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Is crypto the future of money? Panelists debate

No existing cryptocurrencies exhibit the three characteristics of money all that well

Crypto

Is cryptocurrency money? (via Pixabay)

[Modern Consensus sent Michael Hillmeyer to check out the blockchain and cryptocurrency panels at the Propelify tech and music conference in Hoboken. You can read his review of the first panel (“Diversity in the Blockchain Industry and Why It’s Important to Get It Right Now”). Also, check out his review of the third panel (“Is Blockchain the Answer to Big Data Problems AND Does Blockchain Create Existential Threats to Intermediaries?”)]

Is Crpto The Future of Money?

Is Crpto The Future of Money? (Photo by Michael Hillmeyer for Modern Consensus)

In this second panel, “Is Crypto the Future of Money?” another standing room only crowd watched moderator Joe Leo of Def Method get right to the point by asking the eponymous question.

James Putra*, director of product strategy and innovation at TradeStation, began his answer by recounting the three main characteristics of a currency: 1) A currency must serve as a medium of exchange, 2) it must act as a unit of account, and 3) it must be a store of value. Putra contended that no existing cryptocurrencies exhibit those three characteristics well. For example, while transactions can be made with bitcoin, this is not yet common outside of a few locations. More important is the extreme volatility of bitcoin and its ilk as they are far more volatile than any fiat currency. This hurts their ability to act as a unit of account or a store of value.

We took Putra’s answer as a “no.” Cryptocurrencies are not the future of money, at least not in the immediate future. He is, however, encouraged that U.S. regulators have not approached regulation of the space very aggressively. He maintains that good regulation will create a framework for companies to work in the space and will bring in existing large financial institutions.

Brian Tubergen, the founder and chief product officer of CoinList, a platform recently spun out of AngelList allowing companies to run their token sales, naturally sees things somewhat differently. While acknowledging that the U.S. dollar isn’t going to be replaced by cryptocurrencies anytime soon, he expects existing industries like real estate to tokenize in the near future. Like Putra, he sees the need for good regulations to create compliant token exchanges.

Because most existing cryptocurrencies are too volatile to be used as a medium of exchange, Tubergen likes so-called stable coins, which are ostensibly pegged to the dollar as a means of reducing volatility. Tubergen expects stable coins to take market share from fiat currencies in the future.

Putra interjected that because he is a trader, he likes volatility. He went on to say that some sort of rating system for crypto currencies is needed, perhaps similar to what currently exists for equities. Putra also believes that the risk of investing in cryptocurrencies is asymmetric, with virtually unlimited upside, but with only the original investment to be lost on the downside.

Having lived through a couple of boom and bust cycles, we need to note that when it comes to bubbles, both individual and institutional investors will find ways of adding ever increasing amounts of leverage to their speculative bets in novel ways that inevitably ends in tears.

Tubergen added that there is a short-term opportunity for a cryptocurrency in Venezuela that seems to get mentioned at least once on every panel these days. Somebody should get on that. Well, aside from the current government.

Antique Bar Bakery

Hoboken’s own Antique Bar Bakery (Photo by Michael Hillmeyer for Modern Consensus).

Given the proximity of Bitcoin Pizza Day, we asked at several of the food vending stands afterwards if they accepted any cryptocurrencies as payment, but none of them did. While we had had an excellent tom yum soup at Thai popup Suwanna earlier in the afternoon in the main food area, we thought that in the interest of thorough reporting that we should check out the offerings in the VIP area. Hoboken’s Antique Bar Bakery stand had some tasty hot dogs with all of the fixings, but they couldn’t be purchased for either crypto or fiat. They were complimentary. The Antique Bar Bakery folks were also handling the cocktails and craft beer at drinks stands that were scattered around the festival outside the VIP area. Soylent was also in there handing out free samples and bottles.

 

[James Putra sent us the following note to clarify his remarks: 

“I believe strongly that cryptocurrencies are the future of how we will transfer value and ultimately transact across the globe. The asset class has a lot of maturing to do before we will see mass adoption of cryptocurrencies. 

“What’s interesting to see is that Blockchain technology has created a way for new entrants to issue their own currency. With maturity, these new upstart crypto-currencies should create competition for central bank issued currency as people gravitate to the currency that best suits their individual needs. 

“To be clear, I don’t believe this increased competition will eliminate central banks. However, it will be positive for the end consumer to have a variety of options and properties of their money.”]

Michael Hillmeyer has primarily been an independent consultant in the financial services, technology and healthcare industries since 2004. Prior to this, Michael was a senior sell-side equity research analyst at Merrill Lynch covering several technology industries. He owns no positions in any cryptocurrency but writes the “Distributed Leisure” column for Modern Consensus.