This is not a subject I know much about, although I’ve gotten a lot of excellent information over the past half year from one of my my sons and from my son-in law. So I only have three comments:
–the past few months have shown all the characteristics of a speculative mania in the cryptocurrency world. The rash of recent ICOs (Initial Coin Offerings), done in incredible speed with scanty documentation and in which buyers seem to receive nothing useful for their money, remind me a lot of the final days of the internet mania of late 1999-early 2000
–the secondary market, that is, trading by parties other than the the original creator of the tokens, is very illiquid and woefully inadequate. I think this is the main reason the bitcoin etf, GBTC, trades at a huge premium to NAV
–some form of cryptocurrency (at this point, the chief contenders seem to be bitcoin and ethereum) may end up being the new gold. We can already see their flight capital attractiveness in the collapsing economy of Venezuela.
There’s a wider point than just this, though. Ultimately, national currencies depend for their viability on belief in the integrity and fiscal soundness of the governments that issue them, and the economic prospects of the economies that form their tax bases.
The big issue with governments, however, is their seemingly irresistible urge to wriggle out from under their sovereign debt by inflating away the real value of their borrowings. Venezuela’s current inflation of 1000%+ means that if you lend Caracas the price of a car today, a year from now the bolivars you get back won’t cover much more than a Big Mac.
Yes, this is a crazy example, but the point remains, I think, that most governments (Germany–and maybe China–being the only exceptions that come to mind) are more than willing to “debase” their currencies, as gold bugs would put it. Look at Japan. What about the UK? Even the US had a go at this in the 1970s.
To be clear, I’m not advocating buying bitcoin (I do own a miniscule amount through holding shares in the Ark Invest Web x.0 ETF (ARKW)). I think it’s something to keep an eye on, however. I can see that something like bitcoin could ultimately replace gold as an alternative investment. After all, when you get down to it, gold is just a shiny kind of dirt.
I also think that even in stable economies investors are beginning to look for a way to hedge their dollar holdings, thinking that the post-WWII world order led by the US is nearing the end of its useful life. No clear replacement is in sight. And the three national currency contenders, the dollar, the euro and the renminbi, all have rapidly aging populations–meaning, if Japan is any indication, an imminent slowdown in economic growth power.