The Unique Property
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I do welcome responses, disagreements, and questions regarding
my blogs. In the previous week's blog I ventured into the world
of competing currencies being issued by the Big Tech companies,
such as Apple, Google, Amazon, and Facebook, and I received a
few comments and questions from Sean, who says:
"As stablecoins are ... stable. One can't invest in
said coin with hopes of any financial upside. Is it reasonable
to think that an investment in the base company would reflect
positively if, let's say, an amazon coin was to appear and 100
million users were suddenly funnelled into the currency of the
... would that affect Amazon's price?
I agree with you that this is the way things are going and I'm
pondering how to be positioned to capture some of these shifts
[in] currencies if possible."
Let's start with an attempt at some definitions.
Bitcoin is usually described as a coin or currency. You can, in
certain places, use it to pay for things. That's fine, but to be
honest, bitcoin is useless as a currency. In our troubled times
it is best regarded as a store of wealth. It's value against
fiat currencies gyrates wildly. That's not good for a currency.
Currencies need to be relatively stable. The trouble is when
governments print money, and borrow even more against the local
currency, that only serves to dilute its value. Every currency
on the planet has lost value over the years. This means that
stable coins are likely to lose value as well as long as they
track just one government issued currency.
As for instability, I've been trading bitcoin today (wednesday
October 20). Look at this chart. This is bitcoin's movements
over the course of a few minutes. To get the information on the
screen I am using 5 minute bars.
$1,500 value rise in 10 minutes!! There is no way you can use
that type of currency to go out and buy a bottle of milk.
One only has to look at a modern example to see how badly
governments treat their local currency. Approximately 110 years
ago the USA government set up the Federal Reserve as a central
bank to act as steward to the US dollar. Over the course of that
time the value of the dollar has dropped over 97%.
Even more recently you'd need $510 today to buy what $100 would
have bought back in 1975.
The Fed hasn't done a very good job, has it? Admittedly it has
had successive incompetent governments to deal with, but
financial stewardship is not something that is anywhere evident
in the world today. That is precisely why Bitcoin was set up, to
act as a form of money that would at the very least hold its
The other side of the question is: what we are to make of the
various stable coins about to be issued by Big Tech?
Being stable coins, they are not designed to appreciate in
value, although, if they are not outlawed they may very well do
that. What will happen is, at the moment, anyone's guess. But I
can't see how we can be worse off than we are now with the
disgraceful way most governments are trashing our currencies.
But let's look at currencies from the point of view of the
With the certain prospect of fiat currencies continuing to
depreciate, why would a company want to get paid in such a
currency? I'm sure most of us would prefer to be paid in a
currency that is going to appreciate. That's what these
companies hope will happen with their own currencies. It is also
very useful to be in control of your own currency. But how can
the company benefit if its own coin is pegged to one currency?
The use of the company's own currency is likely to make life
easier for the company, but only marginally so. However, if you
have several stable coins, and each one is linked to a different
currency, what is to stop the company transferring its funds
from a US dollar stable coin to a Japanese Yen stable coin when
the dollar starts falling and the Yen starts rising? After all,
this is precisely what Facebook's Diem currency is going to
facilitate. It is intended to be issued in several formats, each
being pegged to a different currency, and one further version
pegged to a basket of currencies.
The real benefit to the issuing company will come from having
control over the value of the money the company is getting from
different parts of the world without having to muck about with
expensive exchange transactions.
I'm sure the whole point of this is that the company will be
able to run its affairs outside of any local jurisdiction. That
is going to make its taxation position somewhat interesting. I
would hate to suggest where this is going to go, but I rather
like the idea of there being a currency that is a genuine
alternative to fiat currencies run by governments behaving like
Finally there is Sean's third point: How does one invest in this
That is another question altogether. I am not licensed to give
out financial information, but what I will do next week is
mention a few investments, and tell you what they do and where
to find more information about them.