By Arun Kumar Shrivastav
The year 2021 is bidding adieu and the media is replete with year-ender analysis, features, and podcasts to look back at the year that it was. Two such articles in the crypto space are worth a mention today.
First, billionaire investor Ray Dalio, who founded Bridgewater Associates in 1975 in New York that later became the world’s largest hedge fund, talked on the LexFridman Podcast about the era of competitive monies that the world seems to be ushering in.
Second, in an article and podcast, managing editor of Coindesk Nik De speaks about the 5 ways money was reimagined in 2021.
Dalio predicts a mushrooming of alternative coins in the long run and a fierce competition among them for dominance. He tries to dissect the reasons why bitcoin is among the most exciting topics among a lot of people. Its price performance and global adoption has enabled Bitcoin to dominate the markets as an asset. Dalio says that he supports bitcoin for the way it has proved its value and character over the years. The fact that the bitcoin network was never once hacked in all these years shows it is here to stay.
The most notable thing that Dalio reveals about bitcoin and cryptocurrencies is his belief that the world is slowly moving towards having competitive monies rather than just the fiat currencies. The move is a result of excessive supply of fiat currencies that take governments to just print them.
“I think we’re entering an era where there’s going to be a competition of monies. Because of the printing of fiat money and the depreciation value, there will be a competition of monies, and bitcoin is part of that competition,” Dalio says.
Apart from bitcoin and altcoins (digital coins other than bitcoin are called alternative coins or altcoins), central bank digital coins (CBDC), non-fungible tokens (NFT), and stablecoins will also assume the status of digital assets. In the new era of competitive monies, they all will compete among themselves. The beauty of a competitive system, he says, is that it allows people to classify things into what is worth to be treasured and what needs to be trashed.
Money serves two basic purposes. It is a medium of exchange and a store of value. Decentralized monies such as bitcoin perform on both counts.
Dalio, however, disagrees with others who believe that in ensuring competition between monies, bitcoin can emerge as the apex money. He thinks gold has an edge because it’s independent from any connected systems; it’s not traceable. Dalio doesn’t think biotin can ever rise to $1 million or its market cap to $10 trillion.
The second article talks about the developments that made cryptocurrencies one of the most debated agenda the world over and how the very basic concept of money came to be discussed thoroughly and vigorously, something that has never happened at least in the past one century.
It throws spotlight on the five ways money came to be reimagined during the year.
First, the monetary system needs to have a shared belief in what constitutes common value. Art, music, stories, and other popular cultural products can become different forms of money as they tend to reflect timeless value. The rise of memecoins such as dogecoin and NFTs point to this shared belief of common value.
Second, the political class has largely chosen to remain unimpressed by the rise of bitcoin and cryptocurrencies, and they tried to ignore it altogether. But 2021 saw many lawmakers and governments debate over it that exposed the strengths and weaknesses of the alternative monies for everyone to see. Governments are now considering taxing crypto income and actively thinking of bringing legislation to regulate the crypto sphere. It shows the political class is forced to rethink their strategies.
Third, as an element of geopolitics, the rise and popularity of cryptocurrencies have nudged the governments to come up with CBDCs and most governments around the globe are working towards them. Taking a step forward, China is testing the Digital Currency Electronic Payments (DCEP) system that think tanks believe can end the US dominance on the global financial systems.
Another example of cryptocurrencies becoming a sensitive matter in geopolitics is how China banned bitcoin mining in the country, leading to a spectacular crash of the legacy coin on the exchanges. However, bitcoin recovered within a few months, and most of the bitcoin mining centres moved to the US.
Fourth, the decentralized money and financial system that’s emerging on the horizon has a predominant social factor. It has come to the rescue of the marginalized black community in the US and the shadow government in Myanmar. NFTs are seeing celebrities from Melania Trump to Amitabh Bachchan experimenting with the idea of alternative money or store of value.
Fifth, the money is being reimagined around the dinner tables in an increasingly large number of families the world over. It’s being debated in parliaments. Central banks are agitated over the emerging scenario. Year 2021 saw cryptocurrencies becoming a top global agenda.
As people gather to say goodbye to the year that 2021 has been, Dalio’s prediction that the world is moving towards an era of competitive monies where fiat currencies will compete with decentralized monies opens up many interesting vistas.
The year 2022 is surely going to see some momentous twists and turns in this space. Watch out! (IPA Service)