We all talk about how startups and companies create value, how monetary system backs value in the form of money to be able to exchange it.
Why cryptocoins are rising so quickly when they are actually not creating any value? Or do they create value?
Readit News
- Crypto Marketability: It's become very easy for people to buy and sell cryptocurrency.
- Speculation: Regardless of what problems cryptocurrencies pretend to solve, their actual value so far has only been as a speculative investment. Like traditional equities, cryptocurrency is benefiting from the highly speculative market we live in right now and the FOMO of investors trying to make a quick return.
The situation that you're seeing with cryptocurrency has historical precedent with investment bubbles involving other technologies that were perceived to be "world changing". The bicycle mania [1] of the late 19th century and the dotcom bubble [2] of the late 20th century being notable examples.
1: https://www.nasdaq.com/articles/revisiting-the-great-british...
2: https://en.m.wikipedia.org/wiki/Dot-com_bubble
Here is an intuitive explanation: China runs an trade surplus vs USA. China gets USD and USA gets products. Because of the trade surplus there is no reason to invest into USA because as long as China is sending products to the US there is no reason to produce those products in the USA. Yields for conventional domestic industries drop as they move to China. The problem is quite obvious. If China spends its money on American capital it is inherently engaging in speculative investment. A basic understanding of economics tells you money should go where the highest yields are, in other words, the money should stay in China until their wages rise and they have no competitive edge.
Well, but the trade surplus is born from foreign exchange policy. So the money comes rushing into American stocks and housing regardless of the risks. It's plausible that Bitcoin is just being used to evade capital controls. The speculative nature of Bitcoin isn't a downside, it's actually a nice bonus to them.
I see it as the future of the web. There's a lot of energy coming around the concept of Decentralized Apps. or Web 3.0, today we have web 2.0 with large centralized websites ran by huge tech monopolies. Regardless of your political affiliation, you probably dislike them. Though the exact reason you hate this is probably different.
Web 3.0 offers us a way out... and crypto is one of the critical underlying infrastrcuture components. A lot of people see things this way, and are trying to get in early on it. Chances are the markets will crash before the majority of people understand what web 3.0 is. But while the market is down, a lot of cool stuff is going to be built, and when more people start to discover it again, the market will shoot back up. This cycle happens every time we make progress. Of course, the markets are pretty amateurish right now so we also tend to overshoot it, leading to huge bull markets and big crashes.
Could just buy & ride ETH to the end.
Once the crypto bubble took off thanks to this unprecedented bull market, it also attracts many smart engineers, businesspeople and entrepreneurs who jump into the gold rush hoping to sell picks & shovels.
There's one more aspect here. I've coined the term "Bloated MVP" [1] from years of watching startups that lack a coherent value prop, and don't know who their first user will be, and never get any traction whatsoever, but nevertheless manage to raise $millions and suck up smart people's time and energy. I've also spent years founding such companies myself. The reason people work on bloated MVPs is because they don't realize that an idealized abstract vision is very different from a value prop.
So to summarize: The crypto space is a massive ecosystem-level bloated MVP, intermingled with the biggest liquidity bubble of all time, and unprecedented speculation opportunities
[1] https://bloatedmvp.com
With that said, there’s quite a lot going for Ethereum and defi as a sector. Major tech players like Google are funding many web3 startups. Facebook is fully embracing the “metaverse,” whatever the f** that is.
Tesla is trading at some ridiculous multiple of earnings for the same reasons. Yes, there’s likely much future value in Tesla and web3. But the rapid recent growth is mostly indicative of the fed money machine going brrr.
Zimbabwe had hyperinflation. Zimbabwe had a $100 trillion dollar bill:
https://www.dallasfed.org/assets/documents/institute/annual/...
If we had 20% inflation per year for the next decade in the US that would be high inflation but wouldn't be hyperinflation. We are nowhere near that.
I wonder if the crypto bubble creates a "wealth effect" that makes people feel richer, spend money, and drive inflation.
Don't come counter-arguing to me tho, I'm not the Chief Strategy Officer of the Human Rights Foundation, Alex Gladstein is, he makes the argument better than I.
And that's how banknotes came into being
Reserve banks are banks, not their respective countries governments
[0] https://en.wikipedia.org/wiki/Banknote#History
FYI, there are less than 5000 publicly traded companies in the US but more than 6000 cryptocurrencies.
A financial market with zero regulation and full anonymity? I bet it has brought all sorts of normally illegal money movements and transactions to it. Even coordinated pump and dumps are 100% possible without legal repercussions, as far as I understand it.
CoinMarketCap lists 13684, Coingecko lists 10394 - which probably includes a truckload of BSC "shitcoins", getting more by the minute...
Uniswap v2 factory contract returns 55,319 trading pairs.
On the etherscan readContract page for the uniswap factory, the allPairsLength method returns index size.
https://etherscan.io/address/0x5c69bee701ef814a2b6a3edd4b165...
https://www.gutenberg.org/files/24518/24518-h/24518-h.htm
I don't think currency is just a confidence game. The most important thing is that the currency is actually used to make transactions that are meaningful to human life. A currency that isn't used to exchange goods is just a collectible. There is no such thing as an abstract "store of value" that has no actual utility other than as a store of value. Crypto will fail when people tire of owning the collectible and want to exchange it for something useful.
Millions of people use cryptocurrency on a daily basis to make transactions that are not only meaningful, but absolutely critical to human life. Here in New York I personally know more than a dozen people who regularly send cryptocurrency to their families in other countries. It is cheaper, easier and faster than using banks and legacy money transfer vehicles like Moneygram or Western Union and it has the added bonus of not being saddled with the red tape or regulatory requirements that go along with these institutions.
Here's one personal anecdote. Several years ago I attempted to send a small amount of money ($50) to a friend in Ecuador via Moneygram. When my friend went to pick up the money, it wasn't there, so I called Moneygram. They proceeded to ask me a series of questions about why I sent the money, who I was sending it to, and a variety of other intrusive questions that (in my opinion) they have absolutely no right to ask. If I had sent that money in crypto, I would have paid less of a fee and had confidence it would arrive without going through the third degree by a middle man.
I find that wealthy people, those with deep ties to traditional banking systems and those who don't value their privacy are the ones who have the biggest problem understanding the value in cryptocurrency. They don't see the need to operate outside of a system that works very well for them. For many, the system doesn't work well, or efficiently, and crypto offers a valuable alternative.
I think this theory is nonsense but it's true that if enough people believe it, it can become sort-of-true for a while, until it's not anymore.
Except, nothing forces people to spend their money so the barter transaction may never conclude which allows economic imbalances to build up over the short term which violentely resolve themselves through a crash. Inflation could be interpreted as a tiny crash every year that rebalances transactions made in the economy.
If I were a speculator, that instability would be attractive. But I'm not.
Real money is backed by your obligation to pay taxes in that currency.. not popularity or confidence.