid them in their pursuits of more profit. Everyone knows Wall Street, the Fed, and global banks have held up the American stock markets well past their point of failure. Take a look at the news, and you’ll see everyone on edge — everyone except the architects. All of these significant companies buy into BTC, driving up the price, but not too much as it’s controlled through speculation via paper Bitcoin. Wall Street picks the timing to flood the market with more paper Bitcoin after more companies buy into BTC. Those companies that bought-in loan their shares to brokerage firms to leverage for shorts on BTC. Wall Street drives the price down, hoping that HODLers sell their BTC out of FUD. Wall Street and their major corporate friends make a great return on an engineered short while gaining most of the possession of Bitcoin via speculative product ownership. The result is they move Bitcoin out of private owner’s hands and into theirs while making huge fiat gains in the process. Once again, the retail investor loses while Wall Street wins. However, there are two problems.

Wall Street’s mistakes and how to maintain victory

Bitcoin HODLers don’t scare easy, and Wall Street doesn’t have the initial control of Bitcoin like they do with gold. Therefore, Wall Street loses if BTC HODLers hold their positions, keeping their Bitcoin in private hardware secure wallets. The price of Bitcoin doesn’t drop because the market doesn’t flood with paper BTC, and Bitcoin keeps climbing, albeit in its volatile manner. The power and control of real Bitcoin remains with the individual owner, and that’s the key to the success of Bitcoin. It’s you. The personal holding of your Bitcoin assets will provide the grounded foundation for BTC’s future. Understand that Wall Street will still try, and they will not stop until they gain control of Bitcoin or destroy it. They will create new products and or work with the SEC to regulate BTC in a way that benefits them. Please know that no one is your friend in this fight but you. The Fed, Congress, the SEC, and especially Wall Street are not your friends. If HODLers play their cards as they usually do by buying the dip and nothing else, I see a loss for Wall Street, but keep your eyes out — they never sleep on opportunities.

Conclusion

Wall Street is setting up Bitcoin for a big short akin to the 2009 housing bubble. Significant companies are buying into BTC products and lending those units to their brokerage friends to provide an environment for shorting while maintaining loose control of Bitcoin prices. They’ve used these tactics to manipulate different markets to the detriment of the retail investor before while increasing their portfolios. However, they’ve made a couple of mistakes. One mistake is underestimating the Bitcoin HODLer’s resilience and the fact they aren’t in any controlling position of actual Bitcoin like they are with gold. Therefore, pulling the same tricks should backfire on them. It certainly won’t break them, but it could sting a bit, and the retail Bitcoin HODLers will hopefully maintain their positions and come out all the better on the other side.

I’ll make it clear I’m not a professional financial advisor, nor am I clairvoyant. However, my survival instinct says Wall Street is a predator, and there is a situation where we could get ambushed, but it doesn’t have to be that way. We can fight. Bitcoin is the first twinkling of personal financial freedom for the average worker, and I don’t want to see it die. Everyone should have an equal chance to make their fortune and not be slapped down by elitists gatekeeping wealth. There’s enough to go around if you are intelligent and steady. Don’t give in to FUD. Buy the dip and HODL. Live the best life you can. Become what the predator fears.

Please read my cryptocurrency articles on Medium, LinkedIn, and Quora!

Also, don’t forget to mention Medium to your friends! Their membership fee directly supports me. Plus, they’ll get full access to every story on Medium! Click here to sign up.

--

--

--

A publishing platform for professionals in business, finance, and tech

Recommended from Medium

Will These Catalysts Fuel Cardano (ADA) Price To Reclaim Its $3 By The End Of The Quarter?

Bitcoin Has Been Largely Derisked

Drag and Drop NFTs to Any Unity Game

Which side the ICO-trackers are buttered on?

What’s up with those NFTs? Demystifying the fintech trend that’s taking over the press

Tokens, Tokens and More Tokens

How to Use the Digifox Wallet

China Bans Crypto, and the Market is Already Recovering

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
T.C. Gunter

T.C. Gunter

I draw sounds. And, I can speak them back. I write about a wide variety of topics.

More from Medium

Polygon Crypto Reportedly Negotiating 2 Massive Whale Investments

Bitcoin Hash Rate Hits All-time High

What is Crypto Atomic Swapping and How Does it Underpin the Emerging Blockchain Economy?

Two hands shaling in front of an atomic reaction.

The U.S. Federal Reserve Feeds Cryptocurrency Volatility