Money going down the rabbit hole

MassMutual, a very traditional life insurance company that’s been in business for the last 169 years, bought $100 million worth of Bitcoin. MicroStrategy announced the issuance of $550 million in convertible notes to purchase more bitcoin. BitPay filed to become a national crypto-native bank. More crypto companies are applying for bank charters, and the first crypto index fund made its debut in OTC markets trading publicly in the U.S. Square announced an investment initiative to drive the adoption of greener bitcoin mining. The US dollar has been the world’s global reserve currency for the last 100 years. Spain and Portugal dominated the 15th and 16th centuries, the Netherlands the 17th century, France and Britain the 18th and 19th centuries, and the US dominated the 20th century. In a recent article in FT.com, Ruchir Sharma, Morgan Stanley’s Chief Global Strategist at Investment Management, thinks the dollar’s time is up. He explained how bitcoin is making progress towards replacing the U.S. dollar and becoming the world’s reserve currency. As the year comes to a close, bitcoin had a phenomenal year, its biggest in its short history and it’s very tempting to make predictions about bitcoin’s future based on its performance so far. If nothing else, 2020 has shown that bitcoin can challenge traditional currencies as a store of value and a medium of exchange. Money printers should beware, it might not be bitcoin, but something’s coming around the corner and it will eat their lunch. 

Ilias Louis Hatzis is the founder and CEO at Kryptonio, a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords.

As I write this bitcoin’s price has passed $19k again and the entire market stands at $561 billion. When we look at the last year, a few things stand out: bitcoin’s price surged past the all-time high of 2017, it found support from Wall Street and big-time investors and the pandemic amplified everything that is wrong with the existing financial system. Printing billions in fiat currencies hasn’t helped the situation. With declining public confidence in national currencies, demand for bitcoin is only going up.

Not too long ago, bitcoin and other cryptocurrencies seemed unimportant to central banks. Now huge economies like China and small ones like the Bahamas are rolling out their own digital currencies, while the US and the EU play a wait and see game.

But, not all digital currencies are created equal. Some are likely to deliver only modest improvements to existing payments models, as in the case of CBDCs, while others , like bitcoin, could challenge financial systems at their core.

Bitcoin has become a bankers worst nightmare, and no CBDC will change that.

For starters, there will be never more than 21 million Bitcoins. This is sound like a small number, it is not and let me tell you why. Bitcoin has 8 decimal places. It is possible to display a price as low as 0.00000001 Bitcoin (1 Satoshi) There are 100 million Satoshis in a one bitcoin. That’s huge! Bitcoin, like gold, is a store of value because of its fixed money supply. With money being printed like it’s going out of style, bitcoin’s scarcity could drive its price to reach astronomical values and 0.00000001 BTC could be worth a lot of USD.

Secondly, its peer-to-peer. You can transfer value with bitcoin and there is no bank or government to tell you that you can’t. Do you remember when your bank told you that couldn’t send money to someone because of capital controls or because of some other limitation or just because they deemed the recipient “unfit” to receive it? Unless the rumors about U.S. regulating private self-hosted crypto wallets become a reality, with bitcoin you will always be your own bank.

But the way to be the reserve currency, is to be the currency used in global trade. Individuals, companies and other organisations must be able to trade with it for goods and services. The U.S. dollar is well positioned in this respect. Bitcoin, which has been around since 2009, is not. Not yet. PayPal’s new service is a step in the right direction. It will enable its 26 million worldwide merchants to accept digital assets as payment from Paypal’s 346 million users.

Digitized money is not new for central banks. They already deal with electronic versions of money, but with their own digital currencies they could extend some of their services, when it comes to settling payments faster and making banking services available to the 1.7 billion people around the world who are unbanked. Having said that, CBDC does not alleviate the problems we already have with today’s money. Personally, I only see CBDC as a process of turning atoms to bits. CBDCs are not a limited quantity cryptocurrencies like Bitcoin. Central banks will be able to “print” at will as they do now. If CDBCs continue to be currencies based on an inflationary debt system, then practically everything remains the same and CBDCs have nothing to do with the principles of bitcoin and cryptocurrencies.

Although questions remain, a first-mover advantage is likely to be significant. China will have an advantage, as it accelerates the launch and adoption of its own digital currency. Other countries will be pressed to follow with a strategic response of their own. In the case of the US, a digital dollar is not the solution. It’s only a move to stall things. China already has a 2-3 year head start on the US and as the digital renminbi gains adoption ,this could put enormous pressure on the dollar.

The US does not need build a digital dollar to catch up to China. If the dollar loses its reserve-currency status, this will push up interest rates for American consumers and businesses, making everything from buying a house to building a factory more expensive.

Bitcoin is the “Get Out of Jail Free card” for the US.
The US just needs to adopt bitcoin.

Throughout history, a transition of the reserve currencies has always brought about turmoil and uncertainty in financial markets. In today’s climate of global conflict and the ongoing power struggle between the US and China, the next global reserve currency could have no connection whatsoever with a specific country. Bitcoin was created during the last economic recession to prevent future recessions. It was designed with characteristics and features that make it 100x better than any digital currencies issued by countries like China or the US. Bitcoin is a resilient and an incredibly tough system that has withstood everything governments and hackers have thrown at it over the last twelve years.

In its current stage, bitcoin is only at the start of a long cycle of adoption and its price rally is only beginning to unfold. If we are to see bitcoin unseat the dollar, the digital currency would need to make progress in some important areas and become: a medium of exchange, a store of value and a unit of account. By the time bitcoin’s supply hits 21 million, market capitalization may be so high that traditional asset classes and entire nation economies flip to bitcoin. We’re entering a post-fiat money world and we will not have to wait until 21 million.

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