“THE FAILURE OF MONEY to serve as a stable and sensible unit of measurement for financial transactions has caused innumerable financial dislocations. The dislocations caused by inflation or deflation are so well known that the public in virtually every country of the world has become fixated on the uncertainties of the value of money.”

Robert J. Shiller, Author or Irrational Exuberance

A Rising Tide Lifts All Boats?

The creation of money digitally through simply marking up a private central database as well as by physically printing it the old fashioned way onto banknotes are the primary methods of managing the flow and supply of the total stock of currency in a modern economy. If people value their time in money meanwhile the total supply of that same currency they accept hypothetically increases double in size of what it was previously, it equates to a theft of the value in their pay relative to the actual wage they earn requiring them to work twice as much to make up the difference. The reason for the widening dislocations mentioned by Shiller in the quote above can be attributed to the fact that anyone not able to achieve an income exceeding their costs of living including any debts and taxes cannot realize the level of savings necessary in which they could use it to invest and make their money “work for them.” The slim percentage of the population that has or have earned enough money for themselves to invest in diverse portfolios full of alternative assets, conventional fixed income instruments, traditional mixes of stocks, real estate holdings, and risky vehicles that exclusively offer cheap shares of startup companies not available to the public or retail markets sees the greatest benefit in the manufacturing of more money because they are well protected and positioned to even profit from it happening.

Cantillon Effects

The Cantillon Effect is a reference to the change in prices resulting in a change in the money supply. It refers specifically to the change in the relative prices occurring because the change in the money supply has a specific injection point and flow path through the economy, think of it as an examination of “trickle down economics.” In the financial system today, the first recipients of the new supply of money are the players in the convenient position of being able to spend and invest extra dollars before prices have increased leaving whoever is dead last in the line receiving their new dollars after prices have increased. In essence, it boils down to depict the government seizing purchasing power from its citizens (through what is considered a non-legislated tax) rather than collecting their money with congressional approval in attempt to close the federal spending deficit, for an example.

Evolution of Money

There is a movement rising as a silent protest against the centralized financial system that’s pushing to decentralize and democratize it. “Everything dies, baby, that’s a fact but maybe everything that dies some day comes back.” Similar to the prophetical lyric from the The Band’s song “Atlantic City,” just because the centralized financial system may be appearing to slowly be showing signs of its fall doesn’t mean that it is not going to come back in some new form. There are serious talks beginning to focus on the launch of unexciting forms of blockchain technology to use its decentralized architecture to issue, monitor, and track government-backed assets as well as central bank digital currencies (“CBDC’s”) although they will still be governed by same few people from the same centralized institutions in control today by giving themselves backdoor access to use the minting power as they wish which completely defeats their purpose and value proposition.

The Great Flood of Fiat

Money is raining down from the central banks around the world. The flows they are facilitating with the increased creation of currency is culminating in what would be seen as a tsunami of currency in proportion to what is considered an already saturated market that many regard as overvalued. The everlasting expansion of the money supply will eventually crunch its value in a devastating manner that wipes out much of the remaining trust that the macro economy has for assets denominated in fiat reserve currencies. Hence, the reason why bitcoin and crypto assets were created with their transparent and verifiable units of account plus are being seen as potential stores of value and forms of insurance for having finite as opposed to infinite supplies and presenting a new-fashioned solution to our growing problem with fiat currency.

Flight to Bitcoin and Crypto Assets

Fiat currencies whether people like it or not are not automatically better for being on some distributed ledger technology if the same forces causing their downfall now remain in power with the rise of CBDC’s, and they will provide less in terms of innovation from what already exists today in financial technology as well as compared to bitcoin and crypto assets that are censorship-resistant, fixed to hard supply caps, and programmable. Considering the costs, lack of speed, and vulnerabilities to counterfeiting associated with fiat currencies makes an attractive investment case for bitcoin as an alternative asset and payment network to the legacy financial system. As a non-sovereign asset that is neutral to any country’s government or political regime that could use its influence to create any excuse necessary to debase their national currency despite its reasons for doing so being justified by the citizens, bitcoin is looking to give shelter from the coming storm. The bottom line is bitcoin looks like it might actually be able to withstand the flood of global currencies and act as a flight to safety if its price were to sail into the six or seven digit range or even hold its value relative to the rising tide and tumult in fiat.

An investment in any asset or strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. Nothing written above may be considered as an offer or solicitation to purchase or sell securities or other services. The trading and investing ideas and strategies discussed above are not recommendations to buy or sell any security and are not intended to provide any investment advice and/or recommendations of any kind, but are made available solely for educational and informational purposes. Before acting on information from above, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.