Obi Nwosu is the CEO and co-founder of Coinfloor, the UK's longest-running Bitcoin exchange. He has over 20 years’ experience building online marketplaces and bringing virtual currencies to tens of millions of people. Obi writes The Road to Bitcoin Hegemony, a weekly recap of some of the most impactful developments in Bitcoin.
Welcome to The Road to Bitcoin Hegemony, a weekly analysis of some the most interesting developments in Bitcoin and why they matter in Bitcoin's journey towards monetary dominance.
First, I’d like to look at Jerome Powell’s statements about US inflation. The big headline from his Jackson Hole speech was that the Fed will henceforth implement “average inflation targeting.” His message was essentially, 'don’t worry about all the money printing: the government will claw it all back somewhere down the line.'
Good news, right? No one will lose out because, hey, averages.
On the contrary: like much that has come out of the Fed in the last few years, this is Alice in Wonderland economics. Lewis Carroll fans will remember that the White Queen promises “jam tomorrow and jam yesterday, but never jam today.” That’s essentially what Powell is offering, softening the blow of bad news in the present with the promise that all will come good, somehow, at some unspecified point in the future.
But his speech is also notable for deploying a statistical sleight of hand, one designed to profit from the fact that inflation rates are misleading at the best of times.
A Twitter thread from Anthony Pompliano eloquently highlights the fact that inflation rates touted by the Fed and other central banks are always an average. The effective rate one actually experiences can be completely different based on your financial situation.
The promise of jam tomorrow might placate the markets, but it will have a devastating effect for people on the wrong side of these averages. A more honest appraisal would be to borrow a line from Albania’s communist dictator Enver Hoxha, who once told a crowd: “The bad news is that this year has been harder than last year; the good news is that this year will be easier than next.”
Good times, then - as long as you’re from the right side of the tracks.
While Powell was busy making promises, investors continued to hedge against a future “cash crash.” The latest — and by far the biggest — company is investment giant Fidelity, which last week filed SEC paperwork for the creation of a new fund dedicated to Bitcoin.
Details are scant at this stage, but it is clear that another behemoth from the old financial world finally has publicly swallowed the orange pill. Announcements like this show the extent to which Bitcoin has turned the financial world topsy-turvy. Where once they led, companies like Fidelity are now scrambling to follow in the footsteps of their own customers.
But it perfectly illustrates the “black hole effect” of Bitcoin. No one can escape the gravitational pull of this first instantiation of John Nash’s Ideal Money.
I have talked about this before and I am sure I will again. Investors are adding to their Bitcoin (if they are new school) and gold (if they are old school) holdings as a hedge against increasing inflationary uncertainty. On the gold side, we now have Ray “Cash is Trash” Dalio increasing Bridgewater Associates’ interest in Gold ETFs to a total of 20 per cent of their holdings (far higher than his normal target of 5%).
As investors take up larger positions in these low-to-zero inflationary assets, they will inevitably see the value of assets that store value without the drain hole of inflation attached. Fidelity’s move is big news, but be in no doubt: it’s the growing pace of adoption that’s the real story here.
No one could accuse the Bitcoin community of lacking passion. But the febrile enthusiasm that makes this such a thrilling industry can sometimes spill over into bitter recrimination between and among the different Bitcoin factions.
So we saw with the vituperative reaction to some Bitcoin maximalists’ investment in the Ethereum-based INX token. Easy though it would be to sit this one out, I’m going to brave the fire and brimstone and give my view on whether this is good news for the space.
First off, my read is that the INX token is effectively a right to share the eponymous exchange’s revenue or have discounts on trading fees. There is nothing inherently wrong with this idea. In fact, I came up with a similar idea that we were going to call “Coinfloor Coupons” (named as such to highlight the fact that it was NOT money), which eventually morphed into “FLEXCoins.”
The big difference with INX tokens was that our Coupons were designed so they couldn’t be traded on any other platform; they were also implemented using nothing fancier than a database and some SQL queries.
The INX token is designed to help incentivize the usage, promotion, and stickiness of users for the INX platform. In this way it has similarities to ICO tokens - but it also has similarities to in-store coupons, air miles, and dividend-paying equity in a company.
So why the rage? Most of it seems to be directed at prominent Bitcoin proponents for their embrace of a token launched on Ethereum, which many maximalists regard as a scam.
You’ll have to travel a long way to find a bigger believer in Bitcoin than me. Remember, Coinfloor delisted Ethereum because we felt that it was a vastly inferior coin and ecosystem. So I can understand the angst, because it does appear hypocritical at first glance. But when you read the details, look at the context, and understand the background, one may well form a very different conclusion.
Fundamentally, this is not an attempt to make a better Bitcoin; rather, its aim is to create a more transparent and open form of equity in a company while still working within existing legal and regulatory frameworks. The decentralized economy can’t have centralized actors, so this token is not and cannot be part of it. But even its biggest champions never claimed to be building a rival to Bitcoin. It is actually an attempt to use Bitcoin-inspired technology to improve upon existing centralized financial offerings. Given this objective, the use of base layer technology is not really that important.
For me, the amount of online vitriol this announcement generated is more interesting than the IPO itself. Now that tempers have cooled a little, we should all examine — with myself definitely included — the effect that social media has on public discussion and our ability to make progress in our pursuit of a better financial world.
We are working to build a financial revolution, but success depends on our ability to disseminate information effectively and dispel misinformation. This storm in a Twitter teacup shows how much more we need to do to improve tools for filtering and analyzing the daily deluge of information from social media; for distinguishing the important from the trivial and the facts from the Fake News.
Even more than this, though, I’d urge everyone involved in this revolution to be a little more considered and less ready to ascribe base motives to those who are trying to push things forwards. Don't trust, but do take the time to verify.
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