In this post we are going to take a break from discussing crypto projects individually and talk about the macro economy of crypto at scale. That is, the entry of the larger traditional market. This quickly raises a few questions like:
- Is this good for crypto?
- Why do companies want to hold crypto
- Where is crypto headed
All great questions, especially the last one, but lets take time to discuss them properly.
Nothing should be considered investment or financial advice. Enjoy the ride.
Traditional Market and Crypto
To kick things off, do you think the traditional market is good for crypto? Surprisingly, the answer is not as intuitive as you might think.
Yes, more investors, fewer barriers of entry, regulation even in some circumstances, and increased exposure are all great for crypto as a whole. Due to this, we are starting to transition out of the “wild west” days of the crypto scene and into the first real developed look at the market.
What does that mean? It means projects are finally getting exposure to real world problems, providing real world solutions, and the market leaders are watching. More than that, the world is starting to adopt blockchain in forms of investment and use-case at an astounding rate. No more of the hype followed by dead-end developments. The market is starting to blossom into what it will one day become – the next catalyst to a new financial system.
But hold up just a second. What is the next big thing for crypto currently in a investing sense? By that I mean, what is going to continue to attract people short-term to the crypto market? That would be diversity.
The Next Big Thing – Diversity
You see, the more that blockchain and this space starts to intertwine with the real world economy, the more it starts to follow it. Unfortunately, this means that it also has to participate in its cycles.
The largest cycle of all – the long term debt cycle is currently coming to an end some might say.
The long-term debt cycle goes on about once every 50 or 75 years. The long-term debt cycle is when you begin a new type of money and a new type of credit. This happened in 1945 when the New World order at the end of World War II with the establishment of the Bretton Woods monetary system. The Bretton Woods system defined all currencies in relation to the US dollar. The US currency was now effectively the world currency and the standard to which every other currency was pegged. Currently 70% of the money and credit that exists in the economy is running by dollars and what you have traditionally is a breakdown.– Financial Goodness
This means that companies will be looking for one thing. Given they agree with Ray Dalio’s prediction of the end of the long-term debt cycle, they will be looking for diversity. A huge advantage that crypto has is that it is anti-inflationary. Now yes the price can go up, but the number of Bitcoins for example never can and never will.
Therefore, it is safe to assume that more companies (Tesla for example) will start to view crypto as a sort of hedge against this pending dilemma. In the event that the dollar starts to lose traction around the world, companies can hold crypto for now to protect their wealth. This will only last for so long, but for now crypto is still independent of the traditional market.
Crypto in Reserves and Index Funds
This will probably mean that soon it will be common for companies, banks, and governments to hold some of their reserves in crypto. This is already happening all over the globe, but it is still hush hush. Tesla was the first huge company to put it out there publicly and in everyone’s face, but these entities are genuinely concerned about the pending debt crisis we could experience.
They are looking to diversify risk. Luckily, Bitcoin and other crypto currencies do just that. Along with traditional commodities like gold and silver, we will probably soon see another spike in the crypto scene as people prepare for the inevitable.
That is as long as wealth creation does not continually hold off the crash.
Wealth Creation and Over Leverage
While wealth creation is a good thing inherently, it is also apart of the reason Bitcoin exists.
While the U.S. continues to print trillions and trillions of dollars, all it does is manipulate the already serious issue of the world’s debt problem. In time, this same problem will slowly creep into the crypto market as well.
Already platforms are encouraging lending and loans over selling your crypto. “Loan away your crypto and keep it at the same time!”
This is great for you to retain your assets, but all this does is create a similar problem down the line potentially if not well kept up with.
Problem with Loans and Credit
For instance, if bob owns 2 Bitcoins which is around $100,000 lets say. Bob could take a loan out on his assets for $30,000-$40,000 and keep his Bitcoin.
Although, what if in 3 months his crypto drops 85% similar to 2018 and now Bob actually owes more than his loan is even worth. This is exactly what happened in the 2008 housing market and caused a crash. The more “wealth” that is created, the more credit given out, the more loans taken only provide more and more variables to the equation.
If precautions are not taken on this, we could be setting ourselves up with a huge problem down the line.
Where is Crypto Headed
With all of this in mind, where is crypto headed?
I mean we have NFTs costing thousands and millions of dollars, the Defi space is exploding with traction, and most of the largest projects on the market have achieved mainnet by now. Huge huge things are happening, but we are still so far from our goal. Our goal of a new financial system where the economy is driven and funded by the community, by cooperation, and kept in check by a decentralized entity that is trusted and verifiable.
The next step of the market is interoperability. We will discuss this in the next post, but that is what is coming.
Clusters of chains, para-chains, side-chain solutions, layer 2 protocols, and more collaboration between projects. It is an exciting time to watch the market mature, and the projects that team up in the coming years might just surprise us. Only time will tell.
Traditional Crypto Market
Thanks for reading this post on the Traditional Market and Crypto. It was a bit general, but I wanted to get this stuff out of my head and onto “pen and paper”. If you liked it, please share, sign up for our mailing list, or simply go out and make a difference in this broken world.