What better way to begin this letter than with the current state of economic and financial affairs in the world. 2020 has been and continues to be, for the lack of a better word, a peculiar year for us all.
Collectively we got familiarised with novel concepts such as the "new normal" popularised by the media, talks of a "great reset" debated at the World Economic Forum and the temporary suspension of some of our basic human rights to preserve health and combat the novel strain of coronavirus.
Evermore, the IMF is considering a New Bretton Woods moment to implement "the right economic policies" and this time around the "policies must be for the people". Is it implied that we do not have the right policies and the policies we do have are not in fact "for the people"? The spark of hope is quickly extinguished by the two Keynes references that sandwiches the content of the IMF article. One cannot solve a problem with the same mindset that created it in the first place.
Keynes leans toward a centrally planned economy, endorsed by the financial powers that be, discourages savings and encourages increased (unsustainable) spending and debt to "fuel" economic growth, then to no surprise the "fuel" is lit up in business cycles (market bubbles), making the bubbles pop and creating economic depressions. You can read more about Keynesian economics and the alternative sound economics in The Bitcoin Standard book written by Saifedean Ammous.
Luckily, we are not here to only debate the perils of unsound economics. We are embarking with excitement on this journey to witness and participate in the rise of open finance, a more transparent, sustainable and inclusive financial system.
We are relatively early in the era of financial renaissance: Bitcoin has been around for 12 years, Ethereum for 5 years and DeFi (decentralised finance) solutions have been around for around 2 years. There is tremendous potential around digital assets and DeFi money protocols, however some of these solutions are still new and experimental. MakerDAO, a set of smart contracts deployed on the Ethereum blockchain network can render similar services as a commercial bank, i.e. lending and borrowing, saving accounts etc.
Historically, we witnessed the separation of church and state, the distribution of centralised dictatorial powers into decentralised governmental bodies (parliament, senate), and now it seems the separation of money and state. A common trait of healthy societies is accountability for all powers in front of the people they represent, serve, influence and impact. One way to create accountability is ensuring a certain degree of individual sovereignty among the populous, such as the real ownership of currency obtained from fair and lawful provision of products and / or services.
The adoption for digital assets is growing fast in Q4 2020, in particular for Bitcoin and Ethereum:
- PayPal allows Bitcoin and crypto spending;
- Dutch Central Bank Gives First Approval to AMDAX Digital Asset Exchange;
- Iran Amends Law to Allow Imports to Be Funded With Cryptocurrency;
- Bitcoin reaches $14K, +373% up from the pandemic panic sale back in March 2020.
In upcoming letters we'll address the risk of hyperinflation, explore potential solutions to protect against debasing currencies and the innovative "money that spends itself", known as the negative interest rates, a measure recently introduced by central and commercial banks.
“Whether in Rome, Constantinople, Florence, or Venice, history shows that a sound monetary standard is a necessary prerequisite for human flourishing, without which society stands on the precipice of barbarism and destruction”
– The Bitcoin Standard, by Saifedean Ammous.
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Disclaimer: The conveyed information is not financial advice. Please do your own research and only make informed choices.