The bittersweet cryptocurrency revolution

The irony of being hijacked by what you are trying to replace

The revolutionary technology of the blockchain may have emerged at an inconvenient timing.

The technology itself is revolutionary beyond any doubt: it enables triple-entry bookkeeping, centuries after the revolution of double-entry bookkeeping that emerged in the Italian Renaissance. Crypto-currencies are currently the only viable application of this technology, but this application alone will surely penetrate lots of spaces in our socio-economic domains.

And the fact that it is a distributed form of money (without any central control) also promises that governments, (central) banks and other authoritarian powers are unable to devaluate this currency for geopolitical reasons or other manipulative measures. It therefore holds some kind of protection for its owners. A truly global currency for the people.

These 2 aspects, triple-entry bookkeeping and its distributed (or de-centralized) nature, are absolutely charming, and definitely a way forward.

So far for the sweet.

Meanwhile, in fiat-land

However, the technology arises during the most severe and absurd yield-crisis in our financial sector we have ever seen. A pending crisis of the global financial system, where central banks are out of instruments to get inflation to 2%, or interest-rates at healthy levels; where the balance-sheets of central-bank quadruple within decades, just as some government balance-sheets. A market that is so rigged and artificial, and insensitive to capital-allocation, that it is very hard for investors to find places that have some chance of outperforming the stock-indices. We are witnessing a huge shift from active investments (investors putting money in promising startups, emerging markets, etc) to passive investing (where you just follow the stock-indices, the basket-funds with the biggest stocks of some exchange in it).

Without going into details of this yield crisis and why it’s absurd, the point here is that this crisis is pushing a lot of creativity into wild-west-style activities. Banks are behaving like drug addicts, showing even more extreme pathological behavior than before 2008. Some banking-staff are even leaving these desperate organisms for places that promise more chances of big profits.

The crypto-currency space is one of these places. And a lot of other players are entering this space as well, and they bring a lot of wild west services that we know too well from previous bubbles.

Some examples of these wild-west services you should not want in the crypto-space, but have arrived already:

  • a huge amount of ICO’s (introduction of new crypto-coins, as investment tools for startups and such), which is obviously attracting a lot of speculative money, creating all kinds of bubbles
  • services that facilitate the lending of crypto-coins, to speculate with
  • ETF’s (index-trackers) based on crypto-currencies

There has even been a flash-crash already, with the second most important crypto-currency.

All of this, literally ALL of this, is purely speculative capital, and it is entering the crypto-currency space so aggresively because there is a yield-crisis in the fiat-currency space.

Fiat-money is actually hijacking the crypto-space

This influx of speculative capital is distorting the volatility and the liquidity of the crypto-currencies in such a fashion, that they cannot serve their original purposes anymore (it’s barely even used for actual regular payments for products and services), and in effect, they are denied their paths of organic and evolutionary growth into the healty alternative of the fiat currency they are trying to replace.

And since the central banks are doing ‘everything necessary’ to keep the (fiat-)markets going (i.e. manipulated, to suppress the crisis-aspects), and the global yield-crisis does not show any signs of recovery, it may take a lot longer for the crypto-currency revolution to revolutionize.