A brief story of why cryptocurrency exists
People used to pay each other in gold and silver. Difficult to transport. Difficult to divide. Paper money was invented. A claim to gold in a bank vault. Easier to transport and divide. Banks gave out more paper money than they had gold in the vault. They ran “fractional reserves”. A real money maker. But every now and then, banks collapsed because of runs on the bank.
Central banking was invented. Central banks would be lenders of last resort. Runs on the bank were thus mitigated by banks guaranteeing each other’s deposits through a central bank. The risk of a bank run was not lowered. Its frequency was diminished and its impact was increased. After all, banks remained basically insolvent in this fractional reserve scheme.
Banks would still get in trouble. But now, if one bank got insufficient trouble, they would all be in trouble at the same time. Governments would have to step in to save them.
All ties between the financial system and gold were severed in 1971 when Nixon decided that the USD would no longer be exchangeable for a fixed amount of gold. This exacerbated the problem because there was now effectively no limit anymore on the amount of paper money that banks could create.
Money as credit
From this moment on, all money was created as credit. Money ceased to be supported by an asset. When you take out a loan, money is created and lent to you. Banks expect this freshly minted money to be returned to them with interest. Sure, banks need to keep adequate reserves. But these reserves basically consist of the same credit-based money. And reserves are much lower than the loans they make.
This led to an explosion in the money supply. The Federal Reserve stopped reporting M3 in 2006. But the ECB currently reports a yearly increase in the supply of the euro of about 5%.
This leads to a yearly increase in prices. The price increase is somewhat lower than the increase in the money supply. This is because of increased productivity. Society gets better at producing stuff cheaper all the time. So, in absence of money creation, you would expect prices to drop every year. That they don’t is the effect of money creation.
What remains is an inflation rate in the 2% range.
Banks have discovered that they can siphon off all the productivity increase + 2% every year, without people complaining too much. They accomplish this currently by increasing the money supply by 5% per year, getting this money returned to them at an interest.
Tax on society
Apart from this insidious tax on society, banks take society hostage every couple of years. In case of a financial crisis, banks need bailouts or the system will collapse.
Apart from these problems, banks and governments are now striving to do away with cash. This would mean that no two free men would be able to exchange money without intermediation by a bank. If you believe that to transact with others is a fundamental right, this should scare you.
The absence of sound money was at the root of the problem. We were force-fed paper money because there were no good alternatives. Gold and silver remain difficult to use.
When it was tried to launch a private currency backed by precious metals (Liberty dollar), this initiative was shut down because it undermined the U.S. currency system. Apparently, a currency alternative could only thrive if “nobody” launched it and if they were no central point of failure.
What was needed was a peer-to-peer electronic cash system – that’s why cryptocurrency was invented. This was what Satoshi Nakamoto described in 2008. It was a response to all the problems described above. That is why he labeled the genesis block with the text: “03/Jan/2009 Chancellor on brink of second bailout for banks.”. Bitcoin and cryptocurrency were meant to be an alternative to our current financial system.
So, if you find yourself religiously checking some cryptocurrency price, or bogged down in discussions about the “one true bitcoin”, or constantly asking what currency to buy, please at least remember that we have bigger fish to fry.
Cryptocurrency is here to fix the financial system.
The ‘potential’ second half of this bull market could be intense
Here are 10 important reasons why I believe we could be on the cusp of entering a potential second half of this bull run.
The crypto market cap has increased by $672 Billion in less than three weeks; It stood at $1.25 Trillion on the 20th of July and it is now sitting at $1.92 Trillion: (For context; July 20 started as the GDP of Mexico, gained Sweden & Greece in 3 weeks, and is now Italy. If crypto were a country it would be the 8th richest country in the world.)
Bitcoin has broken through the 200-day moving average of $45k and is currently testing resistance at $46k (a number it hasn’t seen in three months) successful breakout from that would have the potential to yield an initial upside target towards $50k-$55k.
Ethereum had a highly successful London Hard Fork, with EIP-1559 burning 3.56 ETH/min (the effects are already evident as more than $55M worth of ETH have been burned) Proving that the Ethereum ecosystem is able to make significant positive changes & bringing is much closer to the market-moving event of the Ethereum 2.0 Transition.
People using high leverage to short the market have been getting Rekt lately, on August 6 there were USD$500M liquidations–70.87% of them bears ($354.87M) and 29.13% Bulls ($145.85M).
The crypto market has been in a state of either fear or extreme fear for the past few months (with sellers/bears dominating), but in the past week we have been in the green/greed zone with Buyers/Bulls dominating according to Crypto’s ‘The Fear & Greed Index’.
The Total Value Locked in Defi has also been increasing rapidly, going from $55 Billion on July 20 to $80.5 billion today.
In late July Germany took a major step in the crypto space by passing a law that allows so-called ‘spezialfonds’ to allocate up to 20% of their capital in crypto assets. Considering Germany is among the biggest economies in the world this is very significant as there is potential for more than $400 Billion being injected into the cryptomarket.
Eth went from a July 20 price of $1,755 to $3,150 in less than three weeks (and getting close to a $400 Billion market capitalization).
Cryptocurrencies regain momentum after a turbulent period.
Cryptocurrency miners turn to renewable energy sources in a bid to modernize.