Bitcoin is a publicly traded future currency - new territory for finance


Before bitcoin, was there ever an asset that could be described as a future currency that was also publicly traded in the market? Not that I know of.    

The problem with future currencies is that they are not good currencies today.  This is because the future is uncertain and nobody wants an uncertain currency. This creates a feedback loop in which people question the future viability of an asset as a currency because it does not have current viability.  This is happening today with bitcoin.

Bitcoin has a very promising future as a global currency, but the timing and potential scale of bitcoin adoption is highly uncertain.  This results in price volatility as well as an expectation of significant appreciation in value until bitcoin reaches a mature scale. Bitcoin is particularly prone to this problem with a capped supply. Because of these pricing dynamics, few people want to use bitcoin as a currency today.   

A related problem is that bitcoin can only be purchased today by people who are able to lose money on bitcoin as an investment. This means that when bitcoin matures, many of the people who need to get bitcoin to use as currency will pay a much higher price than others who were fortunate enough to buy bitcoin as an investment. This isn't good.    

So how do we solve these problems. Below are some options.  

Immediate widespread government adoption:  Governments worldwide convert their currencies to bitcoin backed notes. This would solve both problems because it would eliminate uncertainty and offer everyone a way into bitcoin at a fair price. This is not likely to happen anytime soon. 

Nix it: We give up on this experiment in currency building. This is clearly the wrong answer if we believe bitcoin is a better currency than fiat.

Switch to a more stable decentralized currency:  We could adopt a new currency that is designed to track the dollar or a basket of goods, or to otherwise maintain a stable price.  The problem with this is that it is artificial. If we are designing a global currency, it should be its own unique commodity with supply based on market dynamics and/or democratic governance.  Bitcoin works well because its M0 supply can't be changed except through a decentralized voting process, and, at maturity, M1 and M2 can be manipulated by creditworthy governments to create regional price stability. Also, some degree of increase in the value of the currency during its growth phase is important as this is what creates the network effect.    

Promote bitcoin and get it into everyone's hands as quickly as possible:  This is the right answer. Bitcoin is going to be a volatile/bad currency until it becomes mature. During this ride only investors are going to benefit. It is not responsible for people who don't have money to lose to buy bitcoin until it is stable within their economic sphere. For this reason, we need to (1) find ways to spread bitcoin ownership without investment, for example, grants or bitcoins air drops adopted as a change in the protocol, and (2) push quickly for individual governmental adoption to create relatively stable bitcoin regions. 

Bitcoin is the world's first publicly traded future currency.  Hopefully one day it will be the world's first decentralized global currency.  For this to happen, we need to be creative and aware that it can't happen without a reasonably fair distribution of the value of the currency creation around the world. I'm optimistic that we will figure this out.   

By Shane Hadden, CBP, CFA;

About the Global Currency Group:  The Global Currency Group promotes the adoption of a decentralized global currency through investments, advisory services, new currency creation and advocacy.  

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