Myth of Money: Bitcoin is Winning the Monetary Revolution

Welcome to this week’s edition of the Myth of Money, a weekly newsletter on all things money, economics and technology read by 10,000+ investors, curated by Tatiana Koffman.

Disclaimer: The following is not intended as investment advice. Do your own research.

One of my favorite financial authors, Niall Ferguson, author of the Ascent of Money, published an opinion piece in Bloomberg this week on evolution of currency.

In this piece, Ferguson states that it is clear that we are living through a monetary revolution from physical to electronic money.

The pandemic of 2020 has accelerated it. To illustrate the extent of our confusion, consider the divergent performance of three forms of money this year: the U.S. dollar, gold and Bitcoin.

The dollar is the world’s favorite money, not only dominant in central bank reserves but in international transactions. It is a fiat currency, its supply determined by the Federal Reserve and U.S. banks.

According to Bloomberg’s dollar spot index, it is down 4% since Jan. 1. Gold, by contrast, is up 15% in dollar terms. But the dollar price of a bitcoin has risen 139% year-to-date.

Ferguson highlights that Bitcoin’s rally caught many intelligent investors by surprise.

Covid-19 has been good for Bitcoin and for cryptocurrency generally. First, the pandemic accelerated our advance into a more digital word: What might have taken 10 years has been achieved in 10 months. People who had never before risked an online transaction were forced to try, for the simple reason that banks were closed. Second, and as a result, the pandemic significantly increased our exposure to financial surveillance as well as financial fraud. Both these trends have been good for Bitcoin.

Ferguson takes a leap to say that Satoshi’s vision of Bitcoin wasn’t as cash but rather a store of value.

I argued that Bitcoin had established itself as “a new store of value and investment asset — a type of ‘digital gold’ that provides investors with guaranteed scarcity and high mobility, as well as low correlation with other asset classes.”

“Satoshi’s goal,” I argued, “was not to create a new money but rather to create the ultimate safe asset, capable of protecting wealth from confiscation in jurisdictions with poor investor protection as well as from the near-universal scourge of currency depreciation.”

Bitcoin is currently stored in 100 million wallets, adding 1 million new wallets per months and moving more than $1 billion per day worldwide. Ferguson highlights Bitcoin’s two key advantages as the reason for this astronomic growth:

First, as we have seen, Bitcoin offers built-in scarcity in a virtual world characterized by boundless abundance. Second, Bitcoin is sovereign…“No one can change a transaction in the Bitcoin blockchain and no one can keep the Bitcoin blockchain from accepting new transactions.” Bitcoin users can pay without going through intermediaries such as banks. They can transact without needing governments to enforce settlement.

On scarcity:

The advantages of scarcity are obvious at a time when the supply of fiat money is exploding. Take M2, a measure of money that includes cash, bank accounts (including savings deposits) and money market mutual funds. Since May, U.S. M2 has been growing at a year-on-year rate above 20%, compared with an average of 5.9% since 1982.

On sovereignty:

Bitcoin users can pay without going through intermediaries such as banks. They can transact without needing governments to enforce settlement…The advantages of sovereignty are less obvious but may be more important.

The Ferguson addresses the elephant in the room - China.

Bitcoin is not the only form of digital money that has flourished in 2020. Nowhere in the world are mobile payments happening on as large a scale as in China, thanks to the spectacular growth of Alipay and WeChat Pay.

At the same time, the People’s Bank of China has accelerated the rollout of its digital currency. The potential for a digital yuan to be adopted for remittance payments or cross-border trade settlements is substantial, especially if — as seems likely — countries participating in the One Belt One Road program are encouraged to use it. 

It is no secret that America is simnifically behind on the rollout of its own digital dollar, which will happen with certainty in the next two years. But Ferguson, leaves off with a different recommendation for the incoming government:

Rather than seeking to create a Chinese-style digital dollar, Joe Biden’s nascent administration should recognize the benefits of integrating Bitcoin into the U.S. financial system — which, after all, was originally designed to be less centralized and more respectful of individual privacy than the systems of less-free societies.

Read full opinion piece here.

This Week By the Numbers

Things are still looking grim for American workers. The U.S. economy added 245,000 jobs last month, below expectations, with unemployment rate inching down to 6.7% from 6.9%, and regional lockdowns aren’t helping. While COVID-19 cases are on the rise and much of the world is locking down, the American stock market continues to break records in hope of a democrat-fueled stimulus. 12 million Americas are set to lose their unemployment benefits next month.

Although it was difficult to lose money investing in almost anything this week, Bitcoin continued to be the best performing asset. Notably, oil had a major rally after OPEC and its oil-producing allies agreed to increase production by 500,000 barrels per day beginning in January. Ahead of the meeting, the oil-producing cartel was widely expected to extend production cuts of 7.7 million barrels per day through at least March.

Top Stories

Top currency regulator says to expect ‘clarity’ in coming weeks on bitcoin

Brian Brooks, acting comptroller of the currency, said new crypto regulations are on the way but “nobody’s going to ban bitcoin.” “We’re very focused on getting this right. We’re very focused on not killing this,” Brooks said. “And it’s equally important that we develop the networks behind bitcoin and other cryptos as it is that we prevent money laundering and terrorism financing.” Read Full Story.

GDA Group Launches Collateralized Lending For Bitcoin Investors

Toronto-based GDA Group, a North American digital assets firm specializing in capital advisory and trading services to institutional investors, announced the launch of GDA Lending. The new service will provide investors with access to non-recourse lending for USD, BTC, ETH, EOS and XRP at up to 65% loan-to-value ratio. GDA Lending joins the ranks of other crypto lending institutions such as BlockFi, Nexo and DrawBridge Lending (recently acquired by Galaxy), which offer collateralized lending to its clients. Read Full Story.

BlackRock’s Larry Fink Says Bitcoin Can Possibly ‘Evolve’ Into Global Asset

The head of the world’s largest asset manager has provided a somewhat bullish take on the world’s first cryptocurrency. CEO of BlackRock Larry Fink said bitcoin has “caught the attention” of many people and that the cryptocurrency market was still relatively small compared to others. Fink said the nascent cryptocurrency asset class can possibly “evolve” into a global market asset. The comments follow on the heels of even more bullish views from billionaire hedge fund managers Stanley Druckenmiller and Paul Tudor Jones II, who are allocating a portion of their assets to bitcoin. Read Full Story.

S&P Dow Jones Indices to launch cryptocurrency indexes in 2021

S&P Dow Jones Indices, a division of financial data provider S&P Global Inc, said on Thursday that it will launch cryptocurrency indices in 2021, making it the latest major finance company to enter the nascent asset class. The S&P DJI-branded products will use data from New York-based virtual currency company Lukka on more than 550 of the top traded coins, the companies said. S&P’s clients will be able to work with the index provider to create customized indices and other benchmarking tools on cryptocurrencies. Read Full Story. becomes first online platform to accept China's digital currency

Chinese e-commerce company Inc said on Saturday it has become the country’s first virtual platform to accept Beijing’s homegrown digital currency. China’s digital yuan is one of the world’s most advanced “central bank digital currency” initiatives, as authorities globally respond to threats from private currencies such as bitcoin and Facebook’s Libra. Under the Suzhou programme, the municipal government and the People’s Bank of China (PBOC) will issue 200 digital yuan “red envelopes” to 100,000 consumers selected through a lottery. Read Full Story.

Thank you for reading this week’s edition of the Myth of Money.🚀

Until next week,

Tatiana Koffman

By Tatiana Koffman

Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital and Cryptocurrencies. I believe in empowerment through closing the financial education gap and creating equality of opportunity for the next generation. Check out my articles in Forbes here.

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