Reinventing money: Bitcoin’s Road to Gold

I will not do this again. Money Reimagined is taking a three week break and what happens?

Bitcoin is up 82%. More than 54,000 Americans die from COVID-19. And, oh yeah, a riot is happening in Washington, DC

On the second page, the numbers speak for themselves: a heartbreaking failure of human organization. On the third, I’m too stunned to speak anyway. So today we are discussing the first. I want to show that Bitcoin’s volatility is not a problem for its long-term profitability, as some critics claim.

Connected: Crypto Long & Short: Traditional markets and crypto markets are starting to converge

You will notice a new format for parts of the newsletter. Further changes will follow in the coming weeks. Let us know what you think about the bullet format and other changes.

The first episode of our podcast “Money Reimagined” was also released in 2021. Starring Matthew Davie of Kiva and Alpen Sheth of Mercy Corps, this film explores the charities’ efforts to drive financial inclusion by empowering grassroots and whether it will succeed in crypto, a US-dominated “philanthropy industrial complex ” to destroy.

Bitcoin’s year-end moves did not all go in one direction. In the 24 hours between dawn in New York on Sunday, January 3, and Monday, January 4, it fell 18% from a high of $ 34,341 to a low of $ 28,154, all within the next 36 hours and up to recover Reached $ 40,755 just before this newsletter was sent.

  • Such wild swings are fodder for NoCoiners like Jacob Silverman, who declared in the New Republic that “Bitcoin, unlike gold, is worthless”.

  • Seems reasonable, doesn’t it? How can something of such mercury value function as a medium of exchange, store of value and unit of account – the three functions of money?

  • It is a double argument. Bitcoin could never have been born with instant price stability. If it is to fulfill its “digital gold” use case, it must embark on a journey from a misunderstood, unrecognized concept to widespread acceptance. This will need time. It will increase in value along the way. But when speculators buy and sell, it will come in fits and starts.

  • How long does this process take? Well, how long did it take for gold to become a widely accepted store of value? This hilarious video of a salesman turning down a customer’s offer for gold, the “currency of the future,” instead of a chicken to buy five rat skins and lukewarm lemonade shows what mattered:

  • Patience please. Bitcoin is not yet digital gold. It’s going to be digital gold.

  • That’s why the latest spike in high-profile price predictions matters: $ 146,000, JPMorgan says; $ 318,000, Says Citibank; $ 400,000, says Guggenheim. They are not time-bound price targets for a share, the value of which will later continue to rise. They are stabs at a fair value once Bitcoin has reached the required setup status.

  • This is also the reason why the second part of the often cited binary framing by crypto pioneer Wences Casares – Bitcoin could rise to 1 million US dollars, but also to zero – is still valid. That looks less and less likely, but unless proponents fail to overcome the widespread suspicion of no-coiners, Bitcoin will fail to realize its potential.

  • Satoshi’s solution to the Byzantine generals’ dilemma gives Bitcoin the potential to be a benchmark for the digital scarcity urgently needed for an increasingly digitized and internet-based world economy. But to become that universal standard, it has to go through a narrative cultural awareness process. Most importantly, people need to understand that the most important aspect of Bitcoin’s security model isn’t actually its technology, but the growing size of its network – in other words, the self-fulfilling nature of its acceptance.

  • Only when this process reaches critical mass can we begin applying this widely accepted, digitally scarce store of value to new forms of monetary use – perhaps as a settlement layer for lightning payments, perhaps as programmable security to replace sovereign debt, the foundation of the global bond market or both.

We still have a long way to go. For now, just enjoy the ride.

The story goes on

Whales versus minnows

Connected: Blockchain Bites: Bitcoin’s Rich List, Coinbase’s latest acquisition

“This time is different” is a dangerous phrase, as Carmen Reinhart and Kenneth Rogoff reminded us after the real estate crisis of 2008. But if you compare the 2017 Bitcoin boom to the current one, there are many signs that this one is different.

The previous event was characterized as a FOMO event as hordes of retail investors, fearful of being left behind, plunged not only into Bitcoin but into myriad ill-designed and often illegal ICOs. It was a rally on Main Street.

Consistent with the “stupid money” portrayals that Wall Street traders often use by such hype-hunting investors, many bought high and sold low and lost their shirts when the market collapsed in early 2018. The winners at such times will be on Wall Street. I’ll tell you, are the big people with the “smart money” who buy early and sell at the top.

That feels a lot more like a Wall Street rally. High-performing institutions and well-known investors – from Larry Fink of BlackRock to Bill Miller of Miller Value Partners to Scott Minerd of Guggenheim Partners – have either invested in the potential of Bitcoin or at least talked about it.

There is even on-chain data to back up the thesis. Coin Metrics’ measure of “whale” bitcoin addresses holding more than 1,000 BTC shows that their numbers fell in 2017 as little people bought, but rose solidly as the price rose in 2020 and into the new year.

Of course, the whales of 2017 weren’t exactly Wall Streeters. Many were also private investors. In this case, the “smart money” were those who cheated on crypto and blockchain early on and knew that the mania of that time was going too fast too soon.

Time will tell if the Wall Street newcomers are the new smarts or if they too have been played.

The conversation: Washington’s game plan

Two other large bomb items fell out of Washington during the break:

The first was harshly condemned by the crypto community as an attack on privacy and innovation. The second was hailed as a breakthrough for the crypto economy.

But weren’t these seemingly contradicting initiatives coordinated? A look at the Twitter conversation suggests that there may be something more at stake.

  • On December 21, currency economist and CoinDesk columnist JP Koning made a remark that others had overlooked: The FinCEN proposal applies not only to the regular exchange of cryptocurrencies, but also to trading in the central bank’s digital currencies.

  • On Jan. 4, Jeremy Allaire, CEO of Circle, the main issuer of the USDC stablecoin, raved about the power of the OCC ruling to transform global payments.

  • Tanvi Ratna, CEO of Policy 4.0, pointed out that involving banks in the stablecoin business means more regulation, not less, and that regulation will have international reach.

Here’s my take: The FinCEN rule is as much about shifting the U.S. financial oversight functions to exchanging fiat-denominated digital currencies as it is about controlling Bitcoin transactions. The OCC rule sustains global demand for dollars as the most coveted dominance of stable coins is the USD as central bank digital currencies threaten to undermine the dominance of the dollar.

What crypto commentators see as a confusing routine between good and bad cops against them might actually be a coordinated geopolitical game by Washington. Together, these rules could help the US maintain its unique power as the world’s reserve currency issuer to monitor and regulate global currency movements even as China and other countries try to bypass the US-regulated banking system using digital currency technology.

Relevant Readings: Don’t Forget Ethereum

In parallel to our ongoing coverage of the wild Bitcoin rally, CoinDesk had a number of reports over the past week indicating that Ethereum is also in boom mode, including renewed activity in the area of ​​decentralized funding based on Ethereum.

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