The Future of Money

By Kabir Ali CTA ATT (London, UK)
January 2018

I will probably be a dollar millionaire by the time most people read this! And, if you’re smart, you should copy me! Here’s why;

(but remember, while I can’t connect the dots for you, I can show you where to start)

Each actor in this story has their own angle and, from their perspective, they are all correct in their own way:

• from the techies who created Bitcoin (https://en.wikipedia.org/wiki/Cypherpunk);
• to the Banks who took over the production of money and are now trying to stay relevant;
• to the socialist movements around the world saying inequality doesn’t have to be the norm anymore: we can distribute the world’s resources in a fairer way.

There will, I might add, still be rich and poor, but the rich won’t be as rich and the poor won’t be as poor. As a warning to you, there will still be crooks, so don’t go running buying ICO’s if you don’t understand what you’re doing! You’ve been warned!

So who am I and how did I end up chasing cryptocurrency down that proverbial rabbit hole?

About three weeks ago, my nephew, who is in his 20s called me and said he needed some tax advice. Well, for those of you who don’t know who I am, let me tell you, I am a Chartered Tax Advisor (CTA) and have had my own practice in Highgate, London, since 2013 (You can see a video of me here, so you know I am not a Russian Bot! http://www.kbraccountancy.co.uk).

I qualified as a CTA while working at KPMG and then moved to Deloitte, I have helped large businesses and have set up small businesses too. I am a university (or “college”, if you're American) drop out - if that helps you get a better understanding of me. A lot of trend spotters seem to be college dropouts too(https://www.cnbc.com/2017/05/10/10-ultra-successful-millionaire-and-billionaire-college-dropouts.html). Please don’t think I am a billionaire!

Back to my story, this young man (who I watched grow up and is still a little kid to me), was now asking me for tax advice – obviously, I was curious. He said he wanted to know the best way to manage his cryptocurrency as he is now worth over £300,000! that’s more than I have! And, I did the “good capitalist” thing and worked hard for the past 10 years having piled on debt to get my business growing. Dang!

So when did I get involved with Bitcoin?

This is not the first time I have had my interest drawn by cryptocurrency, I heard about Bitcoin before. It even hit the mainstream in an episode of The Good Wife in 2012 (http://www.imdb.com/title/tt2148561/releaseinfo?ref_=tt_ov_inf).

If you had bought Bitcoin as soon as you saw that episode.. Well, you could have turned $100 into $3,750,296 by 2018
(https://www.investopedia.com/articles/investing/123015/if-you-had-purchased-100-bitcoins-2011.asp)

So for the last few weeks, I’ve been doing a lot of reading and watching Charles Hoskinson on YouTube. That man is a genius. Just for full disclosure, before talking to my nephew in January 2018, I had no money invested in Bitcoin or any other Cryptocurrency, mining operation or any financial relationship to this sector.

I had many questions and I think I may have found some of the answers, So, let me share my learning with you, but in layman’s terms. Also, I am not going to discuss the technology (Blockchain) so if you want to know about that, go do some research!

Serious Question: Is it a bubble?

Well, not exactly. I see this as a Monetary Mega Cycle.

Our money supply is a mystery, most people have no idea how money is created. Once you read about it, you will be wondering why we let this system of money creation last for so long.

++In summary, since the 1970’s your money is nothing more than colorful and intricately designed paper or a few digits in a bank’s central computer.++

Past generations weren’t so easily duped, they demanded gold which could not be forged (well the alchemists tried). But today, the central banks' promise us that the printed money they issue, backed by nothing really, is worth something and we accept it, it was convenient and they have ridden the gravy train as we put our trust in them. In their defense, they do say it is a reflection of the public's confidence of the strength of the country’s GDP. And, so it went until 2008, when the banking crisis hit, then things changed. I remember the day Lehman Brothers collapsed, I watched the employees get booted out of the building from across the road in my office in Canary Wharf: https://www.standard.co.uk/news/what-happened-to-bankers-who-crashed-with-lehman-6735327.html)

Anyway, back to the 70’s, with the power to create money, the central banks printed away, and your local high street bank was making more and more from the interest and fees they charged on this newly created money. Now you understand why JPMorgan’s share price went from $5.82 in 1978 to $116.32 today! Now, that’s what I call a bubble, almost 2,000% growth. Before you start thinking that’s impressive, it was actually even better than that, don’t forget that the bankers have been extracting “cash” over those 40 years and still the share price went up (yes it finally collapsed in 2008), but they protected their own. Could this value extracted from the real economy by the banks and subsequently reinvested into the real estate market have been the cause of the housing bubble? Perhaps, but there is a strong indication that it was a factor.

So how long is a monetary megacycle?

About 40 years based on the key dates you can see below.

Each mega cycle,

• 1944 - 1971 ~27 Years
• 1978 - 2009 ~38 Years
• 2009 - 2059 ~ 50 years?

We must talk about money supply or none of this makes sense – also if we are to explain why the gold standard was eliminated, we need to look at the need for flexible exchange rates in a globalised world. Maybe an issue to cover in a future post.

How long will it last?

So I think the Bitcoin “Bubble” will last about 40 years before something new is created and who knows what humanity will come up with. Who could have imagined cryptocurrency 1971?

What if they are like Tulips you ask?

Tulips are perishable and could be grown, the “bubble” couldn’t last. Bitcoins can’t be destroyed (unless you can get every single person in the universe to delete every single copy of the bitcoin programme - which is near impossible) and only 21,000,000 bitcoins will ever be created. Sounds a lot more secure than money to me, which is continually being created by the banks whenever a loan is issued. –

Bitcoin has it's challenges, it not currently stable enough to enable trade across borders where tariffs and taxes are different. No business wants to price it's goods or services in something which is changing so much in value that it could wipe out any profit by the time the invoice is paid. This is a solvable problem (my thoughts on this will follow in another post)

Rise and fall of the Gold Standard

Here is a quick summary of how the money we use has been managed by the "masters of the universe", also known as bankers.

1944: Even before the second world war ended, the global elite wanted to secure the future of money. This lead to the Bretton Woods System (https://en.wikipedia.org/wiki/Bretton_Woods_system),
in summary, every dollar bank note had an equivalent amount of Gold held in reserve. If there was $100bn in dollars, then the central bank would have to hold $100bn of Gold as security. You can find more information here: https://en.m.wikipedia.org/wiki/Gold_standard

1971: End of Gold standard and the rise of the banks
"Starting in the 1959–1969 administration of President Charles de Gaulle and continuing until 1970, France reduced its dollar reserves, exchanging them for gold at the official exchange rate, reducing US economic influence. This, along with the fiscal strain of federal expenditures for the Vietnam War and persistent balance of payments deficits, led U.S. President Richard Nixon to end international convertibility of the U.S. dollar to gold on August 15, 1971 (the "Nixon Shock")."

1987: Creation of new money creates Stock Market Bubble and Bust

1990: Creation of new money creates First Property Bubble (private investors)

2001: Banks create new money to lend to dotcom businesses, driving the dotcom bubble

2008: Banks finally start collapsing when people realise they can no longer be trusted

2009: Bitcoin released ("BTC")(https://en.wikipedia.org/wiki/Bitcoin)
2018 End of Property Bubble (Buy to let)?

Remember, each time the banks create more money it has to go somewhere and it normally ends up in assets - Property, Stocks, Bonds.

What is Bitcoin?

Read this first - https://en.wikipedia.org/wiki/Bitcoin
It’s like "digital gold" - it cannot be destroyed and no one can steal it from you, no one knows you have it, including the tax man! (I will do more detailed study on this later, don’t worry, we will still have tax, it will just run on the Blockchain system)

So what am I going to do?

Invest in the new economy, but I don’t expect it to happen in a few weeks like the ICO crazed people. Think of it as a 30-50 year cycle. Think of it like buying JPMorgan Shares in 1971.

Don’t invest more than you can afford to lose, but you can slowly move your assets over to Bitcoin and other blockchains over the decades to come.

FOMO means "fear of missing out!". This is not a good reason to buy Bitcoin, only do it if you believe in it. Future digital currencies are likely to have systems to stop a few people accumulating all the money, so you can always invest in those when they come out, you will just be a bit behind the curve, but you won't totally miss out. Look at cryptocurrency like IOTA which allows every coin holders to vote on its rules.

So what currencies do you plan to hold? I hear you ask

I don’t like Ripple (XRP), why? It’s the equivalent of buying IBM shares rather than Microsoft's when the computer became mainstream. Legacy players don’t do that well, Ripple will do okay, but not as well as Bitcoin. Ripple is too tied to the old legacy banking system, which won’t totally collapse, they will just be like salt traders or silk merchants, they will still serve a function, but it won’t be the golden goose that it once was.

This is how I would allocate my total holdings:

This is what I plan to do and I am not advising you to follow me on this step. Do your own research and decide what is best for you! My only advice would be to not ignore the change that is happening

Bitcoin (50%)
Ethereum (20%)
Cardano (20%)
Others (10%)

That’s all for now, I have a lot more material - so please stay tuned for more and do up vote if you found this interesting. This is the summary of a lot of research.

Comments and questions always welcome! Let's learn together.

If you like what I wrote, you can follow me here:

Steemit: @kabir88
https://steemit.com/@kabir88
Twitter: @kabir_LDN
https://twitter.com/kabir_LDN

Copyright - No organisation is to have fiat currency gain from the distribution of this article. Please do not post to sights that contain advertising. This is not Financial Advice - it is simply my opinion on the past and future of Money. What you do after reading this is done at your own risk.