Cryptocurrency: Distruptive Technology Always Excels During Down Times

One factor repeatedly overlooked with cryptocurrency is that it is a technology. Whether the focus is upon cryptocurrency itself or blockchain, the result is still the same.

We are dealing with technology and, as such, it is subject to many of the patterns we see with other technologies.

For example, a major part of technology is hype cycles. There is no doubt that cryptocurrency went through this on a number of occasions. In addition, as the different aspect evolve, we see bubbles forming. This is a monetized version of hype.

Therefore, it is imperative we not overlook the technological nature of all this. It is easy to focus upon the monetary aspect, which does bring an instant component that we didn't see in the past. However, sensing the technological characteristics means we can get some idea of the future.

In this article we will discuss how cryptocurrency will follow the trend of other disruptive technologies.

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Banking Crisis

We are entering a period where there is a banking crisis that is spreading. Do not believe the central banks nor the regulators: this is not close to being over. At the same time, ignore the typical Chicken Littles who are calling for everything to collapse. It will not.

That said, we are approaching a situation similar to 2008 where we see many banks fail. The deflationary money of the last 15 years has resulted in a crossing point where the monetary system is breaking. This is showing up in the commercial banks, the ones who actually do money unlike the central banks.

The United States is getting all the attention. However, the European banks are in worse shape and going to get equally as hard. We already saw the extinction of Credit Suisse. Deutsche Bank has been on the edge for years. In the end, a lot of smaller banks will also find their demise.

We are seeing people being alerted to the systemic issues being experienced. Unfortunately, as is typical, the explanation is misleading and, in many instances, not even correct. The media, central banks, and YouTube influencers espouse a lot, most of it is not quite accurate.

In spite of this, the banking crisis is really a manifestation of something much deeper. This opens the door and lays the foundation for disruption.

Cryptocurrency Providing The Money Required

Much of the problem stems from what is being termed "balance sheet constraint". This is a situation where the banks are limited in what they can do based upon their balance sheets. It all reverts back to assets being used as collateral. Without this, the system experiences deflationary pressures which we are seeing now. Of course, this was the case for the last 15 years as economic growth rates slowed to a crawl. Tens of trillions in lost GDP was the result. This leads many to conclude that we actually are in a depression and have been for some time.

This is the aspect of the monetary system known as the Eurodollar System (or shadow banking). Since the end of World War 2, this evolved into the funding system for global trade. It was established by the banks as a way to generate and direct money to where it was required.

That was, until their balance sheets became constrained.

Essentially, we are looking at private, reserveless money created by the international banking system. It is also a system that is suffering.

Here is where cryptocurrency is the disruptive force. Due to the permissionless nature of blockchain, the ability to create money is in the hands of most people. A bit of technical ability and one can become like JP Morgan. The potentiality of this exceeds the Eurodollar System. We are getting close to a time when 5.25 billion people on the planet can easily operate as the banks did.

Value In The Digital World

What is often overlooked is the value that is generated in the digital world. This is something which differs from the physical.

We all heard of the network effect. This is something that allows for rapid increases in value as people support different platforms. Activity is what generates value and cryptocurrency allows this to be captured by markets.

A token is not going to have value because of its tokenomics. Instead, it will be what is surrounding it, i.e. the utility of the platforms or ecosystems it is associated with.

This is one of the reasons why Libra, the project Facebook proposed a number of years ago sent chills through the existing system. The network effect of a currency like that would be stunning. With around 3 billion users, the Facebook (now Meta) family of applications would drive enormous value to it.

Cryptocurrency is backed by blockchain related projects. These are still in their embryotic stage but expanding. The conversion to Web 2.0 did not take place immediately either. It is always a process since humans tend to resist change. We simply are creatures of habit.

This is why Web 3.0 is so powerful. Consider the value generated by social media. Try to estimate what all the platforms combined amount to in market capitalization. Then factor in the transactions, access to information, and other aspects. Then try to monetize that in a way that captures not only the financial layer but also the social. That is what is overlooked at this point.

Once that is captured, i.e. monetized, we have assets of value, Consider the impact that will have on a financial system that is struggling. Trillions of dollars in liquidity will be created simply because of online activities. If this gets coupled with the financial tools required to build a system, aka decentralized finance (DeFi), we could see a massive shift.

Find a need and fill it is the old saying. With cryptocurrency, there are many areas this will filter into. If economic conditions turn sour, which many believe is already taking place, then we could see the landscape ripe for disruption.

According to the history of technology, this means that cryptocurrency could step in and upset the apple cart even further. Incumbents tend to suffer in situations like this.

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