In today’s Money Morning…a scam or the future of money?…centralized or decentralized?…humans are selfish by nature…and more…
Cryptocurrencies are one of the most controversial topics in the investment world. There are many people who think it is a scam. And many people think it’s the future of money.
There are two problems crypto needs to solve if it is to be the investment of the century. Understanding these two points is the key to making a killing in crypto.
I’ll get to that in a minute, but first I wanted to address both sides of this ideological war.
Our society works well. We work together to build and share prosperity. We have a strong core of shared beliefs and perspectives.
For this reason, it is fascinating that there are issues on which we can be so divided. Money is central to the functioning of society. Its very important.
Now, of course, we’re going to disagree on things. It’s normal. But it seems to me that the crypto divide is bigoted. It is faith on a religious level for some people. And I mean that for both sides.
I was thinking about what the core drivers are for these two camps. There is a conservative-progressive dynamic in every discussion that involves change.
The role of curators is to protect and enhance the things that have served us well in the past. The role of progressives is to breed new things that can work better.
This is exactly what is happening with the crypto debate.
The Conservatives say that we have a perfectly functioning financial system. He has supported growth and prosperity, and there is nothing wrong with that. It brought us to where we are today.
Progressives say there is a better model. Many of them believe that our current system is deeply flawed. Some are unhappy with the government’s intervention.
This brings us to the first central point of this whole debate.
Control is a central theme in the cryptography debate. Should our financial system be centrally controlled by governments and central banks? Is this intervention a good thing?
The Great Depression happened before our use of modern fiscal and monetary policy. The main tenants of our current approach are largely attributed to John Maynard Keynes, although they took a long time to mature.
Is it a coincidence that we haven’t had a Great Depression since? I’m talking about the developed countries that use this system, of course.
This may be partly because we are all richer and our share of discretionary spending is so high now. An economic downturn now simply means selling the Gold Coast investment unit or second car. Whereas before, we boiled our shoes because we didn’t have enough to eat.
A common criticism of our current system is the level of debt some countries are incurring. The United States has raised its debt ceiling 89 times in the past 63 years. They consistently spend more than they collect in taxes.
The following graph shows the evolution of the debt ceiling since 1981:
We have a human instinct that says it’s wrong to owe money. It’s somewhere in our genetics, I’m sure. Or drummed into us when we were young.
So, is a decentralized financial system preferable? It’s a purer form of capitalism, to begin with. Capitalism as a system is one of the greatest engines of human progress and prosperity that has ever existed.
Of course, he’s an easy target for the radical left to hate. But its advantage is undeniable for any sensible person. It is easy to forget that capitalism in its current form is relatively new and has coincided with a surge of prosperity.
However, rampant capitalism is definitely NOT good. I know I’m going to lose libertarians here, but hear me out.
In 1968, Garrett Hardin wrote an article titled “The Tragedy of the Commons”. he was expanding on an earlier essay by William Forster Lloyd in 1833.
The central idea is that the resources everyone can use will be exhausted if there are no limits to their use. Basically, humans are selfish by nature.
When a coal-fired power plant can burn its coal cheaper than the neighboring plant if it doesn’t care about pollution, then that’s what it will do. They will pollute. If they don’t, someone else will to earn a few extra bucks.
Now don’t get me wrong, I’m not saying we’re all bad, and we’re all going to do that. Absolutely not. But some people will. Enough to be bad.
Think of Ponzi schemes. In rampant capitalism, you can start a Ponzi scheme where the intention is to take money from others and get rich.
I would say there are a bunch of schemes in the crypto space that are exactly that – Ponzi schemes. Certainly not all of them, but enough to be bad.
So the question for me becomes, how does crypto mature in a system that is limited in its capitalism? I don’t think it can survive and become mainstream without these constraints.
Crypto is an interesting beast. He has great potential. The trick is going to be, how do you integrate it with trust and constraints into everyday use? Not just speculation, but actual mainstream use.
I’ve been thinking about where this trusted agent is coming from. This must almost certainly be done without government intervention. Or at most, greatly reduced government intervention. After all, a big part of the allure of crypto is government overreach.
Trust and control are two fundamental issues that crypto must address to win the hearts and minds of the general public. It seems to me that trust is the most immediate obstacle.
While not all of us already buy products using crypto every day, that doesn’t mean there aren’t a lot of opportunities in the crypto markets. In fact, getting into anything before it goes mainstream is how you make big money.
My colleague Ryan Dinse discovers great crypto opportunities. He runs an excellent investment service with Greg Canavan called New financial investor.
Ryan is one of the most interesting people to listen to when it comes to this stuff. In fact, if you haven’t already figured it out, his play yesterday in silver morning gives an excellent counter-argument to what I’ve already made here, and it’s well worth reading.
I find the whole interaction of crypto with traditional finance fascinating. It’s like a complicated dance. It’s interesting to see which projects can overcome these perils of trust and control while bringing value to our lives.
Until next week,
Editor, silver morning
Izaac is also the editor of Exponential equity investor, an equity newsletter that searches for promising small-cap stocks. For more information on how to subscribe and see what Izaac is saying to subscribers right now, please click here.