Yesterday the Bank of International Settlements issued an annual report with a 24-page chapter discussing cryptocurrencies. The report is critical of cryptocurrencies and the premise of decentralization. It argues that cryptocurrency lacks the stability in value and pricing brought about by a centralized payments system. While I am not surprised by the report’s bias toward centralization (BIS is after all the central bank of central banks), I appreciated the detail the report went into when describing decentralized ledger transactions and comparing that system to a centralized, central bank-based system.
The volatility of cryptocurrencies like Bitcoin experience may be enough for most consumers to ignore cryptocurrency as a store of value or a medium of exchange. As was a little perplexed last year when I saw a number of black Americans pushing cryptocurrency as the next big and best bet for achieving wealth. The sidewalk marketing was being done in an environment of unexplained rising Bitcoin value. I am not lying when I say I felt good about Bitcoin falling from highs of about $20,000 end of last year to around $7,000 today. These people I saw riding buses through Brooklyn telling people to get onboard something so bloody technical that most never understood it needed a reality check, and the relative quiet I experience on social media from the silence was refreshing.
More importantly a pullback invites putting cryptocurrency and money in the proper perspective. First, analyzing new currency spawned by financial technology requires separating ourselves from the emotions. In the American black community, the first cool dude with swag that can push the right emotional buttons on a people who are over-indexed on emotions will win the day, at least temporarily. Sheep, as Jim Cramer is fond of saying, get slaughtered.
Second, analyzing currency should come with the realization that we understand little about currency, money, markets, and economics. We conflate markets with consumerism and that is a mistake. Consumerist activity is low hanging fruit; easy to grasp because we are quick to meet our emotional needs with a gift bag. Meanwhile, those pushing Bitcoin on us didn’t have a clue as to the economic justifications for the increase. They asked us to view crypto the way we go out and buy houses and cars: come on down because the price is right. That kind of thinking, like the show, is corny.
Currency, whether digital or real, contains a message about an underlying economy. Cryptocurrency has no underlying economy. It cannot transmit messages about the value of an underlying economy because there is no underlying economy to begin with. The realities of an underlying economy keep a currency in check with market transactions providing consumers and producers with information as to how well the economy is doing and whether it is viable enough to project the “good faith” backing of a currency. Crypto does not have an underlying economy. While more vendors are using it, its use is nowhere near the use of real currencies.
For black people to push crypto on poor black people was abominable.
What the high price for a Bitcoin tells us is that if an underlying economy is developed, it will not be a world where the poor will be allowed to play. The price is transmitting a prediction about exclusivity. For example, urban cores like Atlanta, New York, and San Francisco are pricing the poor and middle class out of housing and other amenities. Why not develop a currency that reflects that new reality? Has it ever really been about inclusion or does the reality reflect exclusion?