filmysector
I had a reputation as a crypto basher, and as a result, I was widely labeled as a Luddite, a techno-literate, and a lot of talkers. To die-hard fans of crypto, my statements are defamatory. Crypto is not to be questioned, those who question it are pathetically technologically illiterate creatures. All my education from the top engineering schools in the country seemed like a waste of my time and taxpayer money.
My tango with crypto started very late when famous TV host Saiti Narula invited me to his TV channel in the second half of 2018 to explain what crypto is to the audience. Given my years as an adjunct professor at IIT Delhi, I immediately dived into the heart of crypto and said that crypto really doesn’t have a heart. Years later, the RBI governor pointed out that there was not a single tulip in favor of cryptos, citing the 17th-century tulip craze that saw prices of tulips skyrocket without rhyme or reason.
Now, what happened a week after that televised debate is even more remarkable. Cryptos, led by their flag bearer, Bitcoin, lost a huge amount of value, which in total exceeded the total GDP of Pakistan. The sheer coincidence between my televised discussions and the massive crash in the value of cryptos the very next week made me look like a clairvoyant, and Sight invited me back the following week for a follow-up discussion on why cryptos are doing the way they are. Ponzi scheme. It’s an “I told you so”. The price of Bitcoin dropped from $20,000 to $3,000 during that year. A huge loss of value by any standard.
Four years later, with Bitcoin returning to new dizzying heights, and after several scathing articles I’ve written on crypto and presentations to parliamentarians, we’re back at a point where cryptos are destroying massive wealth. It was astounding that in the first quarter of this year, I was invited to judge a policy event where participants had to present how they would convince policy makers to create a more encouraging and supportive ecosystem for investing in young people in this country. ” in Cryptos.
In 2018, the loss of value of cryptos was more than the GDP of Pakistan, and by July 2022, the loss of value of cryptos is close to the value of the total GDP of India. This is a huge loss. India is the fifth largest economy in the world.
This loss is attributed to high inflation in the US and around the world, extreme market conditions and many other factors. At the heart of the issue is the fact that all forms of crypto, whether stablecoins or not, do not support anything of universal value. Crypto flag bearers argued that gold or art or any other heritage value. Commodities like gold also have no intrinsic value. And multi-million dollar paintings have no intrinsic value. However, these arguments are superfluous and cannot be the basis for drawing parallels with cryptos. A painting is valuable to select individuals and, therefore, is never used as legal tender for exchange. It is not currency. Therefore, the fact that some people believe that a painting has value is not a basis for concluding that a painting can be used as currency. On the other hand, it took thousands of years for people and nations to treat gold as a universal value, and therefore, gold coins were a legal medium of exchange. Do the majority of people on the planet see crypto as a universal value? Clearly, the answer is a resounding no.
Now, if any universally recognized commodity does not have its own value, it must at least be backed by something valuable, such as gold or some significant economic activity. Prima facie, it is not clear on cryptos, hence the RBI governor’s statement that cryptos are not backed by even a single tulip. Clearly, my declarations that cryptos are digital ponzis in 2018 still stand.
However, as I mentioned in one of my articles last year, the US dollar also has the characteristics of a crypto in that it is not backed by any asset. The US dollar was decoupled from gold in 1971 because there was a run on the US dollar and not enough gold to pay the demand. However, the US dollar continues to be a store of value because it is supported by the huge US economy and its global trade and energy trade around the world, which is mostly done in the US dollar, which also leads. For the term “petrodollars”. So, if any other country needs to buy oil or gas to fuel their economy, they have to have US dollars to buy it, which drives the value of the US dollar.
Do cryptos support such an economy? Surprisingly, the answer is yes. I’m not even mentioning El Salvador and the Central African Republic, which clearly lack mature central banking institutions and therefore rushed to accept Bitcoin as legal tender. I am referring to dark e-commerce of all things referred to as the dark internet. Imagine the plight of people selling guns, drugs, and hacking bots when e-commerce took off, where you could buy anything from the Internet, and they couldn’t transact on the Internet using conventional fiat currencies like the US dollar. Leave a footprint in conventional financial systems. Therefore, they needed an alternative to fiat currencies that do not need to feed a central system and therefore operate in a decentralized manner that leaves no digital footprint. Lo and behold, Bitcoin was invented, providing e-commerce facilities to trade drugs, guns, and all sorts of illegal things to support this need, so that trade should be kept away from high performing fiat currencies. This economy is huge. And this economy cannot function without cryptos. Add in the gaming industry where many games require cryptos, and voila, we have a huge economy backing cryptos.
So, against doomsday predictions for cryptos, I’m officially sticking my neck out again that crypto will indeed retain its value, if not as much as it was in the winter of 2021, but it will still have value, primarily supported by illegal trade, money laundering, terrorist financing and gaming around the world. Is it good for the economy? That’s a discussion for another day.
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