The Curious Case of Cryptocurrency, and the case against it

It can be said that the rise of the crypto has revolutionized the way we think about medium of exchange in a rapidly changing digitized and tech savvy world. A proposed digital asset that does not exist with the bureaucracy of managing cash or other assets for that matter.

But, does the new kid on the block really have what it takes to push away more tangible media of transactions.

Although cryptos such as Bitcoin, Ethereum have increased in popularity, developed a loyal base and have become a household name, the cryptos have yet to prove their true mettle.

Shockwaves were sent through the crypto community when cryptocurrency markets at its peak values at $3 trillion (before the pandemic) was savagely shredded to a value of just over $1.5 trillion as of 24 Jan, a harsh reality brought forward to an overly optimistic investor force.

Was this really a shockwave, or bound to happen reality - a correction

The Bitcoin model just does not make sense, lets revisit economics and market fundamentals. For a commodity or currency to be used, it needs to be an acceptable means of exchange. And a medium of exchange is recognized when it has a governance mechanism in the form of regulations and acceptance from Governing Bodies (mainly Governments that represent their populations, and therefore are indicators of whether it is deemed acceptable by economies). This has just not happen for the cryptos! Unless Governments or major blocs (or what I like to call the 'G factor' is not there) unanimously accept cryptos as a medium of exchange, it would remain to be an individual speculative means of exchange (it might as well be accepted by McDonalds, it just doesn't matter!). This rules out the possibility that the Bitcoin can compete with other acceptable means of exchange like currency (USD, GBP, EUR etc..)

The cryptocurrency lacks intrinsic value. Not only have we not been able to understand why it is an acceptable means of exchange, also the fact that there is no real understanding of how it can be a store of value. For example, commodities such as metal gold, silver and platinum, and even copper all have substance and form, and therefore are a store of value.

These are seen to have value, either in terms of their scarcity, attractiveness, usability (even industrial). The intrinsic value commodities usually have matured commodity exchanges that fluctuates its value based on market forces. One has still not been able to clearly explain the Bitcoin's store of value, if it is a unit of energy, but then how can energy be measured? - How can a unit of air be measured. If I were to pump air using an air pump - would I really be adding value to anything.

Major governments like China have read between the lines. The crypto world, due to its lack of form, regulation and secure mechanism, is a safe haven for what the world is already troubled with, fraudulent transactions, scams, money laundering.

Could it even be just a global conspiracy? to wipe out trillions of dollars of excess cash that have been printed by institutions such as the Federal Reserve - to iron out a hyper inflationary environment, or avoid another financial crisis. We also fail to go back to our history lessons, and read our case studies on events such as Enron.

For reference to what I am talking about, please visit Enron Scandal: The Fall of a Wall Street Darling (investopedia.com) to see the harsh realities and how it is so comparable to the Crypto saga.

The takeaways formed from my opinion, before I would think about spending even my $100 worth on crypto, no matter how it speculatively shoots up, or falls splat on the ground are:

• To become an acceptable medium of exchange universally accepted by all governments and blocs
• To prove that it has intrinsic value
• A solid mechanism that changes its value based on well understood market forces
• Security of exchange - this may be the more easier one, and would have been achieved for many cryptos
• Ease of transferability from one mode of exchange to another (eg. back to cash)

And these are only some of the key factors, and on the first two, I am very prudent that the cryptos will be able to achieve. Till then, I would value all cryptos at near Zero Value

In other words, I am just not "buying it"!

Hamza Hussain @ Vikson Libra