Applying old world logic to new world thinking?
Applying old world logic to new world thinking is ridiculous. Warren Buffett shunned technology stocks and missed the tech boom for this very reason.
Speaking of the “Oracle of Omaha”, he and his sidekick, Charlie Munger, are now busy touting the demise of crypto. In my mind, they are again using old world logic.
With the advent of the Metaverse and people paying a lot of money for virtual land, avatars, virtual jobs, and the like, I see a future of not just virtual reality – but virtual lives. This makes crypto seem much more plausible.
The golden paradigm
Before we delve into crypto, lets first look at the most precious of old-world coins: Gold. Gold has very little intrinsic value, aside from its use for jewellery. Gold is mined at great expense, expending energy as it’s moulded into blocks or minted into coins and stored in a safe or vault. This is totally insane! Think about it – you are taking gold out of the most secure place possible (deep in the ground) and putting it in a safe or vault – and then applying a value.
You can then go (in most cases) to a stockbroker to buy some gold and receive a digital statement (i.e. a line of code) to denote the value you own.
In essence, gold has a value because people have decided it has a value, and because supply and demand determines the value against government-issued currency, such as the USD, the Euro or the GBP.
Similarly, Bitcoin is mined through the expenditure of energy, and can be bought or sold – again, with the issuance of a digital statement (i.e. a line of code). The Crypto Exchanges play the role of stockbroker in the crypto world.
Again, in the same way as gold, Bitcoin has a value, because people have decided that it has, and demand determines its value against government-issued currencies, such as the USD or the GBP.
Bitcoin has a great advantage over gold in that it is an accepted currency, which is used to buy and sell things in much the same way normal currency is.
Because crypto is a relatively new store of value, prices are volatile. This volatility is exasperated, since all it takes is a tweet from a well-known personality (like Elon Musk), and crypto values swing. Nonetheless, as crypto becomes more widely accepted as a currency, this volatility will stabilise. Crypto will become more widely used and, in my mind, overtake the traditional fiat currencies.
As with everything in life, time will tell, but as world citizens we should shun the ability of our governments to use financial instruments to increase and decrease the amount of currency in circulation. This then defies the rules of capitalism and controls supply and demand (and hence currency value).
In my view, as we progress in generations, the younger ones will be less risk-averse around digital assets and the current world financial systems will be severely diminished in power.