The Future of Bitcoin and other Crypto

A couple years ago I recommended buying bitcoin to my social circle of investor friends.

Typical responses were:

-'You're crazy!'
-'Only criminals use it!'
-'There isn't enough liquidity!'
-'It's a pyramid scheme!'

The first charge was probably true. I am a little crazy. My outlook is, if everyone is doing something, it either isn't worth doing, or it's simply too late. Odds are, if you're interested in cryptocurrency, you're a little crazy too. Despite what anyone might tell you that is of course a good thing. It's a wonderful thing.

'Only criminals use it!'

People said the same thing about Paypal. They were wrong. People are wrong about similar things in the same way over and over again and observing it is useful. When Paypal became taxed and regulated it wasn't the end, it was the beginning of mainstream adoption. I considered what would happen to the price of bitcoin if it became as big as Paypal and the result was phenomenal.

'There isn't enough liquidity!'

This was actually a good argument - at the time. Recently cryptocurrencies gained 5 billion market cap in one day and it doubled in the past month. Market cap and resulting liquidity appears to be growing as exponentially as has bitcoin itself.

'It's a pyramid scheme!'

Actually, it is, but everything is a pyramid scheme. The federal government forces people to accept paper currency then devalues it by 98% in a few generations by inflation and punishes savers with low interest rates by design. That's precisely how they intended it to work. If that's not a scheme to defraud the public I don't know what is.

A popular recent meme said:

'Social Security is a joke but you won't get it!'.

When everything is a pyramid scheme the question to be asked is:

'Who benefits from it?'.

Observing how different cryptocurrencies have emerged and competed for investment we can see quite clearly the stock market has already been replaced. I'm not saying cryptos will replace companies which produce valuable goods and services. What I am saying is if company X wants to raise funds or do an IPO all they need to do is issue a cryptocoin called 'X'. Zero banks or traditional brokers required. In other words some of the so-called 'future' uses of cryptos are already in place and apparent to those looking closely enough.

The most important capitalization trend underlying bitcoin and other cryptos is probably legalization. By legalization I don't mean bitcoin is illegal. I mean giving it the same status as fiat. Japan, for example, recently passed a law elevating bitcoin to legal tender. Legal tender status means banks have to accept deposits and process withdrawals in a given currency which means they need to have an ample supply on hand and, if they don't, they need to go out and buy it. Whereas fiat flows from the top down, bitcoin and many other cryptos flow from the bottom up. The case of Japan highlights the bottom up flow with corporations effectively being legally forced to buy bitcoins, in billions of dollars, from citizens who may actually have mined them themselves at home. Currently the press is reporting China and Russia are considering passing similar legislation ensuring bitcoin legal tender status as well.

The questions we should perhaps be asking ourselves in that environment are:

What would happen to the price of bitcoin if country after country gave it legal tender status and banks worldwide were required to buy hundreds of billions, or even trillions, of dollars worth?

When all the banks of the world hold a common currency does it effectively become the reserve currency?

What would happen to the price of bitcoin if it effectively becomes the reserve currency of the world?

Bitcoin and other cryptocurrencies were a financial tsunami in the middle of the ocean.

They are now on the verge of landfall and washing across the globe.

The questions are no longer if, or when cryptocurrencies will take over the world, they are:

Which ones?

and

Are you prepared?

These genies have already been released from the bottle and can never be put back in again.

We are not waiting for the revolution:

IT HAS ALREADY HAPPENED.

AND WE WON.

The above is not financial advice, it's personal experience for entertainment purposes only. Experiences may vary. Actual financial advice should be obtained only from a registered financial adviser.