Cryptocurrency: Is It Money?

The only thing in cryptocurrency that is money is that it has currency in its name. 

Otherwise, it is just a computer generated digital product, just like any other digital products which are ephemeral i.e. can disappear when there is no electricity.

To be fair, cryptocurrency can be considered an asset because it carries a value. This value is determined by supply and demand. In this case, the supply is made limited by creating a process that requires a lot of energy to create. The demand is determined by marketing to the ignorant who have lots of cash but do not know where to put that cash.

The value of cryptocurrency like all other assets will rise when there is continued demand from surplus cash and its value will fall when there is a cash deficit which creates a need to sell the cryptocurrency for cash.

Cash is king because cash is the only real money. Money is any asset which is accepted, by convention or by law, to be the means of final settlement of debt by everybody in society.

The current argument that cash has lost and is losing its value because the government is printing lots of money. This is true.

But the situation will change when the government stops printing money. This is why, because of fiat money, there is a law which restricts the amount of money that the government can print, i.e., borrow.

It is not true that the government can simply print any amount that it likes. Money is a liability which is created on the back of assets, to be fair, paper assets such as government bonds. Once the government bonds are reduced, the amount of money in the system will be reduced as well. In the same way, once banks reduce their loans, there will be less money out there.

In reality, the main concern is not the reduction of the money supply but the reduction in the increase in the money supply. This is because we are talkin about acceleration or deceleration of the economy and hence the increase or decrease in the money supply.

A sustained increase in the money supply (through loan growth or increase in government debt) will generally accelerate growth of economic output along with increases in prices.

Output growth is generally driven by persistent inflation which everybody likes because they think they are making money in cash terms. A simple householder sitting in his little house generally feels wealthy when property prices go through the roof, thinking that it applies to his house but it is imaginary because he likes his house and he has only one house. Property speculators have been laughing till their teeth all fell off.

We have seen speculation bringing about an overproduction. Sky-high property prices have brought about an excessive number of property units. Every property speculator imagines that there are tenants for their many properties. There is indeed a high demand for housing but many people do not have enough money to rent a house. They make do with living in room, some shared even.

When there is a slowdown in the expansion of the money supply, there will be less extra cash to go around. 

The problem with speculation is that speculation does not slow down. Speculation either gets very frenzied or it simply fizzles out. The bubble simple bursts and speculation could not be found.

It is unfair for me to pick on cryptocurrency but it is a good example. There is now a popping of all the speculative bubbles on all assets, including sad to say the speculation in the value of degrees and diplomas.

Everything will simply boil down to confidence. Confidence is important - to be positive of the future is unknown. Especially when we are now in the period of panic and fear as the future doesn't look too good.

When asset prices come crashing down, and you know what are good assets, and you have cash, you should be sitting tight and getting ready to pick up some good assets at good prices.

The time is not now as it is still too early, because we can see the beginning of a major collapse.

Every up and down is an opportunity for investment. It depends on where you are positioned.

If you are in cryptocurrency or in gold, I won't know how you can buy up bargains in other assets.

Anyway, just to give you my thoughts on cryptocurrency and where it stands today in the sea of assets and economic adjustments.