#3 The Economics of Crypto-Currency: The Canary in the Financial Coal Mine?

Okay, so now that we have an understanding of man being part or nature, not above it; along with the fact that value is subjective and in the aggregate individuals buying and selling sets the value of every market (see my previous post). It’s time to explore how the market will react to a global crisis with relation to valuing crypto-currencies. I’ll explore this using a bit of guesswork based off logic and facts.

Markets can either be in a ‘risk-on’ or ‘risk-off’ situation. In times of turmoil, either above normal inflation or deflation, precious metals are seen as a safe-haven, a risk-off asset if you will. Other traditional risk-off assets include low-yielding Bonds with “good ratings.” Government securities are seen as the safest (yeah, riiight). It is in times seen as stable, or risk-on that you invest in risk assets, such as stocks, corporate bonds, junk bonds, industrial commodities, emerging markets and the like.

Every 7 – 8.5 years the world goes through a global economic calamity. 1987, 1994, 2001, 2008-09 and the looming crisis of today. Bitcoin was invented out of the ashes of the last financial crisis. This coming, baked-into-the-cake crisis will be a grand experiement for crypto-currencies. So, what happens to the crypto-currency market capitalisation in the aggregate when this crisis hits?

Since there is no test case for a global crisis, perhaps it is best to look at regional or even country-specific crises to gauge the impact on the crypto-currency market during a global crisis and liquidity crunch? When the European Crisis was peaking, with the Greek solvency issues and the Cypriot Banking holiday fiasco, crypto-currencies responded in earnest with favourable price action, like a risk-off asset should, with capital flooding to the perceived relative safety of blockchain-based assets. Other smaller scale examples have proven this ‘risk-off crypto hypothesis.’

Ergo following the ‘tale of the tape’ in combination with a bit of forward thinking, in the face of a global liquidity crisis, a larger sum of capital will ‘flock to the block.’ Fast-forward to 2017 and the experiment is money printing has reached extremes. Adding to the intrigue is the fact that these two unique monetary experiments are taking place simultaneously within the global financial system, a first for the world economy during the globalised era. One centralised, the other decentralised.

With all this in mind, crypto-currency, along with precious metals, will see significant gains during a global crisis. Every regional or country-specific crisis that has taken place since the birth of the block chain has seen the price rise dramatically in response. Ergo, when the global financial system once again becomes unhinged, crypto-currency will play the role gold once did.

The canary in the coal mine. Signalling risk… speaking of which, haven’t the global markets been experiencing all time highs and record low levels of volatility? Haven’t the crypto-currencies all been experiencing phenomenal growth recently? Aren’t markets (when not rigged by large mega-banks) forward looking? The canary is already dead. It’s only a matter of time before the next crunch. Mark my words, months away, not years.

Enjoy the process of creative-destruction. Of the market process, ordo ad chao, order out of chaos, as it is churning before out very eyes. Innovation in this space is still at the very beginning… and just like the in the forest, where fire burns away dead shrubbery and foliage to clean out and remake anew. A phoenix will rise from the ashes of the archaic parts of our financial, legal and social systems, with the blockchain blazing the path toward the growth of our renewed forest.

And forever remember; nature is anarchy, anarchy is nature.