Bitcoin: Future or Doom?

This week, two people I follow in the financial world had very different ideas about what Bitcoin, other cryptocurrencies, and blockchain Technology will be worth in the future. One was posted by YouTuber “Meet Kevin”, and the other was posted by CEO of Arc invest Kathy Woods.

Let’s compare and contrast what Kevin and Kathy think about the future value of crypto. Finance YouTuber Meet Kevin recently posted a video called “crypto to zero: the fed’s new crypto replacement.” In it, he brought up some good points and some other points that are worth talking about. In the video, Kevin talks about the federal reserve’s new payment system, called “FedNow” which is set to launch between May and June of 2023. It will offer free, almost instant, secure transactions between banks, and it will compete with services like PayPal, Venmo, and Zell, which are becoming more popular for retail transactions. Kevin thinks banks will be very motivated to pay for “FedNow” being integrated with their systems. He also thinks they will pay for the transaction fees, so we would be able to use it for free. Even if PayPal, Vimo, and Zelle respond by lowering their transaction fees to stay competitive, there are still a lot of limits to using them to send large amounts of money.

As payment transaction providers compete for market share and as technology improves, Kevin thinks that since crypto doesn’t make money or give us a reliable return on investment, we shouldn’t invest in it. Bitcoin might be the only cryptocurrency with real value, if you believe it can become a kind of digital gold and a way to store value, since gold has been around for thousands of years and has proven its worth. Kevin thinks that the only real value of investing in Bitcoin is what we think its price will be in the future. This is because it will take decades for Bitcoin’s value to stabilize and become a way for investors to save value as well as a form of value that can be used for things like peer-to-peer value transfer. Kevin looks into the idea that the Fed could put an end to the most important use case for cryptocurrencies, which is secure, instantaneous transactions. He thinks that other cryptocurrencies don’t have much or any value outside of investors making speculative bets. Kevin did bring up a recently published Harvard research paper. The author argued that governments and central banks should invest in Bitcoin as a hedge against sanctions by other countries. For example, if a country has a law invested in U.S. treasuries and the U.S. decides to freeze their ability to transact with them because they did something the U.S. doesn’t like, having Bitcoin as an alternative on a large scale would require banks to completely change how they do business.

Also, with all the deglobalization, geopolitical issues, and changes going on right now, the US is not in good standing with the rest of the world, so I don’t see many big players being too interested in integrating with a payment system created and managed by the US Federal Reserve. Just look at their websites. I don’t see how the feds could make a payment system that is as easy to use as Venmo or other systems made by private companies. So, I’m not worried about the upcoming “FedNow” payment system as it relates to cryptocurrencies. There are a lot of bad things that could happen to crypto, but most of them have to do with possible regulations that could do a lot of damage. It has nothing to do with being replaced by something like the government, which it was designed to protect us from.

Okay, let’s talk about Kathy Wood’s recent thoughts on the cryptocurrency market and what the future holds for blockchain technology. In a previous episode of Kathy Woods in the new monthly series, she talked about how she and her team at ARC Invest were impressed by the fact that Bitcoin had been much more stable than even equity in bond markets over the past few months, bouncing between a relatively narrow range of 17K to 23K. This could be a sign that Bitcoin will be a leader in the next bull market and then fall. Kathy pointed out that FTX bankruptcy caused a lot of uncertainty in the crypto markets, but Bitcoin only dropped to about 15K. Another important thing to think about is how the Bitcoin and ethereum blockchains didn’t miss a beat in terms of operations, even though the company went bankrupt. No transactions were stopped at all. Kathy compared this to the Global Financial System during the 2008–2009 crisis, when all the markets froze. Kathy said it was a near-death experience for the global financial system. In contrast, both past and recent disasters for crypto haven’t put their blockchain-based operations on the brink of death. She said this shows how important transparency and decentralization are in financial systems, since in crypto with blockchain technology we can track the money and it can’t be forged. So it shows the dual nature of decentralization and transparency, and regulators are starting to understand this.

It’s interesting, right? People who haven’t taken the time to learn how cryptocurrency works think that criminal and illegal activity is the basis of crypto, but in an FTX situation or similar, it’s actually fraud, and the same lack of transparency and centralization that is the basis of all financial scams. Blockchain technology solves this problem. Kathy says that closed ecosystems are not a good idea because, as we’ve seen in both the crypto and traditional markets, human decisions, especially in times of crisis, tend to be irrational and fraudulent, while decisions made by smart contracts tend to be logical and honest. Next, Kathy puts the crypto fallout in perspective by saying that at the peak of the crypto market, the total market cap was between $2.9 and $3 trillion, but it’s now down to about $800 billion. This shows how early crypto investors are in the space. Even though there have been a lot of challenges and problems in the crypto space, Kathy says that every time the crypto ecosystem goes through a battle test, she feels better about it all.

Kathy responds to critics who say that Arc invests in unprofitable tech concepts and compares their strategies to those of investors who lost money when the telecom tech bubble burst. She says that the seeds of what is happening in technology now were planted and have grown over the past 20 years since the telecom tech bubble burst. She says that at that time, there was too much money chasing too few opportunities too soon, which is why so many companies went bankrupt. Kathy and her team think that the market cap for truly disruptive, transformative innovation will grow from $7 trillion, which is less than 10% of the global equity market cap, to $210 trillion in the next eight to ten years. This is an increase of over 30 times, which is possible because we are starting to see exponential growth. Kathy says that one reason why it’s hard for a lot of people to understand or believe that is because we’ve always lived in a world of linear growth. After the tech bubble crash, a lot of people became value investors who used the same information and benchmarks as me and Kevin to figure out how much something was worth. Robotics and energy storage because the technology is now ready. She points out that we didn’t have cloud computing in storage until 2006, deep learning didn’t make a breakthrough until 2012. So yeah, the technology is here and exponential growth is possible.

Kathy leaves us with one last thought in Hope: based on their research, if we look back to the last time we had multiple disruptive innovation platforms developing at the same time, it was the early 1900s, when the telephone, electricity, and the automobile were all coming into their own. There was also a pandemic called the Spanish Flu, a war called World War I, and inflation that reached 24%. All of these things were much worse than what we are going through now.

Thank you so much for reading and the support! Would it be too hard to ask you to follow?

How about Kathy Woods’s thoughts? Will the FED change course because of a big event, or will we hit the 2% inflation target next year? Let me know in the comments!