WARNING: Whenever wealthy and powerful people try and protect you from the vagaries of financial markets, beware; they are either disingenuous or lying.
Your money matters
Revolt to Live is based on a simple premise that the primary social and economic paradigms and practices that we have inherited from the industrial revolution must be overturned to improve life on Earth. From fossil fuels, to inequality, to environmental degradation, we must move beyond the given to flourish.
Money is no exception. It deserves our careful attention. Spending, saving or investing in U.S. dollars seems so prosaic, and unquestionable. The U.S. government, in exchange for our trust, prints dollars, claims to support them, and manages their dynamics. The Bureau of Engraving and Printing produces 38 million notes daily with a face value of $541 million. About 5% of these notes are new and not replacements. However, the U.S. Treasury is also busy servicing a $28.43 trillion debt, or $86,000 for each individual in the U.S.
It is hard to imagine that currencies were invented, evolving from barter to cows to cowry shells. Money as currency has been around for roughly 10 percent of the time humans have been upright and lived in communities. The U.S. first printed paper money to finance the Civil War, in 1862. These notes were issued in denominations of 1 cent, 5 cents, 25 cents, and 50 cents respectively.
Money, as a store of value, is informed by convenience and perceived and shared worth in a marketplace. There is no abstract or certain value given to money by God, governments, or markets, for that matter. The same U.S. dollar worth 100 cents today, could be worth 90 cents in six months based on inflation, no fault of the individual.
Recently, something profound happened in the history of money. Bitcoin, a digital currency was launched as a medium of exchange in 2009, with the commitment that no new bitcoins would be released beyond 21 million. There was a finite supply of tokens or coins. It was called cryptocurrency and located on something called a blockchain. The name itself is unfortunate because crypto implies something hidden, instead of what it actually is, which is a digital store of records of money on a transparent chain of interlocking blocks available for all to track. It represented a financial innovation and unlocked a virtual economy.
Bitcoin, as a digital currency, was soon followed by others. The market for digital cryptocurrency on the blockchain has expanded globally to approximately $1.7 trillion dollars. It is important for a number of reasons
- It is not dependent on central banks or governments for value. The importance of this was brought home to me by economist Saifedean Ammous in his book The Bitcoin Standard. The author is from Lebanon, where government chicanery and currency devaluation wiped out the value of his savings and checking account, dropping to almost zero overnight. He only wished that he had a store of Bitcoin in his virtual wallet. This experience can be generalized to hundreds of millions of people in a growing number of countries worldwide—over 10 at my last count and growing.
In Medellin, Colombia, for example, street people who have fled Venezuela, make purses and wallets out of Venezuelan bolivar (VEF), where $1 USD is equal to approximately 530,000 VEF issued by their central bank. Refugees coming over the border are victims of politics as well as worthless currency.
Zimbabwe’s currency is also near worthless as well. A consumer can buy a $100 trillion bank note for $369.99 USD each. If you want to become a trillionaire, Zimbabwe is the place for you.
China, U.S. and India are awash in debt, and keep printing money. China is not forthcoming about the debts of state enterprises nor local banks. Over 400,000 small community banks throughout China are freezing bank deposits, according to Bloomberg, because they can´t cover bad loans. The government, in order to stop protests, sends a digital message to depositors that their COVID medical cards have turned red, indicating the need to return home and isolate. It denies information and protests as a matter of policy.
The International Monetary Fund has recently issued dire financial warnings on India, for example; where approximately 37 percent of payments on bank debts are in arrears, and its financial system has sufficient liquidity to cover only 9.5 % of deposits. Interestingly, both India and China have outlawed cryptocurrency, albeit for different stated reasons.
- Digital currencies are borderless. If an individual, a refugee, for example, kept digital currency in their mobile wallet, or the wallet of a friend, he/she could exchange it for real currency anywhere they can get access to the web. For purposes of financial security, it is better to save a few dollars in cryptocurrency rather than depend on fiat or paper currency alone.
- Digital currencies democratize investment. They break the stranglehold of government and traditional investment houses over your money. Investing is democratized in three ways: (1). Anyone can invest, (2) You can invest small amounts of money because digital currencies can be divided into small amounts, affordably and (3) Contracts, called smart contracts, can be signed over the web without incurring legal fees. If a financial investor—Susie Q— wanted to use crypto in the form of an NFT (non-fungible token), for example, to invest in a real estate deal to build a hotel that was estimated to cost $50 million, she could invest $500.00 and share in a proportional portion of the upside.
Susie Q can participate in deals of her choice; her tokens are transferable and the cost of the transaction is practically zero. The blockchain renders the chain of transactions with stamps and transparency. Furthermore, the deal can be syndicated to others who may want to invest without involving expensive middlemen, or investment houses. This is a significant advance over government regulation of investments in favor of wealthy people and insiders who control investments through highly paid professionals.
For those who are worried about transparency of money, there are many services that track all amounts of investments back to their origins. With the right service, it is safer than laundering fiat currency, which has been conducted by several mainstream banks over the years.
Government for wealthy investors
The Security and Exchange Commission (SEC) was formed in the aftermath of the Wall Street Crash of 1929. It was formalized in June 1934 to protect financially vulnerable people, widows, and orphans, as they say on the street, from financial ruin. Instead of protecting vulnerable people, it gave wealthy people priority access to deals.
The amended SEC Act defined Accredited Investors as those who own a minimum of $1 million net assets outside the value of their residence and have a household income of $300,000 annually for at least two years prior to investment. Accredited investors get priority access to deals, including initial public offerings, for example.
Almost all Americans, a median net worth $121,000, fail the Accredited Investor hurdle. Warren Buffet, you may recall, offered financial advice to protect us all too: “only invest in things you know,” employ a “buy and hold” strategy and “stay away from newcomers”. So, in 2020, Mr. Buffet, with special access to investing in Snowflake, a complicated technology, and software IPO, invested $250 million at the IPO price and purchased an additional 4 million shares from another stockholder. By the end of the first trading day, Mr. Buffet generated an estimated $800 million in paper profit. Not bad for limited work and knowledge of technology.
Bill Gates and Crypto Alchemy
Bill Gates, as most know, is the co-founder of Microsoft. His platform on LinkedIn has over 35 million followers. When Mr. Gates decides to pontificate on an issue, people listen.
Mr. Gates has recently been misleading people about the power of the virtual economy in general and cryptocurrency specifically. He states that cryptocurrencies and NFTs are part of the greater fool theory. His posture of “I told you so,” is being hatched in the middle of a downtrend in “crypto,” which is being triggered by external factors of inflation and higher interest rates, which are impacting all markets.
According to Mr. Gates, in a CNN Business interview, emerging digital currency trends are 100 percent based on the greater fool theory, and in the prior year he mocked Bored Apes NFTs (collections of cartoon apes bought by people) joking that “I’m sure that expensive digital images of monkeys will improve the world immensely”. “I’m used to asset classes, like a farm where they have output or like a company where they make products.”
Mr. Gates goes on to say, “I do think that people get bought into these manias, who may not have as much money to spare, so I’m not bullish on Bitcoin. It might be one thing for Elon Musk and Tesla to invest in Bitcoin, but that doesn’t mean average investors should follow that lead.”
Mr. Gates might have been unaware of the fact that an investor who invested $1.00 dollar into Microsoft shares in the public market 10 years ago, would have $9.00 today. Not a bad return. However, if the same person invested $1.00 in Bitcoin at the same time, his/her $1.00 would be worth $50.00 today. The greater fool would have invested in Microsoft stock. Sorry, Bill.
Mr. Gates likes to lambast virtual economies and cryptocurrency with broad brushstrokes, in total. You can read or listen to him negate the emergence of digital currencies and the virtual economies they drive. The virtual economy, in fact, is utilized by over 2.5 billion people globally through phones, laptops, desktops, headphones, and consoles. This world of virtual economies depends on virtual currencies in what are called “microtransactions.”
Mr. Gates, a champion of real-world currencies, farms, and production of products, is a real asset kind of guy, like his buddy Warren Buffet. Based on the evidence, however, he is equally full of terminological inconsistencies—misrepresenting where he derives lots of his profits.
Microsoft bought a virtual 3-D game called Minecraft, paying $2.5 billion. This virtual game has generated over $1.5 billion so far. It has over 140 million monthly active users and is growing roughly 30 percent annually. Microsoft positions the game as a part of the “creative economy”. Players use real money to purchase “Minecoins”—digital money— in the Minecraft store. This virtual currency is used in-game to buy skins, texture packs, worlds, and more to “enrich the experience”.
Microsoft through Minecraft generates hundreds of millions of real dollars from its virtual currency, through in-game microtransactions; and fortunately for Microsoft, the user is not supposed to spend digital currency off-platform. The major core audience for Minecraft, by the way, is kids between the ages 6 and 13 years; hitting their parents up for real money to transform it into fake or digital money to play games in the virtual economy.
Mr. Gates has more than a penchant for digital currencies: Microsoft bought Activision Blizzard, a game company recently, for $68.7 billion; that´s right $68.7 billion. Just imagine how much real currency will need to be transformed into in-game fake digital currency in order to pay for the acquisition. Consider, at a 10% annual return, the acquisition will need to generate a net profit of almost $7 billion annually. Even if only part of that profit comes from in-game fake digital money turned back into real money for Microsoft, the profits are being generated by the virtual economy—digital— not real farms and products.
Mr. Gates might consider using his platform more wisely, and try telling the truth about where his money is coming from. That´s the least he can do to give a balanced and real assessment of the emerging power of cryptocurrency and the virtual economy.
What you might want to do
- Communicate with Mr. Gates. Tell him to stop bad-mouthing the virtual economy from which he generates billions of dollars
- Wait until the correction and sell-off in Bitcoin or other cryptocurrencies, like Ethereum, flat line, and consider looking into investing a small amount of money for fun—in case you find yourself the victim of inflation and/or a financial refugee.
- Try to imagine productive uses for crypto and begin to consider how to deploy tokens or NFTs to improve the world. The financial world could use more pro-social projects.