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With One Recession (That We’re Due For), Bitcoin Could Completely Revolutionize Europe

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With One Recession (That We’re Due For), Bitcoin Could Completely Revolutionize Europe

Bitcoin reached an all-time high of $6,000 today, as this once-lowly regarded technological quirk is quickly becoming a financial behemoth. “Mining” bitcoin (a process where people run computer algorithms that help confirm pending transactions in return for a reward of new bitcoin) consumes as much electricity as Iceland does.

Per coinmarketcap.com, bitcoin’s current market cap is just a hair under $100 billion (market cap is a simple measure of a company’s size: it’s the number of outstanding shares multiplied by the price per share). When compared to that of the largest companies in the world, bitcoin ranks 77th in size. This is a big freaking deal. I’ve shared this article from 2016 a million times and will continue to do so until we start to hammer this into our heads: the age of software has irrevocably altered the fundamental concept of money, and its repercussions are just beginning to manifest (not just through cryptocurrency, but payment apps like Venmo or PayPal). Per TechCrunch:

Many Latin Americans are turning to bitcoin as a solution, and the recent crises seem only to have accelerated adoption.

Last year, adoption of the digital currency broke records in Latin America. Payment processor BitPay reported a 510 percent gain in merchant transactions in mid-2015, but the most notable growth took place toward the end of last year. Latin American merchant transactions finished the year having grown by a staggering 1,747 percent from the beginning of 2015. Other key figures from Brazil’s bitcoin ecosystem showed bitcoin exchange trades surging by 322 percent and bitcoin wallet adoption growing 461.4 percent. Exchange trading in Mexico grew by 600 percent in 2015.

In Latin America, the country most known for bitcoin is Argentina. And while Argentina has had the most bitcoin enthusiasts per capita, that may be starting to change. Brazilians and Venezuelans also have good reasons to adopt bitcoin — bitcoin holders in 2015 enjoyed earnings during 2015 that performed more than 400 percent better than the Venezuelan Bolivar, more than 92 percent over the Brazilian Real, more than 65 percent over the Mexican Peso and more than 41 percent over the Argentine Peso.

What do all those countries have in common? Political and financial instability. Here is the Venezuelan Bolivar’s value compared to the U.S. dollar (up is bad).


source: tradingeconomics.com

The Argentine Peso.


source: tradingeconomics.com

The Brazilian Real.


source: tradingeconomics.com

And the Mexican Peso.


source: tradingeconomics.com

As those currencies became less stable, people have transferred their state-issued money into bitcoin’s decentralized monetary system. This behavior is empirical evidence that bitcoin can act as a stable store of value. As those charts demonstrate, these currencies are getting more volatile, so this dynamic will not reverse course any time soon. This trend is partially due to an ugly feedback loop, where liquidity that has been taken out of their economies and put into cryptocurrency creates more volatility, causing more to flee state-issued fiat money. If these countries can’t get their financial houses in order, it’s a serious question as to whether many of their citizens will ever transfer their bitcoin back into the local financial system.

There is a blockchain-sized guillotine hanging over the global economy right now, but it’s not being as widely reported because it’s difficult for us in the United States to really see the true power of bitcoin. The dollar underwrites nearly every transaction in the known world, so we are nowhere near as vulnerable to bitcoin’s decentralized power as other regions. However, that same maxim does not apply to Europe, whose economy has been crippled by the bizarre currency union sans a political union* that is the Euro.

*side note: Alexander Hamilton is my favorite founding father, but I never talked about it because no one gave a shit. Now if I bring it up, I look like a Broadway bandwagoner. I’ve always maintained that Thomas Jefferson was the most overrated of our founding fathers—and the integrated, but not-really integrated clusterfuck that is Europe is the most convincing proof of my assertion. Jefferson’s battle with Alexander Hamilton was essentially a choice between the system that got us where we are versus Jefferson’s Euro-style monetary system, where states like Virginia and New York would inevitably be able to boss around states like Mississippi and Vermont (like Germany has done to Greece), thanks to their overwhelming power over the currency that none of them have the ability to truly regulate.

The Vice President of the European Central bank dismissed bitcoin as a “sort of tulip,” and said that bitcoin is “certainly not a currency and we don’t see it as a threat to central bank policy.” For those unfamiliar with the quintessential analogy that all men over 50 make whenever the topic of a financial bubble comes up, here is the tl;dr on this absurd but true story from the Dutch Golden Age, as I wrote in my rant against Jamie Dimon for slamming bitcoin, then buying the dip:

Prices for tulips reached extraordinarily insane highs—at one point, 12 acres of land netted you one Semper Augustus bulb. To compare that to present day America, that same amount of land would be worth $36,240.

Bitcoin isn’t like tulips because you can plant more tulips whenever the hell you want, but supply and demand are literally linked by code in a blockchain system, so that spark for inflation isn’t even (theoretically) possible. If the European Central Bank looks at Argentina, Venezuela, Brazil and Mexico and thinks that same dynamic can’t happen to Greece, Italy, Spain or any other weak European economy, then they are by definition, incompetent. Latin America is literally a beta test for the efficacy of cryptocurrency.

We’re due for a global recession. One hits about every ten years, and it’s been over nine years since Lehman Brothers filed bankruptcy to kick off our global economic pandemic. All it would take is one shock to the fragile European markets to create a credit crunch, which could easily spark a flight from euros to a more stable currency—perhaps bitcoin, since anyone with an internet connection and a bank account can invest in it. This would happen far too quickly for any government to stop, and if the next recession is on a scale similar to that of 2008 (and by all accounts, we have done nothing to fix the structural issues that lead to 2008—in fact, one could argue they’ve been exacerbated), we could witness a comprehensive restructuring of the financial status quo. Overstock.com already accepts bitcoin. If Amazon decides to follow suit, it’s a whole new world.

Throughout history, gold has acted as a stable store of value whenever fiat currency goes haywire. In the age of software, bitcoin has already mimicked gold in that same vein, and it is just now beginning to wiggle its way into the mainstream (there’s only about 300,000 wallets that hold at least $5,000 of bitcoin). Look at how much the original cryptocurrency has increased in value this year, let alone the last four and three-quarters.

BTCYOWZA.jpg

Bitcoin has already changed the world and will continue to do so. Blockchain technology is a giant leap forward in software innovation, and the widespread desire for a more decentralized monetary system has been apparent since a small cabal of Wall Street firms nearly liquidated the entire global economy. Central bankers can talk all they want about how they are not intimidated by bitcoin, but their lethality has already been proven. The People’s Bank of China hasn’t been shy about their concerns on this topic, as the Chinese government’s move to command the mining operations is proof that they view bitcoin as a threat (and a lucrative one at that). In America, bitcoin will mainly be viewed as an investment vehicle so long as the Dollar remains Almighty, but for those living in less stable parts of the world, it could become their financial salvation during the trying times we will inevitably endure in the not too distant future.

Jacob Weindling is a staff writer for Paste politics. Follow him on Twitter at @Jakeweindling.

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