The economy is not just a matter of money. Money is just one instrument in a much larger and more complex machine. In many ways, money is a form of organization like language or mathematics. It influences a lot. But it is not the only variable in the equation. We must remember that money is not eaten, it does not dress us, it does not transport us. It is a simple medium for exchange. Then, reducing the economy to a purely monetary phenomenon is extremely foolish. Let’s talk for a while about the Bitcoin pattern, the current economy and the price of financial assets?
It all starts with human needs. And, in this case, I am referring to the most fundamental physical needs: Food, housing, health, transportation, air, water, etc. Let’s talk about the food. Bread, for example. The bread on our table is the result of a great production and distribution chain. It all starts with a wheat seed. Yada, yada, yada. We have bread on the table. The price of bread is formed by a triangular formula: The supply of bread, the demand for bread, and the amount of money available. PAM! The price of bread.
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Obviously the matter is much more complex than it seems. To produce bread requires an infrastructure. At heart, it is a human and technological company. First of all, a culture of eating bread is required. It requires space, labor, inputs, and knowledge to produce the raw material. Next, transportation, manufacturing, and marketing are required. We have the final product. Also, of course, a form of payment. Of course, bread is just one product among many. In summary, This machine is a monster with a thousand heads. It is clumsy to suggest that the solution to everything is limited to the form of payment. “Bitcoin fix that”.
Price stability is achieved with flexible money. I remind you of the triangular formula: Supply, demand, money. In their hard money (scarce) system, prices plummet. Which implies that supply suffers and demand suffers. Why? Well, because money is worth more and there is less incentive to pay it. No expenses, lower income. And, without income, there is no job creation. Consequently, the Gross Domestic Product slows down. The ideal is an economy based on production and investment, and not one based on the accumulation of money. This implies a lot of production (supply), healthy consumption (demand) and the necessary amount of money for things to move. Liquidity stimulates spending and investment. Hard money encourages money hoarding. Liquid money drives production. In other words, the daily bread.
Pandemic case. The pandemic arrives and the markets collapse. Why? The lockdown plummeted demand. Consequently, production is suspended and inventories overflow. At first, prices drop, the currency tightens, and unemployment skyrockets. In short, we have a crisis. As an emergency measure, it was the injection of liquidity by the central banks. So that? To raise the demand. In this way, raise prices, increase demand and reactivate production chains. The goal: Create jobs. In more prosaic words: Put the bread on the table.
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What is the problem? Well, it is easier to brake a machine than to start a machine. I mean the power of inertia. Due to the lockdown, many canceled their orders. And the producers slow down their operations. Suddenly, everything begins again, and the orders returned. But this time in a frenzy. Going back to previous production levels takes time. Let’s say we cancel our order for wheat. Well, the producer stops sowing. Now let’s say we reorder. Well, now we have to wait because the sowing of wheat has its lapses. Meanwhile, we have a shortage crisis. With demand and money, but without supply, what we get is a price increase. In other words, inflation. But it is an inflation that we must tolerate for a time. Otherwise, the revival suffers.
Now, the control of the seas is vital for world trade. The use of the dollar in international trade is no accident. It is not just an adoption issue. It is also a financial, military and legal security issue. The seas are teeming with ships carrying goods. All these operations require financing, protection, insurance and legal certainty. Who can offer all in one? The brand new Uncle Sam. And Uncle Sam gets paid on the papers he issues himself.
The aspirant to dethrone the dollar as the currency of world trade must be proficient in various arenas: Finance, Military, Commerce, and Government. I repeat: It is not only a matter of adoption. A citizen currency like Bitcoin will not dethrone the dollar solely with social adaptation. The Internet is a layer of the economy that is only possible with the dominion of the seas.
Right now, we have bottle necks everywhere. There are delays in the factories. But there is also a shortage of containers. The ports cannot cope with processing incoming merchandise. And the shortage of truckers for onshore distribution is alarming. A hard coin is not the solution. A hard currency would create a terrible deflationary picture that would decrease demand and end up suffocating production. The economy does require a stable currency. Then, the issuance of money must be understood very well with the production of goods and services.
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Of course, the implementation of the Bitcoin pattern is an aspiration (somewhat naive) of a group of libertarians of Californian ideology. For the rest of the mortals, Bitcoin is a new asset class. A “store of value” (speculative asset), quite volatile in the short term, but which has more than demonstrated its profitability in the long term. In other words, a key piece in any investment portfolio that aspires to grow. It has no “intrinsic value.” Obviously you don’t eat. After all, it is simply a code that represents a rate of change. But as an instrument of value transfer it is excellent. However, it is a risk asset. It is a “macro asset” that is extremely sensitive to macroeconomic factors. The recommendation is to manage wisely.
Personally, I think that every bitcoiner should be an expert in macroeconomics. Here is the irony of all this. Many bitcoiners have concentrated all their efforts on defending ultra-conservative economic thinking in the style of the gold brooms in the 70s. So they live in a fantasy world where the only thing that is real is free market fundamentalism. They see what they want to see. The Federal Reserve is the enemy. The dollar is the enemy. And interpreting the world according to its dogmas. With the illusion of a libertarian utopia. But nevertheless, the investor must be much more pragmatic. You must stop the 70s politicking and accept the world as it really is. In this way, to be able to grow financially.