Will crypto be the new operating system for capitalism?

Over centuries systems of exchange have evolved and right now we are at the ‘money’ stage, which has been around for some time. However, I’m not alone in thinking that fiat currencies won’t rule the roost forever. Chris Herd poses some interesting questions to think about in his article” Why cryptocurrency is the Next Operating System for Capitalism,” and he starts by suggesting that although traditionalists cling on the concept of cold, hard cash, it might disappear faster than they think.

The significance of a cashless society

We are almost at the point of becoming a cashless society for a start. More people than ever do not carry cash. Herd says, “I can count on one hand the number of times I have had cash in my wallet in the last 3 years. Paper cash and metallic coins are prehistoric.” This is true for many people, especially in larger cities. To some extent how ‘cashless’ you can be does depend on where you live; it’s a lot more difficult to rely on plastic in rural areas.

That brings us to cryptocurrency as a means of exchange. When the utility of notes and coins in your pocket decreases, it will be replaced by something the majority agree is more efficient. Herd argues that while the traditionalists shout that crypto is a ‘bubble’, he argues that fiat money is also a ‘bubble’, because as we know it is not backed by anything: “its price being entirely independent and it’s valuation contingent on what we collectively believe it to be ,” as he says.

If we stopped believing in the value Euros, pounds and dollars etc tomorrow, what would they be worth? With money we are in the land of ‘trust and belief’.

Loss of trust in governments

Herd writes, “Money is, and has been for the last 30 years, an intellectual construct centred on humanities trust in Governance.” And he correctly points out that right now, our trust in governments is at an all time low. And we have a solution to our loss of trust in them — a decentralised operating system.

Herd points us to the example of Venezuela, a country in deep financial and political distress. Bitcoin has enabled its citizens to have an alternative to the crippling inflation. They have an escape route from the government monetary policy.

Herd also argues that cryptocurrency can free us from government-imposed austerity measures, which plague a number of countries. As he says, the people who caused financial collapse are rarely punished for it; as we’ve seen Wall Street bankers are Teflon coated.

Crypto will destroy fiat?

What he believes we will see, and it’s a credible argument, is that Bitcoin and Ethereum will destroy fiat money and banks as well in the same way that Amazon has decimated the high street retailers and Facebook destroyed MySpace.

He admits that capitalism isn’t going anywhere, but states: “Cryptocurrency is simply a more efficient vessel which allows for its manifest destiny to be realised.”

It’s a compelling argument in my opinion, but what do you think?

What’s happening with the price of bitcoin?

Yesterday bitcoin was just over $7,000 and as I sat down to write today, it was over $8,000. Indeed, the altcoins like ETH, LTC and XRP had also risen significantly overnight. It’s remarkable to think that it is not that many weeks since bitcoin’s price was under $4,000 and now it has doubled.

It’s because of Facebook

The question everyone always wants the answer to is, “What is making bitcoin’s price surge like this?” Billy Bambrough attributes it in part to Facebook ramping up its plans for a token to rival bitcoin. He reported in one of his articles that Spencer Bogart, a partner at venture capital firm Blockchain Capital, said that Facebook’s plans had “lit a fire in the pants of every major [financial technology] and financial institution in the U.S.” Bogart also believes that Facebook’s move into the crypto arena “will be a catalyst for mainstream bitcoin and cryptocurrency adoption around the world, spurring other financial and technology companies to get into bitcoin and crypto.”

Relative strength index is up

Bambrough also says in another article: “Bitcoin’s relative strength index (RSI), used to identify the momentum behind asset prices, this week registered its highest value since the beginning of 2018 — shortly after bitcoin hit its all-time highs.”

What we have seen since bitcoin hit its massive high of $20,000 in December 2017, has been a lot of discontent with the crypto market and a stalling of adoption by major retailers. Still, the leading cryptocurrency always has its stalwart supporters, such as Mike Novogratz and other bitcoin bulls. Their price predictions, while not yet achieved, look a little more likely to happen than they did only a couple of months ago.

Bitcoin follows a pattern

Indeed, analysts from investment bank Canaccord Genuity said they expect bitcoin to rally hard over the next 24 months, potentially returning to its late 2017 highs. They believe that next year’s halving of bitcoin, which reduces the return to miners by 50%, could be one of the reasons that bitcoin’s price keeps pushing higher.

Canaccord’s analysts also noted that what we are seeing right now is “the striking similarity in bitcoin’s price action between 2011–2015 and 2015–2019.” What they are pointing to here is that bitcoin appears to have a four-year cycle, which is related to its halving that also happens in that same time period. They also predict that there may be “a slow climb back toward its all-time high of ~$20,000, theoretically reaching that level in March 2021.”

And there is one other thing happening at the moment that could be benefiting bitcoin’s price, and that is the US-China trade war over tariffs. While the digital assets market is soaring, the stock markets are falling, especially after China announced tariffs on American goods in a tit-for-tat reaction to Trump’s tariffs on Chinese products.

As ever, it is a combination of things that is contributing to the surge in bitcoin’s price, but it is hard to say which one of them is having the greatest effect.

Do we need to know the identity of Satoshi Nakamoto?

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I’ve been thinking about this question over the last few weeks. I was prompted to do this by Craig Steven Wright and the battle between him and others, such as Hodlonaut, on Twitter. Then there was the announcement that Binance was delisting Bitcoin SV (BSV), a cryptocurrency that is connected to nChain, a Wright-affiliated blockchain and Coingeek run by Calvin Ayre.

The problem people have with Wright is that he claims to be Satoshi Nakamoto, or one of the people behind Satoshi and the creation of Bitcoin. Wright’s dramatic claim was backed by Gavin Andresen, former Bitcoin Core Lead Maintainer and executive director of the Bitcoin Foundation. However, Wright has never provided he is Satoshi, or one part of ‘him’, but that hasn’t stopped the claim.

Last week John McAfee also claimed to know the identity of Satoshi and boasted that it had been extremely easy to work out. But, for personal reasons, McAfee declined to reveal who it is. I use the present tense because McAfee claims to correspond with Satoshi, unless he talks to him via the services of a psychic medium. He certainly didn’t suggest it was Wright, but on the other hand he didn’t mention him at all, so perhaps, perhaps, perhaps?

Wright, like McAfee, is known for making big claims, and he has been called out on quite a few of them by big hitters in the crypto world, including Vitalik Buterin of Ethereum, Grag Maxwel of Blockstream and Changpeng Zhao, the CEO of Binance. Even Charles Sturt University (Wright’s alma mater) informed Forbes that Wright had never received a PhD from the university, although Wright claimed he had.

Wright, like McAfee, lives for publicity; It is his oxygen. And by hitting back when he claims he is Satoshi, the crypto community is feeding his addiction by talking about him and sending Google Search trends soaring with searches about him and BSV.

If we want the crypto industry to be taken seriously, we need to focus less on personalities like Wright and McAfee, who potentially discredit it with fiction, and ask ourselves, do we really need to know the identity of Satoshi Nakamoto. Is it not possible to admire the Bitocin network without knowing the identity of the person/s behind it? Does not knowing for sure the identity of the creator/s give the technology less legitimacy? Perhaps one of the Gods can give us an answer to that question.

What will drives Bitcoin’s future price?

In mid April Adamant Capital published an important paper, “Bitcoin in Heavy Accumulation”. It has been publishing these reports for some years now and as it says in the introduction, each time they did so was when Bitcoin was down 80% from an all-time high. In April 2019 it is 75% down from its 2017 high, and this is a good point for investors to enter the market according to Adamant Capital.

According to Adamant, Bitcoin is in an “accumulation phase” right now and its researchers expect BTC to trade at a range between $3,000 and $6,500 until there is a new bull market that “permanently cements the denarian cryptocurrency as a multi-trillion dollar asset.”

The market does appear to be picking up momentum and while it is still experiencing some slight setbacks every few days, the outlook feels brighter. But what is going to drive the price of BTC for the next five years? Adamant Capital suggests there are three key drivers that are worth our attention.

Hold on to decentralisation

Bitcoin must hold on to its promise of a decentralised ‘currency’. But, it also needs to work on its scaling and add more protocols. The Adamant report states, “Bitcoin stays close to its roots of being a lightweight, robust, and universally accessible protocol.” Watch out for Lightning Network developments as well as Taproot and Schnorr signatures that will “improve privacy and smart contract functionality on the network.”

Bring BTC closer to the financial industry

Adamant Capital point to the “financialisation” of BTC and how this may drive the price. For example, in 2017, LedgerX launched a physically settled bitcoin futures platform and CME launched its own bitcoin futures product. In 2018 we have seen partnerships between the New York Stock Exchange and Blockstream o create a cryptocurrency data feed and announced their bitcoin futures platform BAKKT and in 2019 Fidelity Digital Custody, Nasdaq bitcoin futures, and a crypto asset custody solution from Northern Trust are all expected to launch. These are just a few examples and not the whole picture. The report says: ““Bitcoin’s qualities of political neutrality, unparalleled security, globally accessible liquidity, and predictable financial policy are provably improving,” and adds, “As it matures, we expect for Bitcoin to disrupt the $100 trillion investment vertical of Liquid Store of Value, and become a globally used digital gold and reserve asset.”

Millennial power

And the last driver is the millennial generation. According to the report, this is the largest growing demographic in the world, whose disposable income is expected to supersede all other generations by 2029. This generation witness the effect of the banking crash and have also grown up with technology, so it is easier for them to get their heads around the concept of cryptocurrencies, and Adamant Capital suggests they will boost Bitcoin adoption and thus its price.

The report concludes by saying, “Supported by over 10 years of infrastructure development, we believe the stage is set for mass market adoption in the coming 5 years.” And, for those of you thinking of investing, it also suggests that this phase is an important moment of opportunity, because it won’t be long before BTC is widely recognised as a “portfolio hedging instrument and reserve asset, and will begin making significant inroads as a payment network.”