MD's Insights 11/30 - 12/4
The Form & Future of Money
After last week’s events, FinTwit and LinkedIn remain aflutter with cutting commentary from Gold-bugs and Bitcoin Hodlers, and awash in reportage covering the launch of CBDC initiatives all over the globe. For advocates in all camps, there seems to be a rising intensity in dialogue. Intransigence in viewpoints abound and it seems all interested parties are arguing for absolutist, binary outcomes: either gold or Bitcoin, CBDCs or no CBDCs.
The fact that there exist such lively discussions regarding these stores of value are heartening, as it indicates an imminent inflection point, culturally speaking, as to how we all will transact in the future. What is disheartening IMO is the imbalance between the noise and signal regarding facts and merits about the value, usage, and attributes of these different stores of value.
Let’s search for some signal...
Gold became the form factor of money because of its elemental properties: it’s an unreactive, lightweight metal with a low melting point, too soft for any practical tool or weapon, but just soft enough for artists to imbue their creativity on, and governments to stamp their sovereignty in to. The latter ensures stability of value when used in trading between different locations, and between different types of goods and services. Additionally, being scarce, but not too scarce, gold was ascribed “desirability” and an additional dimension of value, albeit one created in the minds of humans.
Bitcoin has been called “digital gold” and in some ways that is correct, particularly as it relates to scarcity: there’s only so much that will ever exist. Because Bitcoin is a digitized store of value, it can also be divided into infinitesimally small units which release it from the constraints of any physical form of value i.e. gold. This is a good thing. What isn’t as positive is that Bitcoin doesn’t share the collective, cultural buy-in of value that gold does. As such, Bitcoin is highly speculative and extremely volatile, rendering it almost impossible to use as a true store of value in the exchange of goods and services.
Of the three stores of value, CBDCs are the easiest to understand and the most likely to take root. They represent a digital form factor possessing all the wonderful attributes of Bitcoin, but being pegged to an existing store of value that reduces speculation and price volatility. Arguably, this makes CBDCs the most likely candidate to be the store of value/currency for the future.
Make no mistake. All three stores of value will remain. All will be used. But it’s important to discern the signal from the noise. Gold as a store of value happened to have the right physical properties and the perfect lack of geological ubiquity to be the historical currency of choice. But it’s important not to confuse its value as a store of value with its value as a medium for artwork and jewelry, where consumer demand creates the value ascribed to it.
Bitcoin continues to permeate our collective consciousness, and at some point will undergo a cultural and perceptual phase transition where we all buy-in to its worth...but not yet.
CBDCs are already here. They will be ubiquitous. They’re simply the digitization of physical currency, with all the cool attributes of Bitcoin’s instantaneous, frictionless movement and divisibility.
These are exciting times we’re in. Let’s ditch the noise, grab the signal, and enjoy the show as we watch the evolution of money unfurl.
- Adam T. Hark, Managing Director, Wellesley Hills Financial, LLC