Cryptocurrency Flow On Effects

Has anybody noticed lately, that cryptocurrency seems to be hanging around? Wasn't this stuff meant to be gone by now? Wasn't Bitcoin meant to have crashed years ago? Weren't people meant to have worked out that these currencies are the devil in disguise and reverted back to traditional currency for all of their investing and spending? Isn't Etherium too hard to understand and use?

All of these questions (and plenty more) have been asked from water coolers to dinner parties. From corporate boardrooms to the oval office. But all we actually hear is tumbleweeds. Or should I say cash registers? Well technically, there's no cash to go into a register but you get my point - cryptocurrency, altcoins, digital currency isn't going anywhere. 

And you will notice common themes. The crypto naysayers are usually traditional, conformist, pro-institutional thinkers in most aspects of their life. Chances are that they haven't researched it much and are 'pretty-much-waiting-pretty-much-hoping' it will go away soon. That said, there's something even more disturbing than the fact that people think, speak and feel this way - governed by fear and ignorance. Are you ready for it... THERE ARE COMPANIES THAT THINK LIKE THIS TOO. It's like they are paralysed.
You know how you are told to play dead if you are attacked by a wild mother bear? Let's be completely clear here, that that analogy should not apply to leading global corporations when faced with a threat (or opportunity) as big as cryptocurrency. And we aren't just talking about manufacturing, or engineering, or services businesses here. We are talking about financial institutions, whose bread and butter is money and they are closing their eyes and ears to the growing cryptocurrency market.

So given we have established that cryptocurrency is here for the longterm, what are the fundamental and macroeconomic considerations that we need to take into account when considering the implications on our financial markets?

The most profound, in my opinion, is the devaluation of the current financial system. What we know as 'money', denominated by bank notes and coins, is no longer worth what it was, by way of the simple laws of supply and demand.

** NOBODY IS SPEAKING ABOUT THIS ** and by that, I do not mean that I am the first to make this consideration or argument but I mean that none of our global financial regulatory bodies, none of our major global financial publications and none of our all important financial institutions, are acknowledging this point. You may ask, 'well why would they', given that it jeopardises their profitability and even their very existence. But I would surely have expected some form of acknowledgment and formal comment. Without that, it just seems like there's a gigantic elephant in the room. And he's starting to swing his trunk around.

So what does this mean? Well, two things come to mind;

1. With over 600 cyrptocurrencies now in circulation, worth an estimated $110 billion dollars (USD), we have more money in the system. Think about it in terms of a concept we are raised to understand - property. If there was a social trend towards living in house boats, instead of traditional housing, and there was a huge supply of houseboats made to accommodate that social trend, then what would be the first flow on effect? A big drop in the housing prices, right? Well this is no different to the financial markets. In very broad terms (and I will likely blog about this in more micro focus at some stage soon), there are more vehicles/mediums, with which to financially remunerate people with, which does two things. It pushes down the value of 'money' and it pushes up pricing pressure because there is more money in the system and more pressure to pay more for scarce resources.
   One thing I can tell you for certain, this will start to pinch as cryptocurrency continues to grow (as it is, at a phenomenal pace) and you will not want to be left with the devalued form of currency (being 'cash' in this example).
2. We are measuring inflation rates around the world and pretending like these inflationary pressures are not contributed to by cryptocurrency. So, policy makers are setting regulatory and policy frameworks for the traditional 'money' system (which completely bypasses the cryptocurrency market) but using both sets of denomination to measure the data.
   This means that incorrect decisions will be made in monetary policy, particularly around interest rates, who of the most important drivers of our global financial system and that could, and ultimately will, have disastrous effects.
   A quick, and high level, example: Governments track inflation as a measure of upward or downward pricing pressure and use this data to set economic policy. Developed economies like to see inflation within a 'band', usually being 2-3%. We are currently seeing inflation globally, sit relatively nicely within this band, as the economy continues it's climb back from the GFC. But what isn't being considered, is that cyrptocurrency is contributing to that inflation figure falling within the band. But given policy makers set policy on 'money' only, they should be measuring inflation driven only by money. Otherwise, inflation will appear artificially high and interest rates will accordingly be lifted, when they should be kept constant or even dropped. 

Ok, I think my first five minute read is well and truly eclipsed (sorry!)

Plenty more to come :)

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