By Darren Parkin
The decentralised portion of the metaverse is somewhat immune to the dawning of CBDCs (central bank digital currencies) as tokens and NFTs via DAOs and ICOs are the oil in the metaversal engine.
Governments may try to limit the gateways between fiat/CBDCs and cryptocurrencies/tokens/NFTs, but such attempts will fall short as Web3 evolves. Peer-to-peer methods of transaction that enable conversion between fiat and cryptocurrencies will always be an option regardless of limits placed by governments.
For years now, the Chinese have been sending out well above the $50,000 USD equivalent permitted by the Chinese government. Even in the early days, there was localbitcoins.com that enabled transactions between fiat and Bitcoin.
Decentralised systems offer far greater efficiencies at lower cost thus are far more economic than traditional systems. DeFi, ReFi (regenerative finance), and DeSci (decentralized science) are among a few of the limitless use cases that will revolutionise the legacy landscape.
Mother of all recessions
Still, crypto has never been through a prolonged recession so expect valuations to drop even from current levels. As of this writing, the crypto space is worth just over $1 trillion, down from $3 trillion, or about 2/3 off its peak.
The macro picture is about as extreme as it gets since WWII based on the levels of debt, interest rates, and inflation. Expect the recession to be deep and long.
While we are witnessing a dead bat bounce because the market believes inflation is cooling, the Fed as well as majors such as Goldman Sachs and Blackrock believe inflation will remain stubbornly high so the terminal rate could be well above the 500-525 bps range estimated by the dot plot.
Given record levels of debt due to COVID, something is liable to break even before the federal funds rate (FFR) gets to 500-525 bps. The odds of a black swan are substantial.
It is therefore not hard to believe that Bitcoin could drop by say -90% from its former peak of $69,000. This would be beyond what it dropped during its last two bear markets of -84% and -87%. Expect the crypto space valuation to drop to $200-250 billion. This is -91% to -93% off its $3 trillion peak since Ethereum will probably drop -97%, beyond what it dropped in 2018 of -95%, thus smaller altcoins will probably drop -98% to -99.x%. This suggests a Bitcoin floor price of $6900 and an Ethereum price of $146, thus it’s $10k and pray for Bitcoin.
The death of NFTs?
Just as Bitcoin has died hundreds of deaths, the death of NFTs has been greatly exaggerated. The market cap of NFTs, while down over -80% to 90% from peak, still stands at many billions of dollars, and they’re just getting started. So while NFT valuations could see drops beyond -95% from peak levels, an NFT collection enables one to create a community which is the cornerstone to establishing a powerful network effect among other key features.
Ultimately, the world is better off with Web3 built on trustless, permissionless, secure, and decentralised protocols. Web3 will disrupt big tech, big pharma, big philanthropic, big oil, and big banks. “Too big to fail” will become a distant memory. Remember that Bitcoin dropped -94% off its peak two times in the early 2010s during no recession. Of course, it was nascent so subject to far greater volatility.
CBDC pros
Nevertheless, central banks love CBDCs because it gives them far greater control over conventional fiat. The advantages are numerous. CBDCs:
1) Reduce the cost of seigniorage to near zero. At present, for every $1 note that the Federal Reserve produces, the seigniorage is $0.925 cents because it costs $0.075 cents to produce per note. For coins, it at times cost more to produce coins than the denominated value on the coin itself due to rising commodity prices. For example, in 2021, it cost the US Mint $0.021 cents to make a penny.
2) Would also enable more people to gain access to banking, especially in developing countries. 1.4 billion remain unbanked but thanks to mobile phones and Bitcoin and eventually CBDCs, a growing number has been and will continue to transact value. All that is needed is a digital wallet app with banking features installed of a user’s mobile who can then make transactions directly through their digital wallet. No physical bank or ATM would be required. Gone are the extortionist remittance fees for small amounts from platforms such as Western Union.
3) Speed up cross-border fund transfers to just a few hours or less which normally would take two to three days, sometimes more, due to onerous regulations. Banks greatly benefit from not needing physical banks or ATMs.
4) Rreduce fraudulent transactions from money laundering to drug trafficking to tax evasion. Governments will have the ability to control and monitor the flow of capital across the blockchain.
5) Promote accountability and culpability from government officials. Issues such as misappropriation of funds and illicit budget overspending can be greatly reduced. Bernie Madoff’s fund would have been red flagged before he had a chance to misappropriate funds.
6) Are programmable though this is a double-edged sword. Governments can make their monetary policies more effective such as with the stimulus checks sent to Americans who were spending as little as possible, thus defeating the purpose of the checks which was to give the economy a needed boost. Certain CBDCs could also be only allowed for certain types of spending if the government wanted to help a certain industry that was lagging or to stimulate the velocity of M2 to spur the economy.
CBDC cons
But this sort of control can go awry. CBDCs could have an expiration date for certain individuals forcing them to spend the money. For example, if the government’s fiscal policy dictated that to stimulate the economy, x% of each person’s account would expire worthless by a specific date. In the future, withdrawing to cash would no longer be an option as places stopped taking cash as we have seen in parts of China. Further, with CBDCs, your rate of interest based on your credit and social score could be adjusted.
The government could use CBDCs to determine how much money one can spend, where to spend it, how to spend it, when to spend it, and what to spend it on. The world is no stranger to capital controls. During WWII, the majority of countries exercised some form of capital control. Today, some developing countries such as Nigeria and Lebanon are instituting such measures where citizens are only allowed to withdraw x amount a day.
CBDCs would greatly facilitate these measures of money control. Those who opt out of such a dystopian system would further spur the growth of technologies such as Bitcoin that would operate in parallel which enable peer-to-peer value transfer that is borderless and secure.
Despite the bear market, Bitcoin’s number of users continues to grow with its hash rate at all-time highs. Lebanon has shown that a fully functional, parallel economy is possible with cryptocurrencies such as Bitcoin.
As the number of Bitcoin users continues to grow, the world may reach a tipping point where the majority transacts in Bitcoin as p2p value transfer outside of the control of governments becomes the norm, catalysed by the deployment of CBDCs by world governments as they try to control the freedom to transact enabled by Bitcoin and other cryptocurrencies. Freedom and decentralisation will win because they are more economic. The battle will be revolutionary.
(͡:B ͜ʖ ͡:B)
Dr Chris Kacher, PhD nuclear physics UC Berkeley/record breaking KPMG audited accts in stocks & crypto/bestselling author/top 40 charted musician/blockchain fintech specialist. Co-founder of Virtue of Selfish Investing, TriQuantum Technologies, and Hanse Digital Access*\. Dr Kacher bought his first Bitcoin at just over $10 in January\-2013 and contributed to early Ethereum dev meetings in London hosted by Vitalik Buterin\. His metrics have called every major top & bottom in Bitcoin since 2011 to within a few weeks\. He was up in 2018 vs the avg performing crypto hedge fund \(\-54%\) \[PwC\] and is up well ahead of Bitcoin & alt coins over the cycles as capital is force fed into the top performing alt coins while weaker ones are sold\. *
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