So far, other than isolated situations, cryptocurrencies have not been used to facilitate commerce in the Mom and Pop World. They have been speculation vehicles that have drawn in people hypnotized by the out of this world run up in prices: $270 to $4700 in 8 months. Too good to be true. Sheep lured by the “Don’t miss out on this” psychology have bought, and bought and bought. To what end? Short-term profits, sure.
But, what’s missing in the crypto world has been a legitimizing event that brings them into everyday commerce. Even the millennial commerce of “all things tech” hasn’t seen it. Those lucky speculators who bought the hype will say that that lack of utilization is the very reason they were attracted in the first place.
I want to remind them and everyone else that you haven’t made a dime (10 cents) until you SELL what you bought. I also want to remind them and everyone else that all securities have up and down swings. ALL. I hear, “Well, this time is different.” That was what they said about everything new from automobiles, to dot-coms, to, well, crypts. No it’s not different. You only find out in hindsight.
So quietly last week comes a business event that could be the future of cryptocurrencies - the legitimization of the method that will transform it from a novelty cocktail party collectible like a stuffed bb-9E into a currency suitable for a Big Mac.
Six of the world’s largest banks led by UBS (NYSE:UBS) and some others that have signed on are teaming up to create and accept a utility settlement coin - a new cryptocurrency. It is supposed to be used for clearing and settling transactions over blockchain technology. Backed and promoted by Barclays (NYSE:BCS), Credit Suisse (NYSE:CS), Canadian Imperial Bank of Commerce (NYSE:CM), HSBC (NYSE:HSBC), MUFG (MTU), and State Street (NYSE:STT), Deutsche Bank (NYSE:DB), Banco Santander (NYSE:SAN), BNY Mellon (NYSE:BK) and NEX (OTC:NEXGY) along with UBS, it will use the USC to settle securities transactions - paying each other for buying and selling securities without any waiting period for traditional money transfers.
An instant (nearly - there has to be an acknowledgement) settlement will reduce the time and cost of settling and clearing securities transactions. Not being subject to play money speculators (hard to imagine for Wall Street and its cronies, isn’t it?), the USC will have to maintain a relatively stable price/cost. It just wouldn’t work without stabilization, would it? I mean the Big Six will play with our money, but take a multi-$B risk with their own. Nah, not unless you’re a JPMorgan London credit default swap trader.
According to the Financial Times, “the USC will actually be convertible at parity with the bank deposit in the corresponding currency, making it fully backed by cash assets at a central bank.” They conclude, correctly I believe, that once the USC goes to the public, most existing cryptocurrencies will not be able to compete with the spending ability that is just like “real” currencies.
Take it to the next natural step. What are Big Financial firms best at? Innovating derivative (read ”not previously thought of”) products to reap massive profits. See the USC in a commercial version, denominated in dollars, euros, pounds, whatever? I see USC debit cards, futures markets, cash back offers, rewards points, redeemable S&H green stamps, welfare checks, and ultimately - your social security payments and 401(k) accounts. I mean, it’s not very far removed from where we are right now digitally.
Think of what could be done with international trade deficits. If you could create acceptable currency with a (bigger) puff of smoke than it already is, why, GONE. Just like that.
We’re entering the virtual world of Hiro Protagonist!
For now, look up the Bank Panic of 1873, and listen to REM’s “It’s the end of the world as we know it.” I hope they give you some comfort. While we wait for Big Financial to take over this movement, if you own some Bitcoins, sell them now, please. Who cares if you miss some of the run up until it crashes? “Thank you, Paine Webber.”
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.