Finding NeyMo [nee-moh]: Cryptocurrencies and Stamped Paper out of Thin Air and/or Shallow Sea (I/II)

Thinking out loud like Ed and making myself lots of questions searching for answers. People fall in bubbles in mysterious ways and maybe it’s all part of a plan. Well, will I just keep on making the same mistakes hoping that someone will understand?

Photo by David Clode on Unsplash

Let’s think of today’s financial formal and legal system as an almost human body. The heart that pumps the blood are the Central Banks issuing money, the brain that processes and stores information is politics setting the context and the arms and legs are the factors of production (land, labor, and capital) offering goods and services. The cells that circulate in this organism function trusting that the institutions mind, heart and extremities will always do the best for their subsistence.

In the new and embryonic decentralized financial entities, bits unanimously trust a single distributed, blurred and reportable system. The genetics of this virtual entelechy are formed as it grows without preset parameters or contextual limitations, therefore it can be changeable and unpredictable.

Physical body and aerial entelechy currently coexist in a symbiotic association not yet parasitic. The physical and the spiritual transform the analog into digital (and vice versa) and links become money.

In May 2020 The Money Project tried to find out how much money with maximum liquidity (Narrow Money) there was in the world: $35.2 trillion dollars. And the Broad Money was $95.7 trillion dollars. Gold reserves represented $10.9 trillion, the world’s 3,000 richest people hoarded almost $8 trillion, and the Big Five (Amazon, Alphabet, Apple, Meta, and Microsoft) accounted for 24% of Fortune income. 500 companies. What does all this mean? An absolute no-brainer: there is plenty of money in the world.

In addition to that bulky plethora of riches, a new stream of coins has been arriving outside the centralized system that fall from the sky like summer rain, drenching everything in its path. According to CoinMarketCap in December 2021 the global market for cryptocurrencies is 2.15 trillion dollars ($ 2,150,375,378,668). There are 15,610 cryptocurrencies in its database, 447 exchanges and Bitcoin (BTC) represents 41.3% of total cryptocurrencies and 6.1% of all global liquidity. This in just 13 years!

This inordinate release of coins and tokens may or may not be part of one of the five stages of a financial bubble (Investopedia):

  1. Displacement and falling in love with the novelty, with the new paradigm. Something unexpected and dazzling appears: Blockchain and its offspring Bitcoin.
  2. Boom: more and more people are joining the event. Newcomers are welcomed with open arms. FOMO.
  3. Euphoria, nobody wants to be the last to arrive, irrationality seems to dominate everything, and any price is justified and justifiable.
  4. Unconscionable profits for the pioneers. The ‘Smart Silver’, knowing that the bubble is about to burst, begins to sell.
  5. Panic: any minor event can unleash an irrepressible disaster that makes the bubble burst.

Are cryptocurrencies the absurd waste of money of a financial bubble? If so, what stage are they at? Will Bitcoin have a monetary policy? What will determine its booms and busts?