Cryptocurrencies: the Past Reinvented

  1. Cryptocurrencies comprise account for only a tiny fraction of the global economy. At an estimated value of $375 billion, this is several orders of magnitude smaller than a world GDP of $35 trillion (2019). Assuming other factors are favourable, there is clearly room for growth.
  2. Cryptocurrency success will mark the end of critical aspects of Central Banking monopoly; by revealing the fictitious nature of fiat currencies as a principle; by offering a more competitive vehicle for facilitating commercial transactions; and providing a more stable medium to store monetised assets. Apart from stability, cryptocurrencies offer real returns on “cash” deposits, something which the fiat banking system has long since abandoned. (The reasons for the latter are deeply significant and will be followed up in a subsequent article).
  3. Cryptocurrency success will hasten the end of the dollar monopoly in global commerce. Indeed, at current trending, changes in trading mechanics may speedily evolve to the point that such “reserve currencies” no longer have a function at all. Analysts once speculated that it was only a matter of time before the Chinese yuan displaced the dollar, in the same way that the dollar displaced the pound. The edifice which supports the concept of a “global reserve currency” is weakening. The latter’s demise will have significant implications regarding reducing political influence over global finance, as well as nations’ abilities to run long-term balance of payments deficits, current account deficits and borrow at little or no interest.
  4. Cryptocurrencies as an ecosystem — assuming the current direction of evolution continues — will increasingly constrain, redirect and set the parameters to government macroeconomic policies. Certainly, sound alternatives to fiat currencies will drive the latter to the periphery of commercial life, concomitantly reducing the number of tools the nation-state has at its disposal to regulate or respond to changing economic conditions. This especially means setting meaningful interest rates. Above all, it means that government financial engagement can no longer be a rule unto itself, it will have to engage by the same principles as everyone else. A level playing field here has dramatic implications — and will again be picked up in a subsequent article.
  5. Cryptocurrencies represent a wider range of disruptive elements affecting the commercial ecosystem. Among the most direct is the ability to raise finance or enter into other commercial transactions with little to no red tape, intrusive regulation or political interference. In short it de-politicises, de-institutionalises and de-centralises investment and payment options, while retaining many of the protective and other beneficial aspects present in traditional finance.
  6. Cryptocurrencies offer rapid commercial advances enfranchising the one- third of the global population who do not have a bank account — but do have a mobile phone — and concomitantly enable business that currently cannot accept electronic forms of payment to move into digital commerce. In the way that cellular communication revolutionised Sub-Saharan Africa in the early 2000s, so we may anticipate some parallel here as regards ease and ubiquity of payment “wallets” and their positive impact on developing economy dynamics.
  7. Cryptocurrency potential increasingly offers a route to security and liquid asset preservation/growth in a world where fundamentals are being shifted out of all recognition; driven by economic policies predicated firstly on the priority of COVID management and secondly on the move away from rules-based multilateralism towards bilateralism. Global cooperation is yielding to the demands of national integrity, security of supply and highly aggressive competition in key enabling technologies such as 5G, AI, quantum computing and encryption, which themselves will have as profound of an impact on cryptocurrency evolution as the creation of the bitcoin itself.
  • An efficiency facilitating frictionless commerce/investment.
  • A medium of stability against the backdrop of uncertainty and inflation.
  • Increased security in value transfer and wealth management.
  • Optimum autonomy in an increasingly intrusive climate.
  • “Cash” asset preservation/growth in a world of negative interest rates.

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