It is generally expected that consolidation in the crypto market will be a great step forward. It will give the space more credibility by condensing its value in only the quintessential representatives of the overall market. It will reduce the probability of success for fraudulent motives, and allow regulators to focus more on crafting regulatory frameworks than policing.
However, it may never occur to the degree general sentiment expects it too…
and by that, I mean that there is only a few, say less than 8 crypto assets with meaningful value. Should that occur only a few investors would be happy.
Monopolistic competition is a good thing for crypto overall.
The competitive pressure building within crypto asset classes like Store of Value (SoV), of Exchange (MoE), and Decentralized Computing, will force the dominant to stay dominant. To do that they will have to prove, every single day, that societies money is safe within its code. Any slip-up is a couple of steps back for the crypto market as a whole, but it could be game over for the asset that caused it, and at the very least a tremendous opportunity for competitors.
In a cashless future-world, the transfer of value from a failed market leader to a previously inferior competitor is analogous to a bank run.
Making the existence of many crypto assets a positive thing for people in the long-run (no one is happy in a bank run, but at least something was salvaged). SoV assets have the most to lose in this case. They provide very little functionality outside of the peace-of-mind that a trustworthy distributed- can support one’s claim on wealth. The lack of functionality provides “no branches to catch” in the event of a faltering. MoE assets will have a greater margin for error in that people don’t (shouldn’t) use them for the storage of value.
When MoE assets accrue too much value because of a lack of trust in SoV assets, for one reason or another, the resulting economic condition will be analogous to a deflationary recession.
The price value of MoE assets may be one of those beneficiaries from a slip-up in a market leading SoV asset. That would signal poor economic conditions, as people don’t trust their wealth is safe with SoV assets. In turn, they transfer that wealth into MoE assets. However, the intention of MoE assets are for transacting and in this case, it would be taking on SoV purposes. This is why the resulting economic condition will be analogous to a deflationary recession; there will be too great of an incentive for holding on to your transactional currency. The case for monopolistic competition in SoV assets is a new argument brought upon by the technological dependence of these assets.
On the flip-side, when people are not allocating enough of their income to savings (SoV assets, and investments), and have relatively high percentages of their wealth in MoE assets, the resulting economic condition will be analogous to an inflationary recession.
When people are too eager to live lavish early on in their lives and are not thinking about the future enough, the percentages of their wealth in MoE assets to SoV assets should be high compared to normal levels. Although inflation in the asset itself should be fixed and known, the increased velocity in these times will diminish its value in the same way. The case for monopolistic competition is less strong within the MoE asset class, for this reason, however, it is still needed for rebounding from deflationary recessions.
The Decentralized Computing asset class will play the role of the stock market, should the crypto monetary regime succeed.
The Decentralized Computing asset class relates to the two other asset classes, SoV and MoE, in a similar fashion. In economic expansions, Decentralized Computing assets should increase in value. These conditions should see increases in lending/borrowing and reinvesting earnings back into businesses for the purpose of growth. In economic contractions, prices of Decentralized Computing assets should fall in value as lending/borrowing and reinvestment tapper off. This is because incremental growth opportunities at this point in the business cycle are just too risky.
By this logic, if Decentralized Computing Assets seep too far into the proper allocation that a person should have in MoE and SoV assets the person’s financial well-being is exposed to business cycles risk. It should be clear at this point that SoV and MoE assets are public services and monies for wealth and spending respectively.
Decentralized Computing assets will be investments in the business cycle or corporate and entrepreneurial liabilities.
That liability does not create a creditor. It is the risk one takes when crusading a new economic entity for which they can profit off of. The difference between competitors here will be wide, similar to how developed national economies interact with developing and emerging national economies. It would be less of a caste system than the current national economic system and that is not to say that the national economic system is a caste system but it does have strong caste-like tendencies. It will be very difficult for an “emerging” Decentralized Computing asset to jump a “developed” Decentralized Computing asset, and when they do it will be a long slow process. Monopolistic competition in the Decentralized Computing asset class will work to keep the market leaders honest and efficient.
In the crypto monetary regime, we see much more defined incentives for people to save, spend, operate businesses, and allocate to economic opportunities as they should.
Monopolistic competition provides alternatives to alleviate the new risk of technological dependence and unethical/greedy developments in the underlying technological operators.
These new risks may seem grave and you may think that competition of any kind is not meant for money, but that may just be the lindy effect speaking.
What is wrong with monetary regimes without monopolistic competition?
Wealth is a relative term today. Wealth in the United States does not mean the same thing as wealth in . That is because money is tied to the national system. To an uncomfortably large degree, your wealth depends on the economic decisions your Central Banks makes. Central Banks determine which incentives weigh harder on consumers and sometimes that is a good thing. That being said, it tends to be a good thing in bad times and a bad thing in good times. When incentives are not needed in good times greed can temporarily ruin the economy as it has done time and time again. Technological and decentralized incentives will smooth out the business cycle tremendously.
There are not many alternatives for Turkey and Venezuela.
Citizens of these nations pay dearly for the poor economic decisions of their nations while the Central Bankers and Aristocrats survive due to the control of the Gold supply (the existing dominant SoV asset). The physical nature of today’s dominant SoV asset make it easy to defend with militaries, while the wealth of citizens crumbles because they are forced to use today’s MoE regime (Fiat Currency) as both an SoV and an MoE. This is unlikely to happen under the crypto monetary regime.
How will monopolistic competition in monetary regimes solve this problem?
When wealth is not bound to a nation, and incentives cannot be created to influence the levels of SoV or MoE assets people decide to hold because the competition is contained to within those asset classes’ boundaries, more natural business cycle forces will prevail. People will choose to balance SoV and MoE assets as their personal finances and economic conditions dictate, not because incentives are being created to do one or the other. A business will choose to operate in association with one Decentralized Computing asset because they choose to, not because it is geographically convenient. They will have the ability to switch assets if the conditions that led them to choose the asset change.
Does this argument suggest fiat currencies will cease to exist?
Hard no. This entire argument holds for the case that fiat currencies are around forever and the case that fiat currencies are the market leaders in money forever. Crypto assets can force fiat currencies and their administers to behave honestly/ethically or run the risk of losing national monetary sovereignty to a crypto asset. Where we stand today, fiat currency has a near monopoly in the MoE space and SoV space for citizens around the globe, even though the governments that issue fiat currencies use gold as their SoV of choice.
Published at Wed, 22 May 2019 00:14:24 +0000
