The Cryptocurrency Convergence

The cryptocurrency world just experienced an eventful 10-day period in which Coinbase, the largest exchange in the United States, went public as a direct listing on the Nasdaq Stock Market. The crypto market experienced sharp declines attributed to a blackout in China, a proposed Biden tax hike on capital gains, and the CEO of a Turkish crypto exchange allegedly making off with $2 billion of investors’ funds. 

These events led to the cryptocurrency market declining more than 20 percent in the seven days before Coinbase went public, with some coins more affected than others. Bitcoin is still up about 80 percent year-to-date, so a correction of this order is not surprising based upon historical charts. But the activity surrounding the decline brings many new questions to light. 

Some of the mainstream narrative has gone bearish towards Bitcoin, as outlined in a Bloomberg story that issued warnings by JPMorgan Chase & Co. strategists about volatility, forecasting further downtrends for the crypto market. Concurrent with these recent shakeups, Britain’s Treasury and the Bank of England (BOE) officially announced that they are weighing the creation of a central bank digital currency (CBDC). 

This information was not news to any of The Morgan Report’s regular subscribers, as the November 2020 report warned of this after a BOE speech at the Central Bank Payments Conference in October 2020. The BOE statement included creating a task force further to review public interest and shareholder risk regarding CBDCs. If approved, they stated that the CBDC being dubbed “Bitcoin” would exist alongside cash and bank deposits, rather than replacing them. 

On the same day the BOE released its statement, CNBC published an article that claimed COVID-19 has accelerated the push toward cashless transactions. Cryptocurrencies are gaining traction, the story claimed, and central banks are “taking action” to ensure they don’t “fall behind.” Marking a convergence of the free market cryptocurrencies and the CBDCs, the article goes on to cover Wall Street’s awareness that this will be a “disruptive force.” 

The Federal Reserve is also working on a joint project with the Massachusetts Institute of Technology to evaluate a digital dollar. In a “60 Minutes” interview, Federal Reserve Chairman Jerome Powell said, “We’re doing all that work . . . We have not decided to do this because, again, the question is will this benefit the people that we serve?” 

One cannot help but ask, who exactly are the people the Fed serves? 

According to CNBC, rather than act as a tradable asset with wildly fluctuating prices and limited use, CBDCs will function more like dollars and be fully regulated and under a central authority. This means CBDCs will have the full force of government behind them, and any grassroots momentum private cryptocurrencies may generate can be disrupted by new legislation, as we’ve already started to see. 

This vulnerability is not new, but the large-scale marketing campaign to pair the valuable technology of cryptocurrency with the “safety” of central banks is. CNBC calls this a “race towards Digital Money 2.0.” Nearly 90 percent of the world’s central banks are now exploring digital currencies with the ability to put a stop to private competitors at any moment with the stroke of a pen.

History offers valuable lessons of why gold and silver can be stores of value against movements toward centralized systems of monetary control. Convergence is also underway with blockchain technology and precious metals forging a modern means to transact with, store, and utilize these hard assets in the form of tokenized stablecoins. 

I recently wrote an open letter to Elon Musk, CEO of Tesla. I encouraged him to explore precious metal hard assets as they are essential manufacturing components for companies in the technology sector like Tesla. Musk has been a vocal supporter of cryptocurrencies but has yet to comment publicly on precious metal-supported stablecoins. 

As an ambassador of the LODE Project (AGX, AUX) since 2018, I felt compelled to point out that accepting AGX and AUX as payment for Tesla’s wide range of products could be an alternative to accepting fiat. It was using the blockchain to enable access to silver and gold with the added benefit of easy redemption for physical metals when needed. With silver being an essential component of the company’s innovations, Tesla would have the opportunity to secure silver at today’s prices by investing in its digital form, redeemable for physical silver that ships to them on an as-required basis. 

As stablecoins continue to roll out, they may very well offer the answer to the long-pondered question of how private cryptocurrencies can subvert any centralized power grab and remain an alternative to fiat currency.

 

About David Morgan

David Morgan is a recognized analyst in the precious metals industry and consults for various sectors of the industry. He is the publisher of The Morgan Report, author of three books, and a featured speaker at investment conferences all over the world. He is an ambassador to The Lode Project, which aims to put real money back into people's hands.

Photo: Getty Images

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