Money Reimagined: Bitcoin’s Road to Gold

Money Reimagined: Bitcoin’s Road to Gold

I won’t do that again. Money Reimagined goes on break for three weeks, and what happens? 

Bitcoin soars 82%. More than 54,000 Americans die of COVID-19. And, oh yeah, an insurrection happens in Washington, D.C.

On the second, the numbers speak for themselves: a heartbreaking failure of human organization. On the third, I’m too gobsmacked to speak anyway. So, today we discuss the first. I want to show how bitcoin’s volatility is not a problem for its long-term viability, as some critics claim.

You’ll note a new format to parts of the newsletter. More changes to come in the weeks ahead. Let us know what you think of the bullet point format and other changes. 

Also, the first 2021 episode of our “Money Reimagined” podcast is out. This one, featuring Matthew Davie of Kiva and Alpen Sheth of Mercy Corps, looks at the charity organizations’ efforts to drive financial inclusion through grassroots empowerment, and whether or not crypto will succeed in breaking down a U.S.-dominated “philanthropy industrial complex.”

Bitcoin’s year-end moves weren’t all in one direction. In the 24 hours between New York daybreak on Sunday, Jan. 3 and Monday, Jan 4, it plunged 18%, from a high of $34,341 to a low of $28,154, only to recover all that within the next 36 hours and to reach $40,755 just before this newsletter went out. 

We have a long way to go before we get there. For now, just enjoy the ride.

“This time is different” is a dangerous phrase, as . But when comparing the 2017 bitcoin boom with the current one, there are lots of indications this one is different.

The previous one was characterized as a FOMO event as hordes of retail investors, fearful of being left behind, rushed, not only into bitcoin but into countless ill-conceived and often illegal ICOs. It was a Main Street rally. 

Sadly, in keeping with the “dumb money” depictions Wall Street traders often use of such hype-chasing investors, many bought high and sold low, losing their shirts when the market collapsed in early 2018. The winners at such times, Wall Street will tell you, are the “smart money” big guys who buy early and sell at the top. 

This feels much more like a Wall Street rally. Powerful institutions and big-name investors – from BlackRock’s Larry Fink to Bill Miller of Miller Value Partners and Guggenheim Partners’ Scott Minerd – have either invested in or at least talked about bitcoin’s potential. 

There’s even on-chain data to back up the thesis. Coin Metrics’ measure of “whale” bitcoin addresses, those holding more than 1,000 BTC, shows their number falling in 2017 as little guys were buying, but rising solidly as the price rose in 2020 and into the new year.

Of course, the whales of 2017 weren’t exactly Wall Streeters. Many were also retail investors. In that case, the “smart money” were those who grokked crypto and blockchain early on and knew that mania of that time was going too fast too early. 

Time will tell whether the Wall Street newcomers are the new smarts or whether they, too, have been played.

Two other big bombshells items dropped out of Washington during the break:

The first was roundly condemned by the crypto community as an attack on privacy and innovation. The second was hailed as a breakthrough for the crypto economy.

But were these seemingly contradictory initiatives uncoordinated? A look at the Twitter conversation suggests something more might be at play.

Here’s where my mind went: The FinCEN rule is as much about putting U.S. financial surveillance capability onto exchanges of fiat-denominated digital currencies as it is about controlling bitcoin transactions. The OCC rule is perpetuating global demand for dollars because the most-sought after domination in stablecoins is USD as central bank digital currencies threaten to undermine the dollar’s dominance. 

What crypto commentators view as a confounding good cop/bad cop routine against them might actually be a coordinated geopolitical play by Washington. Together these rules could help the U.S. maintain its singular power, as the world’s reserve currency issuer, to monitor and regulate global monetary movements, even as China and other countries are trying to use digital currency technology to bypass the U.S.-regulated banking system.

Parallel to our ongoing coverage of the wild bitcoin rally, CoinDesk had a string of stories this past week that suggested Ethereum is also in boom mode, including renewed activity in Ethereum-based decentralized finance.

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