‘Money Reimagined’ is a weekly column that analyzes events and trends in the technological, economic and social sectors that are redefining the relationship between money and humans or changing the global financial system.
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Over the past two weeks, the cryptocurrency market has fluctuated sharply due to changes in investors’ perspective on the US interest rate outlook. The authorities repeatedly poured out negative opinions saying that speculation on tokens such as bitcoin is serious. In this week’s column, we will analyze the word’speculation’ in detail, and look at what other meanings lie behind this word, which has a negative meaning.
Speculation isn’t necessarily bad
I heard that there is a speculation fever in the cryptocurrency market.
US Treasury Secretary Janet Yellen, European Central Bank (ECB) President Christine Lagard and US Senator Elizabeth Warren recently issued warnings about Bitcoin as “a highly speculative asset.”
In particular, Senator Warren said in an interview with CNBC this week that Bitcoin “will face a bad end”. Tim Lane, deputy governor of the Central Bank of Canada (BOC), referred to the recent phenomenon of soaring cryptocurrency prices earlier last month as a “speculation frenzy.”
The first among them is economist and cryptocurrency pessimist. Nuriel Rubini As a professor at New York University, he used to describe the cryptocurrency industry’s impact on humanity quite often in the negative term “speculation.”
Video of my CoinDesk TV interview today on Bitcoin, shitcoins, CBDCs and all crypto! Why the fundamental value of Bitcoin/Shitcoins is negative! https://t.co/tKXbafoGpl
— Nouriel Roubini (@Nouriel) February 10, 2021
Billionaire investor Paul Singer, CEO of Elliott Management, in an investor letter on January 28 called Bitcoin the biggest bubble and “fraud” in the investment market created by “crazy madness”.
(I’ll talk more about the singer later. I don’t know if Warren, the’Crusade of the Anti-Wall Street War’, would like Elliott Management, a so-called vulture fund that earns profits by investing in bad companies or bonds.)
Before that, let’s talk about something else for a second.
Speculation
This word reminds me of the Dutch tulip wave in the 17th century. A scene comes to mind when unsuspecting individual investors are tricked by scammers to buy tulips at unsustainable high prices and lose everything. The word speculation implies’emptiness, nothingness, bluff, deception’.
Although Yellen and Lagard acknowledged the potential of cryptocurrency technology, their recent comments translate to’unlike traditional finance, the cryptocurrency industry is less credible’.
It is undeniable that there is a speculation fever in the cryptocurrency industry right now. It can be said that speculation is the main use case of recent cryptocurrency technology. But that’s not necessarily bad. The fact that speculative forces are gathering means that the central forces of American capitalism are gathering.Because it is the same as
Impossible Conspiracy Theory
When you look at the word’speculation’, a party who knows the post-war situation tricks everyone into ridiculously raising the price of an investment product that has no intrinsic value, and then they shake off all the quantities from the highs and the rest of the people are pieces of tissue paper. It reminds me of a scene that I hold in my hand.
If so, if all of this is “fraud,” as Singer said, then cryptocurrency would be the most difficult and complex pump-and-dump scheme event in history.
Over the past 12 years, tens of thousands of open source developers all have been conspiring and discussing on a large scale on Twitter, GitHub, and chat rooms, and in fact, conspired to promote that it is a perfectly crafted scam, but a system that does not have the subject in charge. It means that you did it.
At the same time, it will be the most equal scam in history. In the spring of 2020, when the price of cryptocurrency reached its lowest point in two years, the Cambridge Institute for Alternative Finance (CCAF) conducted a study on the use of global cryptocurrency, and it was estimated that the number of cryptocurrency asset holders around the world reached 111 million at that time. .
The price of bitcoin has risen 15 times since then. So, did so many people all set up a scam together?
So what about Elliott Management’s return? In recent years, Singer-led Elliott has made profits by taking the price of bonds far more expensive than the marketplace through a trading strategy at the level of exploitation within the framework of the law.
Elliott filed a lawsuit in a court in New York, not Buenos Aires, in the course of a debt settlement with the Argentine government in 2012. In 2016, he received a repayment of bad government bonds at a high price and earned a profit of $2 billion.
For 12 years, Elliott refused to accept the debt adjustments accepted by the majority of global creditors, and used a court ruling that allowed the seizure of Argentine state property, making it impossible to get the help of the global capital that Argentina desperately needs.
The Argentine government eventually surrendered to Elliott, and an American hedge fund made up of several insiders succeeded in capturing 45 million Argentine nationals and collecting ransom money.
The large-scale manipulation of financial markets can be found in cases of exploitative companies, not volatile cryptocurrency prices. As Warren criticized after the 2008 financial crisis, these cases are so common on Wall Street that they have become part of the system.
The power of Wall Street’s investment banks and their hedge fund customers, which is known as the Great Horse Death, is largely driven by the dollar’s central role in the global bond market and their influence in the government policy-making process. This is what Bitcoin and DeFi (DeFi, decentralized finance) are trying to change..
Spec engine
So, I want you to stop using the exaggerated word “fraud”.
However, as Yellen, Lagard, and Warren pointed out, it is true that there is a speculation craze in the cryptocurrency market right now. Looking at the recent price volatility, no one would say no.
But what’s the problem with that?
Speculation is the basis of a capitalist economy. An economy without speculation means an economy that plans everything from a central location.
Speculation is what real estate developers do when investing in busy neighborhoods, and what insurance companies promise to pay damage compensation in the event of a fire in the house is speculative. Another thing that Silicon Valley venture capital companies do every day is speculation.
Speculation is the engine of American finance. Interest rates, which are the basic layer of the financial system, arise as a result of the adjustment of short and long-term investment products that compete with each other in the bond market, and major financial institutions placing arbitrage bets on these products.
Economist and innovation theorist Carlota Ferris said at a consensus 2020 hosted by CoinDesk US in May that financial speculation plays a vital role in igniting a major wave of innovation across the economy in a period of rapid technological change.
Now, cryptocurrency can play both of these roles in the speculative engine, and it can also be applied to a new model with no intermediary to collect fees in the middle. It is not yet known what will evolve in the future, but in the financial system of the future, Bitcoin could be used as a programmable basic collateral, and DeFi could be used as a governance system that manages credit, insurance, interest rates, and payment systems.
The difference between the speculation that is taking place in the current traditional market and the cryptocurrency market is that the former is an environment that leads the way in liquidity and efficiency. The opportunity for arbitrage trading due to price volatility decreases rapidly, resulting in relatively high price stability and a more reliable criterion.
In both markets, the process of narrowing the arbitrage gap continues, and this process is accelerated when a positive feedback loop is formed between speculation and technology. When trading bonds on Wall Street, we can see that the electronic trading method not only increased the volume of transactions, but also reduced the difference between the selling and buying prices called by banks.
DeFi is also seeing this phenomenon as innovation progresses at an alarming rate. Speculators are well aware that investing in technology before further evolution can lead to profits in the future as efficiency increases. The more speculators enter the market, the more fully innovators can develop the technology, and the more valuable the system is.
Speculation frenzy? I think it’s okay for more speculative forces to flock.
Bither (Bitcoin + Ether)?
If we have listed only the merits of the speculation craze in the cryptocurrency market so far, I would like to ask you one last thing to note.
Investors these days are a cryptocurrency and traditional market, and they do not want to consider the differentiation between assets, and this speculative trend is by no means ideal.
In response to the surge in US Treasury yields over the past week and concerns about the Federal Reserve’s premature taper (reducing quantitative easing), the market has shown a shift in the overall mood. Whereby Investors are now dismissing all assets other than the dollar as’risk assets’.
Stocks, bonds, and cryptocurrency assets all fell in price whenever concerns about an interest rate hike emerged, and when concerns disappeared, prices continued to rise again. This suggests that the market’s overall reliance on the Fed’s quantitative easing policy has grown day by day.
This phenomenon was particularly noticeable in the cryptocurrency market. It was a pity to see investors wandering in search of a place to invest with liquidity, as if the underlying technology of Bitcoin and Ethereum were the same technology, equating Bitcoin (BTC) and Ether (ETH), which are distinctly different digital assets.
Looking at the trading charts of Bitcoin and Ether over the past week, there is a clear correlation between the two so that it cannot be called a’bither’.
Now is the time to differentiate between Bitcoin and Ethereum better than ever. Bitcoin is a programmable store of value, and has established itself as a reserve asset called’digital gold’.
On the other hand, Ethereum is trying to be used as a new system for value exchange and organizational structure as a universal protocol for building decentralized apps (dapps). Of course, to some extent, the fates of the two are similar, but we must not forget that they are completely different projects.
As mentioned earlier, speculation is an essential element in the financial system. However, when speculation is based on expectations for differentiated assets, the effect increases. Isn’t it a problem that the market’s excessive speculation craze is not a problem, but the fact that the Fed has made itself the only important speculation item?
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