Will cryptocurrencies replace fiat money?
25.02.2022 • Просмотров:

Will cryptocurrencies replace fiat money?

By Decimal

Together with Warren Buffett, Charlie Munger has been managing the Berkshire Hathaway holding company for several years. This name is an icon for many investors in traditional markets. During an interview with Yahoo! Finance Munger lost his temper, and spoke quite in an interesting way about both the financial system and cryptocurrencies. In particular, he focused on the failure of the fiat currency in the coming years. There was no direct reference to the dollar in his comments, but…

But it was clear that this was exactly what he meant. For example, he pointed to inflation in the US at 7.5%. It hasn’t been this high in the last forty years. Inflation leads to a sharp increase in the cost of living. Every dollar is worth less every year. The almost endless printing of money by central banks is the main driving force behind this process.

Michael Saylor, CEO of MicroStrategy and a recognized enthusiast of cryptocurrencies, and in particular Bitcoin, “retweeted” the interview, writing:

“There is already a solution – Bitcoin, but many do not understand it.”

But it would be better if he did not do this, since Mungers does not like cryptocurrencies. Of course, Mungers’ comments about the problematic nature of fiat currencies support the growing discontent around “hard money”. But Munger, like his partner Buffett, most likely will not make friends with cryptocurrencies. From the word “never”!

In an article published by Reuters, Munger said he was proud that he did not catch such a “venereal disease” as Bitcoin:

“I wish it (cryptocurrency) would be banned immediately. I am delighted with China’s decision, and we, the United States, made a mistake in resolving it.”

But, Charlie Mungers, along with his partner, pursues quite different interests. Berkshire Hathaway – announced the acquisition of shares of Nubank for one billion dollars. Nubank is a Brazilian digital “neobank” that also works with crypto products.

Therefore, despite harsh statements against cryptocurrencies, Mungers is investing in a developing company whose products and services will also be sold in the crypto space. It seems that the two aging billionaires still understood the potential of the crypt, but pride and ”bad” nature do not allow to publicly admit it, and that the solution to the problem of inflation of fiat money already exists.

Cryptocurrencies solve the problem of inflation

One of the most important technical achievements of various cryptocurrency projects is their deflationary nature. As stated in the descriptions of crypto projects on Coinmarketrate.com, limiting the number of coins and regularly “burning” them, makes some crypto projects deflationary. Bitcoin itself is not deflationary (mining, to a greater extent), but its quantity is limited. At some point there will be 21 million BTC , and that’s it. And no more coins.

In fact, there will be fewer of them, since some of the Bitcoins have already been lost (due to loss of access). What is clear is that it is limited. And a limited supply, when interacting with constant demand, leads to an increase in prices (even the less gifted business economists among us know this). At some point, the price of Bitcoin will level out, similar to the price of gold. Then a new standard will be born, according to which it will be possible to evaluate currencies, products and services. Similar to what happened to the dollar a long time ago, in the days when the dollar was pegged to gold.

It also depends on the speed and scale of adoption of cryptocurrencies.

What can slow down the growth of BTC

Jack Dorsey, who recently left Twitter to devote himself body and soul to the Bitcoin revolution, shares some of his views on the industry and the future of adoption.

His findings are very interesting, and are the most important aspects that can make the difference between mass adoption or failure, or remain a niche movement for a few enthusiasts.

Jack Dorsey believes in Bitcoin, and does not hide it. He even left the leadership of Twitter in order, through other companies in which he is involved, to devote himself to efforts for wider adoption. He knows a lot about it, and keeps his finger on the pulse of both the community and the industry that is developing around BTC.

And so, what factors can influence the adoption:

  • The first problem: criticism

If Bitcoin continues to be subjected to the same criticism for a long time, as Warren Buffett and Charlie Munger do, then this will indicate that not enough has been done to tell and explain how this network actually works to those who are outside of it. We agree with this 100%, and this is one of the reasons why we founded a news column on DecimalChain.

  • The second problem: venture funds

Venture capitalists who stimulate many alternative Bitcoin projects, especially in the field of NFT and decentralized finance. When they will be able to control the life and death of projects with their capital. This is not so far from what is happening with the current Web2 services, which offer virtually no decentralization.

Therefore, it will be an uphill struggle, but many believe that thanks to the commitment of people like Jack Dorsey, the crypto community will be able to take important steps in this direction. But these steps forward should also be supported by society as a whole.

Regulation of the crypto industry also plays an important role. Sometimes, it is aimed at the destruction of technology, and not at its creation.

Bitcoin ETF: We are close to a breakthrough

A situation that seems to be taken straight from a cheap comedy. On the one hand, there is the SEC, which would like to become the regulator of everything and everything on the planet Earth, going beyond one country, and on the other hand, there are those who, quite rightly, begin to get annoyed and put pressure on the American regulatory authority dealing with financial markets and securities.

In February alone, the SEC received more than 170 letters from investors of the Grayscale Bitcoin trust demanding to convert it into an ETF. The result is investors furious at the SEC and Bitcoin supporters.

This is a standoff in which the SEC can concede, and this could be another good sign for the BTC. What if the SEC overestimates its capabilities? Bitcoin is at a big crossroads.

All our readers should already know the background. The SEC continues to refuse to list spot Bitcoin ETFs, that is, those that actually contain coins. For many, this is an absurd position that exists only in the United States, and has already raised many questions, including from large American and non-American fund managers.

Here, among the most ardent critics of this position is the company Grayscale, which manages a huge trust of physically replicated Bitcoins, and has already submitted an application (rejected) for the status of an ETF. A situation that, among other things, makes investments less safe, since Grayscale is currently traded not on regulated markets, but on over-the-counter ones. And it becomes clear the indignation of 170 GrayScale Trust investors, who only in February sent letters to the SEC asking them to accept a request to switch to a classic ETF.

This has not happened, but it opens up new scenarios, not least because many of Grayscale Trust’s investors are institutional investors. And this suggests that they have considerable lobbying power. As we have already said, the problem will most likely not end there.

Stubbornness, which seems to have no logical justification, but which has become a hallmark of the SEC leadership of Gary Gensler, who will be remembered as one of the worst names on the cryptocurrency and bitcoin front (although many had high hopes for him). This is an absurd situation that literally causes a violent protest from asset managers and investors.

But, Gary Gensler’s plan is akin to Napoleon’s: to make his agency solely responsible for cryptocurrencies, thereby overcoming competition from other government agencies. An ambitious plan, but you will probably have to face the harsh reality: Bitcoin, like the vast majority of cryptocurrencies, is not a financial security. And, unless we completely change the nature of legislation regulating the US market, this is not possible.

Gary Gensler may have to give up one of the cornerstones of his mandate, namely the rejection of physically reproducible Bitcoin ETFs.

Conclusion

The gold standard for fiat currencies was abolished in the 1970s. This allowed central banks to print unlimited amounts of money, thereby making it so that the printed paper could no longer be equivalent to anything.

While this turnaround in monetary policy allowed for endless investments, it also ultimately led to the crises we are increasingly facing today. Inflation and the concomitant depreciation of money are steadily taking away small and medium-sized incomes.

The dream of eternal growth is coming to an end, as is the insolvent fiat money. Bitcoin contains a solution to this problem, and is technically almost unstoppable. But it’s worth asking yourself the question: if not BTC, so what is in store for us instead of fiat?