economics

Decentralized Finance and the Future of Cryptocurrency

As some of you know, I studied economics as part of my undergraduate coursework. While I don’t use the degree for employment, I do use that knowledge for financial investment and market understanding and speculation. April was an incredibly good month for cryptocurrency, and with it, it is becoming evidently clear that crypto and DeFi (decentralized finance) will be the future of the Western World as well as East Asia, and those places that are banning crypto (like Turkey) will be left behind (and those who wait too long to consider investing in crypto will also be left in the dust with the eventual movement away from centralized fiat banking).

Any student of economics knows two important things about our modern economic and banking system: 1) Money doesn’t exist; 2) central banks hate competition. Because our economic system is premised on fiat paper currency, unbacked by any real hard value, money is essentially worthless. It is worthless because its only value is the faith we place in it as a medium of exchange for goods and services as well as legal debt backed by the manipulations and policies of our central banks. Additionally, market competition always tends towards monopolization or integration. Competition is good, but competition is bad. In what sense? Competition drives innovation, this we know. But competition is not something that established institutions like. Central banks, as such, despise competition and try to ensure their monopoly on the economic market (hence the elimination of the Gold Standard and the lukewarm reception to cryptocurrency and the DeFi movement).

For the past half decade, the worry about crypto currency was that as an alternative to our fiat central banking system, its competitive nature would force central banks and governments to take action against it. In other words, to ban it. Turkey, in fact, did ban the exchange of Bitcoin in the middle of April causing a small price drop.

However, that’s what Turkey did. Looking elsewhere, we see a changing economic thanks to decentralized digitization, technology, and bullish investing internet forums. Coinbase went public and began trading on the NASDAQ in April. This was an excellent indicator in the US for the future of crypto. The IRS has been taxing crypto for some time, already indicating its reluctant acceptance of the reality of cryptocurrency as an investment and the SEC also monitors crypto exchanges. But with Coinbase trading publicly, the future of crypto seems here to stay. For good. (The President of the New York Stock Exchange expressed the same sentiment this month and disclosed that he had invested a substantial amount of money into cryptocurrency for the NYSE’s future digitization.)

Several major US companies have begun offering crypto as part of their economic packages. Beside Elon Musk being a champion of crypto and filing with the SEC to have Tesla accept crypto as a legitimate currency of exchange, Morgan Stanley has offered its clients access to Bitcoin funds. Venmo and other major companies like PayPal and even Starbucks are in on cryptocurrency. WooCommerce and Shopify are equally making moves into the crypto world.

With crypto going mainstream in the United States, this will force the Federal Reserve and the U.S. Government to integrate with crypto, but crypto will stay ahead of the curve as it has over the past decade through smart entrepreneurship, digitization, and technologically outpacing the bloated and Neanderthal mechanisms of the US Government, Federal Reserve, and IRS which do not drive technological innovation but adapt to technological innovation. This is why, as we all know, Big Tech has so much power.

As such, hawkish banks (like Morgan Stanley and US Bank) will begin to quickly offer crypto to clients. Other large banks with a lot of financial leverage will undoubtedly follow. With online pay stores increasingly moving to accept cryptocurrency (especially Bitcoin) as a legitimate currency of exchange, banks and investment firms that do not join the emerging crypto market will also be left behind. We no longer live in a physical global economic market. We are entering the stages of a digital global economic market. And cryptocurrency is far ahead of all competition, fiat currency to credit, in this regard.

China, the other main mover of the global economy, has also shown signs of accepting the cryptocurrency reality. A Chinese investing company, at the beginning of April, dumped millions to mine Filecoin. Chinese officials have also said that they see crypto as an “alternative investment,” indicating a positive Chinese reception toward cryptocurrency. With Chinese companies investing in crypto, crypto will become a mainstream asset in the other major national economy. And as we know, as the US and China goes, so too will Europe and Latin America. (Deutsche Telekom is also investing in cryptocurrency.)

Since there doesn’t appear to be any serious threat to cryptocurrency anymore with its acceptance into mainstream markets, earning praise from the likes of Mark Cuban, Dan Morehead, Nigel Green, and many others, the next test is not integration but how central banks will react to the new economic realities posed by cryptocurrency and decentralized finance and independent investing. (Wall Street, of course, has also adapted and accepted the new realities of crypto.) As mentioned, it is highly probable that within the next year or two most banks, with the tacit support of the Federal Reserve in the United States, will begin accommodating crypto.

Growing technological changes and increased digitization will pose a problem for traditional banking. But with cryptocurrency crossing an important threshold in April, its mainstream appeal and integration into the established institutional market, this only bodes well for crypto going forward. Central banks won’t be able to compete and will not be the ones who integrate crypto into the future, on the contrary, the central banks will adapt to the future charted by cryptocurrency and DeFi in order to remain relevant. DeFi will, most likely, replace our antiquated and centralized and burdensome system of central banking finance and transactional wiring. As such, cryptocurrencies that fuel DeFi will likely skyrocket sometime this decade. (Notwithstanding the traditional cryptocurrencies like Bitcoin and Litecoin.)

Faith in crypto will now only grow. The bullish predictions are likely to come true despite the volatility of the crypto market (and crypto will remain extremely volatile despite having huge upswing potential). Those who are wise about the future of investment, especially now when other cryptocurrencies are still very affordable with a lot of upswing potential, may well be sitting pretty by the mid, or even end, of the decade. The Boomers who have been sour on cryptocurrency are stuck in Old Order thinking. They are ideologically and egotistically invested in achieving the irrational and centralized social democratic fiat utopia and will be left behind with increased digitization and technological advancement. No amount of Nobel Prizes among these fiat currency Neanderthals will forestall the inevitable.

When the USD as the world’s reserve currency collapses, probably some time this century, that will mark the end of the fiat experiment in economics. While the USD and other fiat currencies will remain, gold or crypto will likely replace the fiat model for something either more stable (gold) or something new and energetic with serious investing and institutional backing (crypto). In either case, crypto seems poised to be a now permanent fixture in our global economy.

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