The current fiat-based monetary system is becoming insolvent from a dead-end Keynesian “debt and inflate” feedback loop paired with a lack of needed structural reforms, and it can only be kept intact going forward with capital controls and financial repression–which is what will eventually kill the current trickle-down system of centralized government fiat and precisely what spawned cryptos in the first place.
We see it as highly encouraging to our longstanding macro views constructive on decentralization and alternative stores of value away from centralized fiat currencies that so few people understand what is happening right now. It indicates a state of affairs still early in the process we expect to unfold. We are transitioning towards a multi-reserve currency monetary system increasingly involving private, decentralized currencies.
The current fiat-based monetary system is approaching insolvency from a dead-end Keynesian “debt and inflate” feedback loop paired with a lack of needed structural reforms, and it can only be kept intact going forward with capital controls and financial repression–which is what will eventually kill the current trickle-down system of centralized government fiat, and is precisely what spawned cryptocurrencies in the first place.
There are very few similarities between cryptocurrencies and tulips, tech stocks, etc., other than a sharp rise in price. This is about adoption and it is happening.
The legitimization of Bitcoin on regulated exchanges is an astounding financial experiment beginning today with Cboe (formerly CBOE) leading the way. Bitcoin might prove to be more difficult to manipulate and depress with leveraged futures short selling than gold has been due to the nature of the existing worldwide decentralized distributed ledger network tracking all transactions for the underlying asset, but it is feasibly possible.
Either Wall Street derivatives ruin Bitcoin, Bitcoin ruins derivatives, or the stars align perfectly in a manner which allows them to complement each other. We see the latter option as a touch too optimistic. It may be the digital asset tail wagging the Wall Street dog, as stalwart financial institutions jump on a Greekesque Bitcoin chariot bandwagon gallantly galloping with its sword point hoisted squarely in their direction.
However, if derivatives can indeed be used by Wall Street to suppress Bitcoin, more of the digital asset capital flows will simply move into other best of breed cryptos such as Litecoin, Dash, and Ether not constrained by derivatives, so long as the demand is there to escape deteriorating health in the monetary system.
Our base case is still for Bitcoin to increase in nominal fiat currency price to at least $100,000 USD/BTC on the basis of greater global adoption, with several price crashes between here and there. It will need to continue technological scaling improvements in the underlying asset to get there.
If “hyperbitcoinization” doesn’t ultimately materialize for Bitcoin, it will happen in other cryptos as expressed by total digital coin market capitalization. Digital currencies are here to stay one way or another in a similar way as the internet was by the early 1990s.
There will continue to be sharp digital asset flash crashes and price discovery shocks due to the nature of uncertainty surrounding the first new asset class in decades.
As the current power structure becomes increasingly threatened, there will be various attempts of government actions to constrain and control private digital assets. This will undoubtedly continue to foster the same type of turbulence witnessed since the creation of Bitcoin about 8 years ago when it took thousands of coins to buy one pizza. However, unless structural steps are taken to move government budgets and fiat currencies in a solvent direction without capital controls and financial repression, the demand to jump off the sinking ship of fiat will be immutable.