Martin Armstrong wrote about his opinion that cryptocurrency will fail:
There are way too many cryptocurrencies out there and even if we accept the theory that ONE will survive and become mainstream, what happens to the rest? This is the great unanswered question.
Most of the altcoins are utility tokens that run on the Ethereum blockchain. I had already explained that utility tokens are most often basically useless gimmicks as well most of them being arguably illegal securities or at least landmines in a “Kafkaesque clusterfuck of discordant jurisdictional jeopardy”. So we should eventually see that ICO bubble collapse into a heap of ashes. Ethereum’s Vitalik admitted the gold rush phase may have peaked.
I expect eventually the 1000s will be whittled down to less than 100 viable altcoins that are real projects competing on feature differentiation. I later expect the winners to emerge and most altcoins will die off as the best features are merged into a few winners.
You certainly cannot replace the dollar and central banks with thousands of currencies. We tried that once when Andrew Jackson revoked the Bank of the United States charter. We ended up with EVERY bank issuing their own paper money and that concluded in creating the Great Depression of the 1840s that led to violence in the streets, defaults of State debts who tried to bail out failed banks […]
It’s a category error to make a comparison between a currently speculative asset with only fringe actual use, to currencies that were in widespread use for the majority of the commerce at that time.
When the altcoins crash and burn, they will burn the fingertips of many speculators up to their armpits, but the cryptocurrency bubble is orders-of-magnitude less pervasive than the South Seas Tulip Bubble was. Cryptocurrency is not yet a systemic financial risk.
Before cryptocurrency becomes widespread, it will have matured and the 1000s of riff-raff altcoins will have crashed and burned.
There certainly is no possible viable economic system where there are thousands of cryptocurrencies. For the theory to even be viable aside from technology and every person being able to use computers or smartphones, there must be economic viability and security. In other words, the mere existence of a product does not necessarily mean that the product is working.
Correct, but by the time we get to pervasive adoption of cryptocurrency for non-fringe use in a majority of the commerce (which is more than a decade away at least), then the 1000s of altcoins will be dead already. Weeded out by the free market. Most of them are, “just another failed genetic mutation […] let them go gracefully.”
When every bank issued its own currency, fraud became commonplace.
It’s another category error to compare fiat currencies to a properly designed cryptocurrency that has security such that the protocol can’t be violated (which at this time excludes all proof-of-stake designs and only includes those based on Nakamoto proof-of-work), then it’s technically impossible to have fraud in the debasement or fractional reserves of the cryptocurrency.
Security of wallets is an orthogonal issue, analogous to the fact that security of banks is orthogonal to the reserve ratio decisions of the central banks.
When Armstrong makes so many category errors, we must wonder whether he even has any credibility whatsoever on this specific topic.
After all, there has to be just one currency at least per nation – not thousands. Commerce would come to a standstill. Some people would refuse to accept a certain one just as some places refuse to accept a particular credit card be it Visa, Mastercard, or American Express.
I think that’s correct, but do note that since altcoins can be exchanged in real-time during the payment, this is actually not technically implausible. In fact, the very popular Bitpay service enables Internet merchants to receive payment in various cryptocurrencies (including Bitcoin) and pays the merchant in fiat dollars or the cryptocurrency of the merchant’s choice.
The reason that 1000s of cryptocurrencies won’t work is because of the volatility risk and costs. Consumers want stable currencies, not currencies where the prices of goods and service wildly change every few minutes.
There is just no way a single currency for the entire world will ever work because not everyone has a current account and trade surplus. Someone must have a deficit. A single currency would result in exaggerated inflation and deflation globally in different regions.
That problem only exists because the government budgets and central banks exist primarily on a nation-state level. If the nation-states and nation-state centrals are replaced with a world government and world central bank, then that impediment will not exist.
But we can’t move directly to a world government yet, because the cultures, ingrained politics, and relative economic efficiencies of each geographical region are not congruent enough yet.
This problem of how to move forward from the dollar as the reserve currency on the next monetary reset is why Bitcoin was created. Because as I explained for example in my (as username Traxo) numerous rebuttals of the tinfoil-hat wearing goldbugs (c.f. also and also), Bitcoin was created by the global elite to surreptitiously disintermediate and eventually subjugate the nation-states to a financial system wherein the nation-state fiats float against a version of John Nash’s Ideal Money. Bitcoin appears to be the proposed Ideal Money as famous mathematician and game theorist John Nash envisioned it. Since no nation will be able to control nor debase Bitcoin, then Bitcoin will serve as the international reserve fulcrum by which bond vigilantes can in the future penalize profligate “gubbermints”. The problem was how to get nation-states to accept such a new Ideal Money and bring it into widespread acceptance. Bitcoin accomplishes this virally under the nose of jurisdictional arbitrage which the governments can’t defeat as as been explained exhaustively in my prior comments of this blog (c.f. also the opinion that India can’t effectively regulate Bitcoin).
Therefore Bitcoin as designed will not cause this problem that Armstrong fears, because the nation-state fiats will not disappear. We’ll move to a two-tier financial system where much international trade will be settled in Bitcoin, but nation-state fiats will float against and be measured objectively by their exchange rate to Bitcoin. Banks will be reluctant to issue loans denominated in Bitcoin, because they can’t print Bitcoin out-of-thin-air to allow for debt to continually expand.
So that is the third category error that Armstrong made, because Bitcoin is not going to be the transaction currency. It will only be a reserve currency in a two-tier financial system.
Actually via the Lightning Networks offchain system, it may be possible for “Mt. Box” hubs to issue fractional reserve accounts denominated in Bitcoin, but it is not clear whether that system will succeed or become pervasive. Of course those are off-chain, so they do not debase the actual on-chain Bitcoins.
Additionally there is an orthogonal point to make which is that simultaneously with the nation-state fiats (which will probably also move to electronic currency and eliminate all physical cash), there will likely be a market for a global altcoin currency which performs functions that the nation-state currency can’t. Specifically the nation-state currencies are not optimum for cross-border commerce on the Internet, especially virtual commerce such as Internet cam girls, gambling, etc.. So we will see a transaction volume scaling altcoin rise and be important globally. We do not know which altcoin this will be yet, and it can’t be Bitcoin for the reasons stated below...
This is the problem with the dollar. If the Fed raises interest rates, it impacts the world because other nations are issuing debt in dollars. This is what results in losing DOMESTIC policy objective to INTERNATIONAL policy realities.
This is the problem that Bitcoin fixes. The world will move to a floating two-tier system where no nation sets interest rates for the entire world.
We have people in Bitcoin swearing it is going to $100,000 and become the new reserve currency. That is such a joke for any currency to be worth that much would guarantee it cannot be used in commerce since most transactions are small.
Then to be the reserve currency means governments would have to issue debt in Bitcoin. Come on! Are these claims even practical?
Incorrect. It will be a two-tier financial system. Debt will be issued in nation-state (and/or regional currency bloc) currencies for the reason I stated earlier in this post.
The chart of silver from 1980 is similar to that of BitCoin. Back then, they were touting silver would go to $100. They swore it would do that any day for the next 19 years. We have people in Bitcoin swearing it is going to $100,000 and become the new reserve currency.
We have our own chart which clearly shows that Bitcoin will exceed $100,000 over the next several years.
It’s Armstrong’s fourth category error to equate the charts (not shown here, read his blog) of the 1980 silver, the 1990 NIKKEI, and the 1929 stock market bubbles to the current Bitcoin chart. Because those were not adoption driven bubbles. They were purely speculative bubbles. Bitcoin should be compared instead to the Nasdaq which crashed after the Dot.com bubble but rose again to higher highs because it represents technology adoption. The Amazon and Apple stocks would be a good representative examples. Bitcoin represents a new technology known as decentralized consensus. This is as important to the Internet as was the invention of the TCP/IP protocol and the smartphone. Up-thread I explained that the smartphone adoption has been globally completed from inception to billion user adoption in less than three decades. Bitcoin was launched a decade ago. Technology adoption is accelerating because efficiency of network communication is accelerating. The network effects develop exponentially.
miscreanity has a good post about this adoption versus speculation point over at
BitCoin is a trading vechicle. Trade it with that in mind ONLY. It will never replace the dollar, become a reserve currency, and it will not soar to $100,000. Those who believe such nonsense will be easily separated from their money. Trade it that way.
This will be recorded and replayed some decade from now when hopefully Armstrong will be retired because this is going to be very embarrassing for him.
The near-term outlook for Bitcoin appears to be that we’re probably heading up to make another ATH around $32,000 in 2019 before beginning another multi-year decline crypto-winter. This is not certain though and we could continue to decline into a 2020 bottom as low as $3000.
However, it does look like the strong dollar will take breather soon for both technical reasons and with the upcoming mid-term USA elections looking to be a defeat for Trump and thus justifiable investor fear about his impeachment, reversal of his tax, and other risks. So this weak dollar would be perhaps the window for Bitcoin to make another speculative run.
So it does look Bitcoin is going to get one more chance to run up to a new ATH before the global economic system turns very bad later in 2019 and into 2020 and the dollar will rise again during that severe phase. Bitcoin may bottom at roughly $8600 in 2021. Bitcoin probably won’t make new ATHs until after 2023. Our chart currently projects exceeding $500,000 by the end of the next decade.
EDIT: Armstrong continues to claim cryptocurrency will fail:
Wish someone ask him nicely at his conference why can't he entertain the idea that nations will be powerless to stop the phenomenon of countries actually breaking away and leveraging Bitcoin to outcompete other nations. Jurisdictional arbitrage is in Bitcoin's favor, not in the favor of nations who want to enslave their own citizens!
Bitcoin is integral to the entire phenomenon of separation movements that he predicted.
Bitcoin provides a unified leverage for people to overtake nations.
And Bitcoin is more competitive than those nations which restrict economics by trying to enslave with their control of their own currencies.
I think it is important for Armstrong to understand the entire political phenomenon underway is globalization. The people are throwing the nation states into the garbage can. People are sick and tired of nation states hindering them, e.g. necessities of visas for migration for example.
Yes, not just the death of socialism...
Agreed. The people will demand Bitcoin and thus some nations will see that as an opportunity to compete against nations which are obstinate. This is another reason the West will decline perhaps if they are obstinate and too much regulation.
For example, Africa!
Armstrong will continue to focus on nations having the power to tax and thus banning crypto. What he does not understand is that they only had that power when the people were trapped by agriculture. They could not move their land. But now people can move their livelihood as it is all on the computer.
Key point. Goes right back to theme of this blog of mine:
Smart, educated Africans don’t stay inside their own countries. They go any where in the world for their best opportunities. Ditto Filipinos. Ditto us. World is changing. Armstrong needs to open his eyes. The nation-states are competing for us, not the other way around!
And we see this fracturing of the nation states in the U.S.A. mid-term elections. As I predicted the Reps won Senate and the Dems won the House. The USA will move in gridlock and then fracture. The tax cuts will expire in 2025 because of either gridlock or the Dems will take back the Presidency but not the judiciary.
The USA is breaking apart. The liberals and conservatives are worlds apart. Our gridlock will open the door for Asia to outcompete us.