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Market Lab Report/Dr K Crypto Report - Economic Malaise; The State vs. Crypto; Bitcoins Have Value

by Dr. Chris Kacher

The Global Economic Malaise

Chinese GDP growth was reported last Monday to be the slowest in 27 years so what happened? In this age of QEInfinity, Chinese shares rose on hopes for more stimulus measures from its central bank. This has been the way of things in the U.S. market since QE began in late 2008, and is the way of global markets in 2019 in the Age of QE.

Meanwhile, Mexican industrial production posted its sharpest decline in a decade in May, with a big drop in construction activity and lower mining, manufacturing and utilities output.

The global economy continues to slow despite record levels of quantitative easing with plans to further ease rates below historically low levels.

As a consequence, an interview with the Vice Chairman of the Fed on Thursday was taken as dovish. A half point rate cut became more probable for a brief instant though current expectations of a quarter point cut in interest rates at the next Fed meeting on July 31 still remains the most likely outcome at 75% based on the CME Fed Fund Futures.  

The State vs. The Cryptospace

As for the cryptospace, Mnuchin's statements are long term positive as they underscore the need for applying existing regulations to cryptocurrencies. Regulations will help the cryptospace mature thus institutions will be able to participate en masse.

China’s various bans on aspects of bitcoin since 2013 simply caused companies to move out of China.The renowned Fred Wilson has said the same will happen to the US if regulations are too heavy handed. https://twitter.com/fredwilson/status/1132045551594352646?s=21. New York’s onerous Bit License drove most small crypto companies away. Hopefully the U.S. will not be China with respect to crypto regulations. Two of the members of the SEC are pro crypto. Now that the top guns in the U.S. have made public statements on crypto, that will now force the mass majority to start thinking about it. Bitcoin currently only has a 1% adoption rate. It doubles every year so it's taken a decade to reach 1%. It should take less than a decade to reach a majority especially given the state of QE, historically low interest rates, the global debt spiral, and potential fiat devaluations.

Roubini vs. Blockchain

The pieces I wrote on Roubini was in consequence of the CEO of CoinMetro, Kevin Murcko, who had a recent civilized debate with Nouriel Roubini. It was arranged by a mutual friend of mine. Kevin got Roubini to admit that he lacked vision and depth when it comes to tech. Roubini is not being paid to be a shill since he has a longstanding track record of completely misjudging tech such as when he testified before Congress against cellular phones in 1991: https://www.virtueofselfishinvesting.com/reports/view/crypto-report-nouriel-roubini-vs-blockchain-total-ko 

Fedcoin vs. Bitcoin

As for issues around bitcoin, MIT Technology Review put out a short-sighted and inaccurate piece on why a U.S. digitally minted Fedcoin could destroy bitcoin. Sure, a Fedcoin issued by the U.S. would be faster and more efficient but the value of a Fedcoin would still be tied to the dollar. The U.S. dollar has lost about 97.5% of its value since 1971 when Nixon took it off the gold standard when it was worth 1/35th an ounce of gold. Fiat currencies always depreciate over time, with rates of depreciation as a whole more so now than ever with the record levels of global QE flooding the system. A rising tide lifts all boats but a falling tide lowers all boats. Global QE is causing the tide to recede.

Bitcoin is the first of its kind, thus is sorely misunderstood even by the likes of top universities, and especially government bodies. The killer app behind bitcoin is that bitcoin is not controlled by anyone. It is truly decentralized as the SEC recently ruled. It has a fixed supply therefore cannot be inflated away. It has by far the largest hash rate and network of any coin thus is the most private, secure, and immutable platform. Its dominance now sits around two-thirds of the value of the entire cryptospace market. Some have suggested due to the nature of bitcoin, it may become the essential store of value, even above and beyond that of gold.

Barry Silbert who runs Grayscale and the two ETNs GBTC and ETCG says that $68 trillion will be transferred to the millennials over the next 25 years. According to Silbert, “For the younger generation, money is digital.” Silbert’s position comes from the fact that the people in the ‘baby boomer’ generation are either retiring or getting close to retiring. According to a recent Accenture study, $30 trillion in wealth belonging to the generation born immediately after World War II is already being passed down to the younger generation. 90% of this generation has taken a pragmatic liking to bitcoin over gold.

So while bitcoin may lack efficiently and speed, it still addresses the growing need for borderless transactions of value. Further, layer 2 technologies such as Lightning, Liquid, and Rootstock will make bitcoin far more efficient while increasing its utility.

Bitcoins Have Value

While many have said bitcoins have no value because there is no underlying asset, bitcoins have intrinsic value because they are a borderless way to transact value. Bitcoin has the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics. These characteristics continue to evolve so while bitcoin may not currently meet the classic definition of money, it is not a static technology as numerous layer 2 technologies are being built and refined. It does not rely on physical properties (like gold and silver) or trust in central authorities (like fiat currencies). Bitcoin's adoption rate doubles each year as noted by its growing base of users, merchants, and startups. As with anything of value including fiat, bitcoin's value comes only and directly from people willing to accept them as payment. In similar logic, the intrinsic value of the U.S. dollar is based on tax revenues and GDP growth. The intrinsic value of a Picasso painting is its current value which is what the market is willing to pay. More here: https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp
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