- why I am betting my horses on bitcoin
The storehold of wealth perspective and skewed risk/reward that motivates investing in Bitcoin right now?
- central banks are issuing their own crypto- currencies soon entering the market
negative- to low rates across the board
central banks delibaretly diluting their own currencies in order to inflate asset prices
power struggle between the US and china and US’s diminishing share of global GDP
If you value bitcoin in terms of a fraction of the cross border transaction volume or interbank credit, the currency has a lot more room to run (~1%). The concerns why bitcoin would not be able to take over as world reserve currency status (or taking a larger share) is mainly 1) the volatility, 2) political reasons and money laundering issues, and 3) yields at zero.
why I do not see it as much of a problem anymore:
- I think we are heading into a world where the volatility of western currencies are going to be much higher due to rates being close to zero and inflated asset prices around the world.
Historically, since the ww2, the dollar and the American banks have been the gatekeeper for trade and finances around the world. This has garnered a lot of power for the US to dictate the rules on the international markets and an ability to freeze out countries by excluding them from transacting in USD. Now china and other developing countries will have an increasingly larger share of global trade volume, so for the US economy to absorb all these volumes would require them to run increasingly larger deficits. An alternative would be to pass the torch of world currency status to the totalitarian regime China, as China garners power, which for obvious reasons will not be a desirable choice. Checks and balances will have to be applied to limit money laundering issues and technology can probably solve these issues. Also, the transparency that bitcoin entails makes the transaction pattern visible to outside observers making it probably easier to spot criminal activities than the gatekept institutional approach.
The currency will never be backed by a central bank but as long as yields on other currencies are at or close to zero, the zero yield won’t be an issue. In fact I would go so far as to say that the yield of bitcoin is equal to the percentage dilution of the compared currency. Eg. say that the US M2 is growing at 2% per year- that minus the increase in supply of bitcoin is the return on bitcoin. Added to that, the value of transacting in bitcoin is the cost of transacting relative to transacting in other currencies (which I might add will shrink as central banks increasingly adopt blockchain technologies but nevertheless).
- “government authorities should regulate the use of crypto assets to prevent regulatory arbitrage and any unfair competitive advantage crypto assets may derive from lighter regulation. That means rigorously applying measures to prevent money laundering and the financing of terrorism, strengthening consumer protection, and effectively taxing crypto transactions.”
cost of tranasaction and time to process payments
developing countries perspective:
- Date of publication:
- Thu, 01/14/2021 - 09:43
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