The cryptocurrency hype train obviously has no brakes. But could it eventually replace cash in the US? According to the thinking of economists cited by the Bank for International Settlements, it just might. And to the chagrin of the anti-establishment types that fueled bitcoin’s early rise, it will likely be run by the Federal Reserve.
Alternatives, such as the US dollar and gold bullion, have faded in stature as prices have fallen all year while bitcoin has pushed near $6,000 over the past week. Both China and Russia are exploring the use of blockchain technology to create their own, state-backed cryptocurrencies. A recent Bank of America Merrill Lynch fund manager survey showed “long bitcoin” as one of the most popular trades on Wall Street right now.
Initial coin offering activity is red hot, an area we have covered at length recently in light of intense VC interest in blockchain startups. Many show promise, like Tezos, which is trying to decentralize the governance process behind the blockchain. Or Tether, which is trying to refocus interest on cryptos as an actual medium of exchange (vs. the current obsession with speculating for fast gains) by tethering it via a peg to the US dollar and other national currencies.
But many more stretch the limits of reasonableness. Paris Hilton and Floyd Mayweather have promoted ICOs on Twitter, for example. Others don’t really need any further explanation: Dogecoin, PotCoin, TrumpCoin, PonziCoin, and Jesus Coin. Not a bubble, clearly.
While sentiment has likely come too far too fast, the underlying technology shows great promise. I guess that makes my position similar to JPMorgan Chase CEO Jamie Dimon, who attracted a lot of attention for calling bitcoin a “fraud” while his bank rolled out a blockchain-based system to expedite cross-border payments. This is also motivating the efforts by China and Russia to create a central bank-backed cryptocurrency using distributed ledger technology—all while regulators squeeze out private-market competitors.
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