My two cents on the case for Cryptocurrency
In the mid-autumn days of 2016, I was working at a busy Thai restaurant in a small town in The Netherlands. I was making around 4€ an hour to wash dishes; which considering that I was a broke student living on my own, was much better then being broke. During my time at the restaurant I had a colleague who for the purpose of this article we will call Adam. Adam was a silent guy who mostly minded his own business, but Adam had a little secret, he was a man of risk. He regularly used the money he made throughout the week delivering food to make bets. He often would show me how much money he had made betting on football games. The amount of money the man was willing to bet on chance was simply mind boggling to me, but somehow, he would regularly make a couple of hundred, even a couple of thousands of euros from a single bet. For instance, once he showed me that he had bet 10.000€ on his favourite football club, which was absolute lunacy in my mind, but he consequently doubled his money, money which would take him forever to make with delivering Pad Thai.
One day Adam came into the restaurant, quite a bit more excited than he usually was, and started hammering away about this new thing that is going to blow up and that I really need to get into. The thing he was talking about was Bitcoin, it was just starting to get tractions between the average tech savvy population. The price for a single Bitcoin at the time was just above 500€. I had heard about this new internet currency a while ago, but I had never really given it a second thought, since I simply did not understand what the use of such a asset would be. It seems that Adam had a sixth sense for making money, or maybe it was that he had absolute disregard for his personal financial situation, since he decided to just casually spend a little above 5 grand to buy himself 10 Bitcoins. He claimed that he had friends who knew more about this new speculative asset and that they believed it could be worth much more in the future. I was raised to have a healthy dose of scepticism, so even though I really wanted Adam to be right, I was not ready to drop my savings for college on a “could be” investment.
Little did I know that in about a year, this same unsubstantiated investment made my friend a fortune (in relative terms). He promptly left the restaurant and he has been missing ever since (figuratively). The risk of putting so much on the line for the possibility of substantial ROI (Return On Investment) was a much simpler decision for him than it is for the average person. It was obvious that Adam and I were fundamentally different in defining if the risk was worth taking, in other words, my loss aversion instinct was just too strong for me to put my money on speculation. Admittedly, it paid off big time for Adam, but honestly, how many of us would have done the same in Adam’s shoes?
It took me almost 5 years to really entertain the thought and do what Adam advised me to do a long time ago. In the meantime, I had blown all my savings on partying and alcohol, just your average millennial handling his finances. Right now, I am living the quintessential student life, working part time as a Samsung ambassador in Media Markt and investing in cryptocurrency as a “hobby”. Only this time I have entered the cryptocurrency market armed with a good idea of the underlaying fundamentals and understanding what kind of value cryptocurrency brings to the modern world.
We live in a different time than even 5 years ago. There has been a global pandemic going on for more then a year, most people have to work from home and governments around the world deal with the crisis by making the “money printer go brr”. This popular meme refers to Quantitative easing (printing money). Quantitative easing seems to be the be-all end-all solution for governments facing a crisis. All these factors make me believe that we have the recipe which will enable cryptocurrency to break into the mainstream. The potential is basically unlimited. The number of cryptocurrencies created to fulfil different tasks, has grown exponentially since the creation of Bitcoin over a decade ago. The amount of distinct functions these cryptocurrencies can perform has broadened throughout a wide array of industries. This will radically change the way people view cryptocurrency as an investment asset.
Financial institutions seem to have absolute disregard to how quantitative easing will influence the economy in the long run. Last year the United States printed 20% of all dollars which have ever existed. You can only print so much money until that money you are printing is useless. This is true for all FIAT (government issued) currencies, all of them can be inflated through the process of the “money printer goes brr” and this means that effectively everyone’s money is worth less. Furthermore, stimulus packages mainly benefit the wealthy. These stimulus packages will most likely only have a detrimental effect in the long run for the average person. The extensive presence of funds was the main reason for the astronomic rise of some ETF’s (exchange-Traded Funds), and the stock market in general, but for how long? Once the stimulus stops, there will be nothing left to keep the economy going if the output of the economy does not recover. The output of the major economies in the world have been stagnant recently, this implicates that we are due for a major reset, and that the next crash will be on par to the likes of the 2008 Housing market crash and the 2000’s DOTCOM bubble.
The essential value of Bitcoin is the ability to hedge against the centralized financial systems through being a store of value, very similar to gold, but better. Mainly that it is easier to transport and store (being just a piece of code). Also, it cannot be simply confiscated by the central government as was historically the case with gold. Like gold, there is a limited supply (21 million in the case of Bitcoin), which means that it cannot be inflated. Even so, the number of Bitcoins that “miners” can mine through solving mathematical equations is cut in half every 4 years. If we assume mining continuous with the same relative speed, we will mine the last Bitcoin by the year 2140. This means that the supply is very limited. On top of that, 20% of all Bitcoins have been “lost” in wallets which cannot be recovered.
Obviously, I am no financial advisor, and my knowledge is limited, but these were my two cents on the case for cryptocurrency being the future of global finances. Taking everything into consideration, it seems that Bitcoin has a genuinely good case to be the next store of value, which could possibly eclipse Gold. If you are interested in cryptocurrency and want to know more, one person I would recommend is Guy from the Coin Bureau YouTube channel. I am not sponsoring him, nor do I have any relation with his channel, but he has taught me more about economics then 3 years of Business school, and that is worth something.
