Just because we don’t believe or understand something doesn’t mean it does not exist.
This post is a followup on a discussion I had on a LinkedIn post about the future of Bitcoin and it’s cousins (Altcoins).
I am a doctoral researcher and have been studying the concept of value, perception and technology adoption challenges for the past 3 years and have made me study some interesting concepts about money, digital technology and the internet.
Let’s start with Money.
What is money? In simple terms, money is a store of value and medium of exchange.
What has value? Something we collectively perceive and jointly agree is useful, and we assign value to it.
How do we assign value ? we allow it to swim through the principles of demand and supply, following the simple economics concept of the higher the demand the higher the price.
Is the Dollar then valuable? If yes, how?
Dollar used to be backed with Gold, the standard until August 15, 1971, when President Richard Nixon stopped holding 1 ounce of gold for every $35. We can argue that America saw that he had won the battle of supremacy against the world powers of the day, and stopped storing up Gold as backup to every dollar printed. Since everyone has perceived the Dollar as a good store of value and medium of exchange the perception continued and the dollar was believed to be a good store of value and unit of exchange.
Most people do not realise that Money is a social construction and not a physical commodity, unfortunately, they see money as a physical commodity, and this explains why they don’t understand or believe digital money (cryptocurrencies) by trying to understand money from a physical asset perspective. They believe something must back it up, but President Nixon realized that money is what we call it and not what backs it up and promised the world that America’s name is enough to back up the US dollar, interestingly, China has realised this and racing aggressively to upturn this with its investments all over the world.
I hold a couple of cryptocurrencies for 2 basic reasons: store of value with protection against Naira’s devaluation and as an investment portfolio (far better than stocks).
Back to the discussion, Can E- yuan crash the price of BTC and its cousins?
I believe e-yuan cannot serve well as an investment vehicle, with the plethora of Decentralised Finance (DeFi) Applications built on diverse blockchains, a stable coin pegged against a fiat currency will not be an investor or traders choice, rather a means of payment, unit of account or store or value, so I believe it will only compete with tokens in the name asset class like USDT, USDC BUSD, DIA etc.
The next interesting angle subject to debate about Cryptos is its intrinsic ability to make people lose money!
But let’s compare it with stocks. Smart investors buy stocks because they believe the company will produce better product and when they do well in the market, then the prices of the stock will soar (speculation), similarly holding non-stable crypto like eth, bnb, xrp etc in anticipation that the underlying problem the blockchain technology is solving will enable it to scale and enable the token to see glory. This domino effect makes the price of the coin to appreciate. This process is also speculative and hinges on the same concept of making money from stocks.
So if stocks aren’t going away why will crypto?
Unfortunately, just like stocks, there are pump and dumps which leads to hyper volatility (Madoff: MMM kind of Ponzi investment scam) causing investors to lose tons of money and a few making massive profit.
The inefficiencies of trade by barter lead to money, and we have been seeing a revolution afterwards. It started with money 1.0 (copper coins and cowries) to money 2.0 (paper money/fiat) and then money 3.0 (debit/credit cards, paypal, alipay etc), the same inefficiencies of money 3.0 such as huge cost of printing and distribution, and government printing at will leading to inflation, devaluation triggered the need for a better money (money 4.0).
Central banks, Deposit Money Banks, Investment companies and Government being custodians of money 3.0 resisted money 4.0 just as Jesus and Christianity was resisted by the Romans, but that didn’t stop the spread of Christianity.
We can see a shift in the resistance and they are unwillingly accepting the reality and embracing the need to adopt digital currencies. With time, there will be mergers and acquisitions and the men would be separated from the boys, with cryptocurrencies solving real problems standing the test of time.
These news herald the Tsunami, Cryptocurrencies and indicates that a shift in global finance is coming
1. Tunisia’s Economy Minister To Decriminalize Buying Bitcoin
2. Paypal as started accepting cryptocurrencies
3. Morgan Stanley becomes the first big U.S. bank to offer its wealthy clients access to bitcoin funds
4. El Salvador becomes first country to adopt bitcoin as legal tender after passing law
5. Ethiopian schools will use the Cardano blockchain to track student performance
With more interesting news about blockchain and crytpocurrecies, the continued bearish market outlook since the 18th of May, 2021 which many people linked with the clamp down on cryptocurrencies in China and launch of digital currencies by China will upturn the perception that the value of Bitcoin and all other altcoins to plummet.
I strongly believe the value of bitcoin will shoot up as opposed to the prediction of crashing price of bitcoin. More CBDC will cause a Cambrian moment for cryptocurrencies adoption, as more people will be aware, use and accept cryptocurrencies as a legal tender. El Salvador has positioned itself as first country to accept bitcoin as a legal tender more will follow suit as it would definitely not be the last.
Prof. Ekekwe argues in a LinkedIn post that:
The prices of bitcoin could go up but if it continues to lose 50% of its population in China, we should expect gravity to be sustained! (prices coming down)
Considering the technology adoption model, the worldwide cryptocurrency adoption is still under 10%, but once the frictions of adoption are reduced, and adoption attains say 40% we expect more counties to compete in market share adoption and potentially losing China may not fully sustain the gravity ( crashing of bitcoin prices).
Interestingly, cryptos will reduce some of the associated issues of fiat but lead back to the same problem crypto promised to solve which was decentralized finance, as governments will regain a major grip on control through CBDC and minor grip in the hands of wealthy citizens like Elon, however, they only won the war, they didn’t win the battle, as tons of poor guys like me would have made a shit ton of money (Hahahahah), they used power to print money at will, we also went ahead and printed ours but they can collect the control back from us but not the money we have made and life can returns back to normal.
I will the way Prof Scot Galloway puts it:
Democracies lose when the wealthy evade taxes, or when organized crime can easily move and store capital. A decentralized financial system runs the risk of neutering enforcement.
A major take away of the decentralized finance promised by blockchain and cryptocurrencies will be a more transparent global financial institution that will be berthed and enforced with digital currencies.