Undermining a Core Original Promise of Decentralized Digital Assets
“Blockchain technology-based cryptocurrencies provide a peer to peer electronic payment system beyond the reach of governments and central banks.”
How is that original promise holding up? Seemingly not so great, as digital assets get shoved under the umbrella of traditional banking and markets.
The value proposition of decentralized independence needs to move closer to reality in order for cryptocurrencies to fulfill their original purpose of transforming the global banking and monetary system with a better form of money.
Cryptocurrencies are not going to eliminate old, inefficient middlemen and change the world by requiring new centralized middlemen in order to facilitate their existence. Hostile central planning regimes can easily regulate and tax the fiat >crypto “deposit and withdrawal conversion mechanisms” by requiring them to operate nearly identically to the existing banking infrastructure they aim to replace, undermining their core reason for existence and rendering them semi-useless.
There has perhaps never been a greater need for an updated global monetary system based on sound money, privacy, security, and speedy payments at an ultra-low cost. All of these factors are critically important to forming the foundation of an economically viable, sustainable, well-functioning modern society that isn’t living on borrowed time.
Misguided, highly aggressive expansionary monetary policies enacted by the current era’s elite academic theory-based central planners have encouraged the formation of an unsustainable debt trap which can mathematically only resolve itself with an eventual default, semi-hyperinflationary event, or a saving grace demographic defying mystery miracle technology not currently in existence.
Contrary to widely believed Keynesian folklore, medium levels of persistent inflation actually make the debt problem worse by increasing the future cost side of the ledger even more than the income side of the ledger unless a population grows exponentially and becomes younger. The last thing an aging population with stagnant productivity needs is higher levels of debt and inflation.
It is true that existing debt is slowly melted away by inflation. More importantly, it is also true that a government’s future net liabilities are made notably worse by the impact of a relatively larger base of inflating costs than revenues.
To provide an incredibly basic example with round numbers, it is not helpful to inflate government revenues of $3 trillion by $150 billion if you are also inflating expenses of $4 trillion by $200 billion. In theory, a combination of progressive taxation and undermeasured inflation indexes used for entitlement payouts would help that equation.
In reality, they don’t. That is because most governments simply do not have a track record of operating efficiently due to misaligned political incentives and timeframes for holding office.
Fixed supply, best-in-breed blockchain cryptocurrencies such as bitcoin still have a fair amount of technological enhancement work necessary in the areas of decentralization, security, and ease of use if they want to become the answer to the need of transforming the banking and monetary system. Assist FX is alerting clients to this so they can ignore the hype and focus on incoming developments in the areas that matter.
We are currently taking a look at the prospects of decentralized exchanges (DEX). There will be more on this to follow. We do not currently have conviction on the topic either way. What currently exists in the space is not good enough but there are some highly skilled developers working on it. The hill is steep, however.
There is a clear attractive societal benefit for savers to have the ability to at least partially “opt out” of the Keynesian funny money debt trap game before the music stops as it has already done in countless failed states due to inflationary fiat currency busts.
However, the viable options for achieving this are not yet clear. Gold is a tried and true purchasing power protector over time, but it does have storage risks and is prone to confiscation by desperate governments when it is needed most, as occurred in 1933 in the US. When it comes to store of value focused cryptocurrencies, pay close attention to developments specifically regarding further decentralizing fiat-to-crypto and crypto-to-fiat conversion points.
If the fiat > crypto gateway is not fixed, the obvious risk is that a time comes when the Keynesian magic lever pullers enact more extreme forms of financial repression (banning cash, NIRP, capital controls, bail-ins) “to save the economy” which they previously helped destroy.
This, of course, will tend to coincide with a conveniently timed “money laundering” or “national security” campaign which also conveniently happens to prevent the vast majority of honest individuals simply trying to protect the purchasing power of their savings in a crisis from doing so. After all, capital controls and bail-ins only work if most of the money is trapped inside the system.
The authorities could effectively shut down the few major centralized digital asset exchanges even allowed to exist–where already, customers essentially have the pleasure of submitting endless forms of government-approved KYC identification, waiting months for buy/sell limits to gradually increase above lunch money capability, manually recording the tax liability each time one liquidates a micro-cap digital token to buy a cup of coffee, and paying exorbitant transaction fees for fiat > crypto conversions.
Fiat-to-crypto and crypto-to-fiat conversions; the battle for decentralization will be won or lost on that battlefield. Watch this area.