The Role of Cryptocurrency in the Future Digital Financial System:
I read Pippa Malmgren’s most recent Substack post, PUMP. It details the impact of CBDCs with a small mention of cryptocurrencies. I thought I’d expand on where cryptocurrencies could fit into this new financial system.
One key issue of cryptocurrencies is regulation by governments influencing their decentralisation. Crypto activity can’t be anonymous. Governments will always hunt for more control. Creating their own blockchains and central bank digital currencies will enable them to do that.
But non-government-controlled cryptocurrencies are integrated into our society. Not only on a retail trading level. If it was only popular on a retail level, I don’t think governments would hesitate for one second to regulate it into the ground for early death. Yet, massive corporations are in the cryptocurrency sphere. Google have a partnership with Coinbase. There is always talk of pension funds including Bitcoin ETFs in their fund allocations. Crypto is here to stay. But if governments have the choice to remove the decentralized aspect through regulation, they will. Look at the SEC vs Ripple. I don’t keep up with what is happening in the trial. But we can use patterns from history to figure out how future trials involving cryptocurrency could unfold. This trial will have massive effects on any future trials of cryptocurrencies.
What would happen if a cryptocurrency refused government control and remained decentralized? Well, unless it wasn't illegal to own that cryptocurrency, I would see it as another way to spread out our money. This is another aspect of being prepared. Spreading money in different places provides security. If access to one section of your money is completely removed, you still can access your money in other places.
This could be:
Physical cash.
Owning physical metals.
Assets that are easy to sell.
Owning physical cash of foreign currencies.
Owning digital versions of foreign currencies.
Owning stocks, commodities, forex, cryptocurrencies, or real estate.
There are so many ways to spread out your money. Currently.
If access to that cryptocurrency was made illegal by governments, avoid it. Under new central bank digital currencies, tracking your activity will be made even easier than it already is. Any illegal activity would be noticeable and lead to limitations or punishment. Do you want the amount of carbon you’re allowed to use per week to reduce? Do you want your own personal set interest rate payments on any borrowing to increase? Do you want to be limited by how many financial assets you can buy?
In this financial landscape, in the short-term, crypto will get battered like everything else. Rising interest rates to combat inflation reduce growth. Then something breaks in our debt-funded world of over-consumption, and then everything falls. The market always recovers. But the time it takes to recover is different every time. Some argue the levels of unsustainable debt-funded growth will lead to a complete unravelling of the financial system. This will be used as an excuse to introduce a central bank digital currency or digital dollar. Look at Ray Dalio’s books and the long-term debt cycle. They occur every 75-100 years on average throughout history and describe what happens when huge levels of money are printed to finance growth through debt. This debt reaches unsustainable levels, and something breaks. This is bound to happen with interest rates rising to combat inflation and a lot of the world holding dollar-denominated debt. Look at UK GILTS. Note, UK GILTS don’t have enough power to cause the global financial system to crash, but it could be pretty ghastly for the UK.
Once something breaks, roll on changes to the financial system. In 1945, this was Bretton Woods. This time, it will be Central Bank Digital Currencies. So what will they bring? Governments will have more control, more monitoring, and more surveillance. Limitations are like COVID-lockdowns. The World Economic Forum got a tad excited when it saw how well COVID regulations worked. Replicating them for carbon tracking on an individual level shouldn't be too difficult. We adapt to things that in the past we would have thought were insane. Look at COVID lockdowns. During the first one in the UK, we weren’t allowed to sit on a bench. I actually laugh thinking back to how it was treated as normal. I’m not denying COVID. It definitely happened and was devastating for a lot of people, but the framework to control the general population worked and can be used again.
Whenever there are large news disruptions, I like to think deeper. What are they hiding? During COVID, what were they hiding? The cause? Now during the Russia-Ukraine war, what are they hiding? The energy and food crisis? Or are these events hiding something even deeper? The Great Reset? The Great Reset is a book by the World Economic Forum founder and chairman Klaus Schwab. It details many things, one of which is a human-made pandemic. It came out 4 months after COVID was declared a pandemic. That's a powerful psychic they must have. The book also details that in times of trouble, things often change all at once, like in 1929-1945. The World Economic Forum have ideas for how energy and food systems in the world should work. Makes the attacks on farmers through limiting their land make a lot more sense. Incite an energy and food crisis and pick up the pieces to distribute how they wish. Look at Bill Gates snapping up farmland, as he has been for years. Control over your necessities. We need food. We need water. We need energy.
In this world, decentralised cryptocurrencies could be the saving grace. They could also be that flash-in-the-water asset that nobody thinks about anymore. Whichever way it falls, the governments of the world are likely going to have a heavy hand in deciding. Expect a period of incredible change. We’ll all come out the other side different people in a different world. Good luck.