Bitcoins, as well as other cryptocurrencies, are literally a pretend asset. Mathematically-derived, these so-called virtual currencies are as real as the real-estate of video games. Because people are willing to buy them, however, they can be treated as a real asset. With the launch of the Bitcoin futures markets, regulators and investors have even given Bitcoins the legitimacy of any other tangible asset or financial derivative. Bitcoin derivatives are literally a virtual asset of a virtual asset. This situation and the broader trend of decoupling the economy from reality, of course, makes any number of economic scenarios possible. Reflecting on the Republican Tax Bill, some have suggested the ballooning US Debt truly does not matter, which might be true in a virtual economy.
Cryptocurrencies are the natural byproduct of a digital revolution and globalized economy thoroughly reliant on market exchanges as a means of pricing goods. Purely mathematical in nature and exchanged with a complex series of encryptions, cryptoucrrencies like Bitcoin are highly secure, fast, and largely untraceable. They are also a decentralized currency, which means neither governments nor banks or any one group of individuals can control the use of cryptocurrencies. They are currencies that transcend government interference, which is helpful when dealing with corrupt and dysfunctional governments, and break the monopoly banks have over the global supply of money. So good are the upsides to cryptocurrencies that a growing number of people would like to replace their national currencies with cryptocurrencies.
In the US, the advantages of abandoning the dollar are minimal, but poorer and/or highly dysfunctional nations like Kazakhstan could actually use cryptocurrencies and a global cryptocurrency market to help stabilize their national economies. In a globalizing economy, national borders, regulations, and taxes are seen as little more than obstacles, so the ability of cryptocurrencies to transcend national and economic institutions makes the adoption of cryptocurrencies extremely appealing to many individuals. For the Venezuelan government, which hopes to replace its near-worthless currency with a cryptocurrency of its own creation, virtual money is a means of avoiding the consequences of other spending. Just like Russia’s creation of an alternet, Venezuela’s creation of a cryptocurrency is also, ironically, a means to empower its government by “disarming” foreign powers.
That said, the inconvenient truth for Venezuela is that Venezuela’s problems are largely Venezuela’s faults. Venezuela’s government spends more revenue than it generates. Venezuela’s economy relies far too heavily on oil and social welfare spending. It is true that Venezuela faces US sanctions, but these sanctions only make it more difficult for Venezuela to access the wealthiest marketplace, e.g. the US. Venezuela faces suppressed commodity prices, but all assets prices are cyclical in nature and all assets lose their value when there is an over supply. The futures markets are often the focal point for blame, yet traders, who are hoping for a price hike, are likely helping keep prices higher than what they should be. What Venezuela wants is a virtual economy that is decoupled from reality. The government wants a socialist paradise where supply is infinite.
In truth, the United States and most other nations want the same thing, even if they are capitalist countries. Where Venezuela wants to create a virtual currency to avoid the realities of supply and demand, the US uses a virtual asset called debt to pretend as though the US is not overspending. The US, as well as the many other highly indebted countries of the world, pretend deficit-spending by the government acts solely as economic stimulus. Debt has no true cost. From a certain point of view, this assessment is actually somewhat valid. After all, the US is still able to pay its debtors. If an individual purchases a bond from the US government, that person can still exchange that bond for money. The only way the US government will not pay its debt is if too many people try to trade in their government IOUs for cash.
Consequentially, a virtual economy can function as long as everyone is willing to buy debt. When people stop buying debt, however, those who own debt will lose their assets, which will impact the ability of consumers to spend and fuel the economy. Cryptocurrencies and their derivatives are truly the evolution of exchange markets. The problem with exchange markets is that they are increasingly being decoupled from reality. In reality, people with diverse needs live and work in highly diversified economies. A Chinese worker can make much, much less than what an American worker can make, thus the exchange rate, i.e. the cost, of basic goods and services must be lower in China. People in Haiti cannot afford to buy Haitian produced goods, if they are based on globalize prices. Unfortunately, cryptocurrencies are part of an economy that excludes the needs of people.
Investors are interested in cryptocurrencies, because there is room for growth and monetary gain. The values of cryptocurrencies grow like the value of dollars. The question is whether or not there is enough faith in cryptocurrency markets to maintain their stability. Because there is a set number of coins that can exist, the adoption of cryptocurrencies would be better than returning to the gold standard in terms of economic stability, but there is also a question of faith and longevity. In trying to institutionalize cryptocurrencies, cryptocurrencies must inspire the same level of faith as “paper money” in all the Peoples of the world. One thing that is certain is that utilizing cryptocurrencies as a national or global currency is a step-forward in creating a global virtual economy.
Read old posts