One of the most important economic and financial changes of the past century may happen so fast that millions of Americans won’t be able to understand it, much less participate, until after the fact. The questions at the heart of the potential transformation are simple and momentous. Who, if anyone, will become the de facto controller of bitcoin markets? And what regulatory regime, if any, will integrate the cryptocurrency fully into the traditional financial system?
For now, bitcoin continues to benefit outsiders over insiders. In addition to speculators, risk-friendly investors, and tech natives ideologically committed to seeing cryptocurrency flourish, bitcoin has handed an abrupt and outsized advantage to ambitious people who want to get rich without having to remain within the confines of traditional financial networks.
Today, much of globalization boils down to the flow of credit and debt through a worldwide monetary system stacked strongly in favor of the international banking and sovereign wealth interests that keep it in place. This system has pluses and minuses. One minus is that it is becoming increasingly more difficult to produce, grow and move assets free of scrutiny and compliance controls. Increasingly, our world system has turned against financial freedom in the name of justice and security. A growing elite constituency in the public and private sector has begun to think of cash itself as a systemic criminality problem that ought to be eliminated by simply phasing out hard currency altogether.
That would imply a new worldwide digital currency system, crafted, no doubt, by the same elite. Yet so far, Wall Street remains far too skittish and internally divided to have moved with any confidence into the bitcoin space. So far only one major Wall Street strategist, former JP Morgan Chase equity strategist Tom Lee of Fundstrat, has issued bitcoin recommendations. In the short term, and perhaps longer, it is hard to see how Wall Street will become a dominant player in bitcoin markets.
Should the currency continue its breakneck growth, Wall Street’s relative weakness there will be definitive, leaving the bitcoin market open for development and exploitation by players with interests that need not align at all with those of Wall Street — or, therefore, the Federal Reserve.
Those players may include foreign governments, especially those with a longstanding interest in ramping up rival financial systems to those created by the West. Contrarian analysts in the U.S. and Europe have long predicted that China, perhaps in concert with Russia, would launch a currency regime competitor to the dollar (and therefore the petrodollar) backed by gold. Gold, however, is cumbersome and costly to store, move and “mine.” It also lacks the resonance with the thrust of the future that a rival financial system would probably need to have in order to compete successfully for currently dollar-denominated trade.
Yet, China has not forcefully intervened in bitcoin markets yet either. In fact, in the wake of the country’s latest Communist Party Congress, China’s bitcoin trading platforms are closing down, creating a scramble among its many holders of the currency. Chinese officials have long been aware that nationals uneasy with the direction of the regime and its economic fundamentals use bitcoin to move large amounts of money out of the country. Now, it appears, they are prepared to do something about it, even if it means paying the price of a one-time rush to shift to cryptocurrency exchanges in Hong Kong, South Korea, Japan or farther afield.
On the other hand, China must take care not to push bitcoin usage away entirely. The largest bitcoin mines are in China, and its rampant use has a different character than in the West, where it has acquired a more or less libertarian political identity. Many Chinese users are more interested in the blockchain architecture of bitcoin than in using it as a wedge to pry open greater freedom and independence. This cultural difference could prove key should bitcoin continue to rise in the world as the basis of a rival or alternative financial system. Neither China nor its less-than-liberal allies around the world want to see the primary alternative to the established Western financial system become a force for political liberation movements.
Remarkably, then, both Wall Street and its biggest foreign competitors harbor too much ambiguity about bitcoin to make big moves that would dominate bitcoin markets. That means control is still up for grabs — and that no one player could emerge to wield mastery over the currency for some time to come. In turn, that also means ambitious political outsiders — especially those who gambled big and gambled early on bitcoin growth — could quickly gain the ability to ramp up alternative political movements and business ecosystems. With much of the established political order in the West in a weakened and vulnerable state, the consequences could prove dramatic.
For ordinary Americans, then, bitcoin seems to herald an ambiguous kind of opportunity. If, on the one hand, the big winners of the current phase of bitcoin expansion have already been determined, with very little room to join their ranks down the line, everyday investors will still probably retain the ability to grow wealth very fast and freely if current bitcoin expansion trends hold steady. Although it is always risky, and sometimes ill-advised, to bank on breakneck expansion, the main threat to that kind of growth curve would be bitcoin’s “capture” by established players looking to flatten the curve — and prevent the development of a new class of national and international elites.