As anyone who has ever attempted to explain bitcoin to their parents can understand, one of the most challenging parts of convincing them of the utility of this technology is making the case that a person should be his or her own bank. Occasionally, though, an object lesson bites you in the, err, mustache.
The lesson in question comes courtesy of personal finance author Peter Adeney. Writing on Twitter, Adeney, who blogs under the pseudonym Mr. Money Mustache, relayed that Capital One arbitrarily froze his bank account, which was holding several hundred thousand dollars earmarked for a real estate transaction.
WOW! @CapitalOne Just froze my bank account (and all $309,000 of cash I had collected for an upcoming house purchase), and said I have to call to release it. But then they put me on hold and never answer.
25:08 and counting on my SECOND attempt. Feels like I have been robbed.
— Mr. Money Mustache (@mrmoneymustache) August 13, 2018
Fortunately, Adeney appears to have eventually been able to speak to a bank representative and remedy the situation, assuming his transaction clears following the three-day settlement time. In any case, though, his predicament is perhaps more than a bit ironic.
‘Why Bitcoin is Stupid’
Earlier this year, Adeney penned a bombastic article called, “Why Bitcoin is Stupid,” in which he laid out a vicious takedown of cryptocurrency craze and warned readers of his personal finance blog against investing in the flagship coin.
Credit where credit is due: Though highly critical of bitcoin, Adeney clearly did his homework, and he advised investors against investing in cryptocurrency near the top of the market, likely saving fad-chasing retail investors from making uninformed investment decisions they would live to regret later on.
However, there are several representative arguments worth reconsidering in light of his recent predicament.
Here’s what he has to say about Satoshi Nakamoto’s whitepaper:
“But it also has some ideology built in – the assumption that giving national governments the ability to monitor flows of money in the financial system and use it as a form of law enforcement is wrong…. This financial libertarian streak is at the core of Bitcoin.”
Proposing that cryptocurrency evangelists essentially argue “all the same stuff that people say about Gold, which is also a totally irrational waste of human investment energy,” he said that government-backed currencies represent “human trust and cooperation” and that you “might as well…trust people.”
“Government-issued currencies have value because they represent human trust and cooperation. There is no wealth and no trade without these two things, so you might as well go all-in and trust people. There are no financial instruments that will protect you from a world where we no longer trust each other.”
And here’s one more exceprt:
“So, Bitcoin is a protocol invented to solve a money problem that simply does not exist in the rich countries, which is where most of the money is. Sure, an anonymous way to exchange money and escape the eyes of a corrupt government is a good thing for human rights. But at least 98% of MMM readers do not live in countries where this is an issue.”
Practically speaking, of course, bitcoin in its present form is not an anonymous asset, because, given the tools available to law enforcement, the vast majority of ordinary transactions can be traced back to the individuals behind the pseudonymous addresses.
Spending Money Shouldn’t Require a Bank’s Permission
That’s beside the point though, and in any case, Adeney’s core point appears to be that decentralized, permissionless cryptocurrencies are built on faulty economic ideas, including that there is value in an asset that mimics cash by allowing users to make uncensorable transactions, reduces the necessity of financial intermediaries such as banks, and limits the ability of governments to control the money supply.
As this situation shows, though, financial intermediaries have a broad license — and, in many cases, a government mandate — to freeze customer funds and hold them hostage until the rightful owner can prove that they’re not earmarked for an illicit purpose.
While the injury to Adeney was in this case relatively minor, it could have been much more severe had he required immediate access to the funds.
Similarly, government officers in the U.S. frequently seize assets from citizens whose only “crime” is holding an unusually large amount of cash in their physical possession. To recoup these funds, the guilty-until-proven-innocent individuals must wage a costly legal battle against the government and, in many cases, sign a waiver allowing the government to keep the majority of the cash if they hope to recoup any of the funds at all.
Moreover, it’s likely that banks will expand their freeze-and-seize policies beyond their government mandate, as there is a growing expectation that businesses including financial institutions should develop a “corporate conscience.”
Institutions such as Citigroup have already begun pressuring business partners involved with firearms sales to restrict purchases beyond what is legally required, while Bank of America has frozen credit to manufacturers of AR-platform rifles. The New York Times even published an op-ed calling for banks to ban customers from using credit cards to purchase AR-15s. As justification for this stance, the author noted that many institutions have already banned customers from using credit cards to buy bitcoin.
In these cases, it’s important to note, the institutions would be preventing clients from borrowing bank-owned money to either fund the production of firearms or purchase those items, but it wouldn’t be a stretch for them to extend such a policy to financial products structured around customer assets, including debit cards and bank accounts.
The point, of course, is not that cryptocurrency, firearms, or whatever other product that captures the disdain of the banks may become moderately more difficult to obtain, it’s that the institutions to which most people entrust the majority of their net worth feel comfortable, beyond what is legally required, telling them how they may spend that money.
These aren’t problems restricted to hypothetical dystopian futures or countries on the brink of economic collapse, and while they might not currently be problems faced by the general population, they can — particularly in the case of civil asset forfeiture — be financially ruinous for the individuals caught in their net.
For all its alleged faults, bitcoin, when held in a non-custodial wallet, allows you to transact freely without your bank’s permission — and it’s much less likely than cash to be arbitrarily seized by the government. That, I contend, is a valuable service.
A Lesson Less Than Learned
But let’s return to Mr. Money Mustache.
Unsurprisingly, Adeney’s plight quickly made its way to Crypto Twitter, and before long his thread was full of comments advising him to use bitcoin the next time he needs to move a large amount of money. The 44-year-old retiree was not amused.
“Why are so many people talking about Bitcoin in this thread as if it’s a valid way to buy a house?” he said, tweeting out another link to his aforementioned bitcoin takedown. “It was priced in US dollars because that the currency of this country!”
Consequently, it seems highly unlikely that we’ll see a pro-bitcoin article gracing the pixels of the Mr. Money Mustache blog anytime soon, but perhaps, in the future, its author may have a bit more respect for the argument that more than just criminals can benefit from uncensorable transactions.
In the meantime, he believes that he has arrived at a solution to his problem: find a new bank.