I was at a big bank’s conference the other day and was intrigued at how often the subject of cryptocurrencies and bitcoin came up. It’s a topical thing at the moment, with the price of bitcoin surging past the $4,000 mark and Goldman Sachs going against JP Morgan, and saying that they might even trade in it.
The conversation at this particular large bank’s meeting went along the lines of bitcoin being a broken model: it’s a bubble and you should definitely not invest in it. The reason for not investing is based on two major factors:
- Governments don’t recognise it as a currency. When you’re dealing with money, 34% of all transactions is tax – corporation tax, personal tax, value added tax, employment tax, national insurance tax, etc. When a third of all payments are government taxes and governments don’t recognise your currency, then it’s not a valid token of exchange.
- It’s not a store of value. You cannot predict the price of a bitcoin due to the fact that its supply doesn’t match demand. This is why the price is increasing today, and why it has such sudden drops in value, due to the supply and demand structure of bitcoin. There is, in other words, no monetary controls of the monetary supply. Unlike US dollars, where the Treasury might regularly be burning billions of dollars of physical notes to reduce supply when demand weakens, you cannot do that with bitcoin. This means that if I hold a dollar’s worth of bitcoin today, I cannot guarantee that in a year or two it will still be worth a dollar. It might be worth $1,000 or nothing in a year. That’s no store of value, and to be a valid currency you have to have certainty about its value in the future as a store of value.
For these two reasons, the bank dismisses bitcoin as a speculative asset class and no currency of the future. In fact, the CEO of the bank concluded that the most likely scenario is that real fiat currencies transition towards fiat digital currencies over time, but that no new currency would ever take over.
I’m not sure I agreed with this assessment of the world. I’m not a bitcoin fundamentalist or promoter, and believe it has far too many technical flaws to ever be a reliable global currency, but I do believe there will be a global currency in the future.
Global currency, breaking down national barriers
A banker pulled me up on this in one of my recent presentations, saying that he was surprised that I was promoting the idea of a global currency in the future, because no nation would recognise a global currency. Currencies – money – is all about government and the economies of nation states. For a global currency to take off, you would have to remove the walls of the nation states.
I would argue that this is true, but it’s happening whether nation states like it or not. The internet is global and the internet is demanding a global currency. The internet doesn’t recognise national borders, and as the network grows more and more pervasive through the internet of things and the mobile network, it’s demanding that we create a global value transfer mechanism that’s fast and free.
A currency of currencies
Bitcoin offers that promise, but due to scalability and cost, it doesn’t make sense in its current form. However, there will be bitcoin 2.0, 3.0, 4.0 and more iterations and validations and corrections over the next decade, and eventually there will be a digital currency for planet Earth. This digital currency may be tied to a basket of fiat currencies – the dollar, euro, yuan, yen and pound – and those fiat currencies may also now be digitised, so you have a double-digital currency; a currency of currencies; a currency recognised by the G20 as a valid cross-border exchange mechanism that can be taxed, even with a network that doesn’t recognise nation states or borders.
This will be challenging, but seems inevitable given the fact that the trend towards globalisation is unstoppable. We talked about globalisation a lot 10 years ago as the BRICS emerged, and that discussion seems to have died down since the global financial crisis hit. Everyone wants to retreat to nation states and domestic focus, as evidenced by the votes for Brexit and Donald Trump. But I think globalisation is creeping upon us no matter how much we resist or ignore it. This is why our globalised network of digitisation gives us a global platform for talk, trade and commerce, and if you have a global platform for trade, then inevitably you have to a have a global currency to support such global trade.
A currency for a multi-planetary world
The currency for planet Earth also makes absolute sense as we talk about become a multi-planetary species. You may not be talking about this, but Nasa, Elon Musk, Jeff Bezos and Richard Branson certainly are. The agenda for building human life on other planets is well under way, with Mars colonisation planned by 2040. If we end up being a species living in a harmonised planet Earth, then a currency for planet Earth also makes senses. It just makes sense, regardless of the dismissive views of nation state bankers.
So, roll on bitcoin of the future. Meanwhile, if you don’t like this idea, go join the worldwide campaign against globalisation.
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– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more of Chris’ articles for 11:FS right here. Image by Toria, Shutterstock.com