The rise of cryptocurrency should not be viewed in isolation. An important series of historical events happened that brought us to today where cryptos are relevant.
Roughly speaking most cryptocurrencies fall under the category of private currency, as opposed to fiat (or government money). Before the creation of Bitcoin, there were actually already many private currencies around, but despite this, we have undoubtedly been living in an era dominated by fiat currencies.
However, economic conditions are hastening the era of private money, which is currently dominated by cryptocurrency.
Bitcoin was officially released in January 2009, in response to conditions that was mainly created by the financial and banking crisis of 2008. These conditions were triggered by the stock market collapse during the same year of the crisis.
Interestingly, we have a similar example during the Great Depression, when the use of private and local currencies exploded after the stock market crash of 1929, in response to the economic conditions (financial and banking crisis) that ensued.
Below, is a chart of the Dow that shows how the current rise of private money (cryptocurrencies), after the 2008 stock market crash, is similar to the rise of private money during the early 1930s.
Despite the great period for private money in the early 30s, the use of private money eventually fizzled out, and government money continued its dominance.
Basically, the reason why private money use did not grow and eventually dominate, is because fiat money was still strong and did not collapse entirely during that testing period. The time was just not right for private money to dominate.
For example, debt levels (mainly created by the debt-based fiat currency system) were still manageable, and trust of the system (or government) was still high enough.
Today debt levels are at all-time highs, and trust of government is at all time lows. The next financial and banking crisis, which is probably not that far away, will undoubtedly (in my opinion) bring the end of fiat money (more about this in future posts).
A major stock market crash is likely to again be the trigger for such a crisis.
When this happens, private money (especially cryptocurrency) will have its time to shine. Just like it did during the Great Depression. However, this time I don’t see government money making a sustained comeback.
note: this was previoulsy posted on my whaleshares and other blogs.