Biden, Musk and Bezos’ hiring: My Outlook for Crypto for the rest of 2021
Crypto is one of those extraordinarily complex topics, where few people are experts, yet everyone seems to have a view. Often, the less expert knowledge people have, the stronger (and louder) their opinions. A bit like how the pandemic over the past year has us all talking about ‘R-numbers’ and ‘regional variants’ like mini-immunologists, every Kevin, Sharon and Uber driver (with all due respect) seems to have a strong view on crypto.
Sure, I don’t have a PhD on the topic, but my finance background has given me enough understanding to hazard a guess on which developments might matter - and which probably won’t. So here’s my opinion!
Elon states the obvious, Bezos gets hiring
Most of us know the narrative: Musk announced in March that Tesla would accept Bitcoin and had bought $1.5bn in the currency, resulting in its price surging 20%. Then in May, he reneged due to ‘climate concerns’, leading it to drop by a similar amount.
The questions that struck me: “Why on Earth did you invest in BTC in the first place, then? You should have known about the (old and ongoing) ‘crypto mining energy debate well beforehand… considering YOU are the ‘driver’ of EV technology and the creator of TESLA!? Did you do ANY research on BTC before investing your $1.5bn?!’
Maybe I give him too much credit, but he is one of the world’s foremost tech experts, Tesla has a long-standing commitment to carbon neutrality, and crypto mining now accounts for as much carbon output as Malaysia, Argentina, Sweden and The Netherlands. The idea that he didn’t fully appreciate the climate implications seems a little ridiculous to me!
Other explanations - even inflammatory ones, such as that he might have been using announcements to manipulate prices - feel more likely. But really, it would have just been nice to see a suggested solution to climate concerns around crypto. Perhaps Elon could make a useful contribution on how to lower the energy footprint of crypto mining?!
As we look to the remainder of 2021, expect to see Mr Musk’s commentary continue, especially over Twitter. Indeed, it’s been continuing over the summer; in an interview with Twitter founder Jack Dorsey he recently said that ‘DogeCoin is money’, surging the satirical coin’s value.
It’s not just Elon getting his teeth stuck in. Jeff Bezos’ Amazon announced they would be hiring a new crypto lead, leading to massive speculation the platform would accept crypto soon. It’s probably just a matter of time until online stores start using it, maybe not in 2021, but surely soon! And the job posting saw BTC rally past $40,000!
A new role for Bitcoin?
Ethereum’s price has grown three times more than Bitcoin’s over the past year, and now has a market cap around one third the latter’s size. Just as Netscape was the pre-eminent browser in the late 90s but failed to retain its market share to newer, better competitors, I have a sense that Bitcoin’s ‘raison d’etre’ has its limits. Scarcity in supply is NOT a sustainable long term business model that creates value.
While Bitcoin’s blockchain has a clunky, first-iteration feel, Ethereum’s is slick, scalable and has features - like smart contracts - that make it attractive to serious investors. Crucially, ETH is being APPLIED by its customers! Most experts now suggest that if 2021 is not the year of Ethereum, 2022 will be; it already tallies 3.5 times more transactions than Bitcoin.
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That’s not to say Bitcoin will become totally obsolete. Over the coming years, I foresee it taking on a new role, something akin to gold or high-end art, where its scarcity makes it a useful place to store value; a ‘vault’ of sorts. Some experts say it may be the best instrument to hedge against inflation…
Bonjour, global regulation!
The Governor of Sweden’s central bank has come out in support of regulation of Bitcoin, while China’s crackdown on the currency is ongoing. Eventually, government intervention always comes to any large industry or asset, and crypto is no different.
The difficulty for regulators will be enforcement. While China outlawed financial institutions from dealing with crypto-transactions, that’s where its action ended. But millions of transactions will continue under the radar. For the moment, there is no systematic way of stopping them.
Plus, let’s embrace regulation! It means that the ‘big levers’ are taking this new asset class seriously! Isn’t that a hint in itself?
Just look at the recent news that the European Central Bank is planning to create a digital-first version of the Euro that would ‘complement’ rather than replace the existing monetary system. Or how American legislators have introduced plans for more oversight and taxation on crypto transactions - bringing the asset further into the mainstream financial sphere.
This is the way to do it! Embrace crypto and regulate it meaningfully, don’t see it as a foreign or scary thing that needs restricting!
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The future of cryptocurrencies is so exciting, but for it to transition to a respected, sustainable asset class, a few things need to happen: miners need to use renewables, governments need to root out illegal activity (BTW... have governments ever managed to crack down on money (cash) laundering?!) and crypto-celebrities need to stop flirting with publicity (you know who I’m talking about).
If all three happen, it won’t just dominate the headlines. It will do so for the right reasons!