What happens when CBDCs are launched in the BTC and Crypto asset realm?
We are rapidly approaching an intersection between blockchain technology and the release of CBDCs. Its no secret that China has been successfully testing their CBDC at various stages and release as are other Governments around the globe. China is expected to be the first massive country to bring their CBDC to market, which is known as PBOC DC/EP (aka DCEP).
I am not a soothsayer, however, its pretty clear there will be a Clash of the Titans when it comes to release of CBDC and BTC and the entire crypto realm.
I am not just talking about the impact to the well known 4-year crypto cycle. I am talking Governments bringing the Full Weight and Might of the themselves against and to fight off and perhaps crush cryptos. How might they do that you ask?
Are a few of the Government favorite tools:
- Regulatory tools and tactics
- Anti money laundering and RICO laws
- Dilution of FIAT currency - why not apply it to CBDC too? Recall there is currently $19T of American Dollars sloshing around the globe. Nothing impeding this now or in the future. Recall all fiat currency returns to its intrinsic value = ZERO, Null, Void, nothing!!!!!
- Under collateralization - fractions or % requirements for margin
- Taxation on everything
- Capital Controls - preventing money from moving to where it treated best
- Out Right Banning and potentially confiscation of Crypto's - although hard doesn't preclude anyone from trying.
- Slow-walking someone or something - impeding at all turns to bring up frustration levels to try and force a change of wills. Working to protect the status quo at great expense to innovation and advancement of society as a whole.
- Leveraging Media outlets to spread their message day in and day out.
Additionally, a new tactic has emerged that warrants understanding too: China has seeded over 1 million accounts with a 1.5B of their own CBDC (recall in very advanced trial stages in China). Some might think of it as raining money from upon high?!? The Chinese citizens can spend it on what they want. And the CCP state monitors the entire process, each time that CBDC is turned over and over. "First hit is free", quote from another seedy profession.
Before you go all cancel culture on me, keep an open mind as I am NOT saying it would not happen Day 1. It would be a gradual and growing battle of wills. Building pressure each and everyday, a battle of wills begins
What does BTC and other Crypto's have/bring that CBDC's don't?
- Decentralized platforms vs Centralized platforms
- Creative use of technology to bring solutions economic imbalances
- Cost of Capital going up, almost daily, (not to overlook the huge surge that took place in capital costs in '20)
- No Discounting for BTC as of yet. Swamp seepage can already be seen via derivatives trading
- Scarcity - #1 reason for price acceleration in '21. Additionally, to more buyers than sellers (retain value)
- HODLing that is inflation protection - 77% of American's are concerned about inflation via google search
- Gold capitulation - rotating out of some Gold positions into BTC & Crypto to earn something, anything
- Removing the middleman from transactions and true transparency
- Over collateralization - 200% requirements for margin
- Minimal transparency and running covering by agencies such as CFTF & SEC - dates back to days of Kennedy Sr.
- Traditional Institutional investors such as Howard Marks of Oak Tree capital has changed his mind about BTC and thus buying in even at these high prices.
- Neither the Fed nor US Treasury can print more BTC or Crypto. it must be earned!
How does it evolve to maintain its advantages?
- Reinforcement through innovation such as Smart contracts on the blockchain look what ADA and Theta have announced for just this year. There are others that have too.
- Using their smaller size(s) to adapt and evolve way faster than any Gov body. Beat them at every innovation
- Keep the Asset scarce to keep that value locked up
- Driving to make markets make sense again!
So… what happens next?
A very logical step would by hybridization, a mixing of the two. One currency and several assets. How do they co-exist? What features are easily be adopted by one another? There will be shake out, with lots of these projects some will be acquired some will just shutter. I also envision there will be a bifurcation - Crypto's will drop the 'currency' aspect and stick to the 'Asset' side of the realm. Using war symbolism for symbolism only! Don't misconstrue my words! There will be capital lost as Governments win battles and vice versa as the little guy wins battles too. That's what I see as this plays out in the short term.
Risks are numerous, my largest fear is that politicians don't advance the nation toward a digital future. There is a lot of work that has to be done here not just investing in the roads and bridges (its not 1930's).
Revenge of the nerds has taken BTC & Crypto's from nothing to amazing in 12 short years. Who wins the long game? Its WAY to early to say however, we can plan and prepare. Don't go to sleep and wake up to find out you missed a pivotal set of steps or ability to get out. Should be an interesting journey for certain!
Disclaimer - these are my views, this is not investing or trading advice. Do not consider as such