A gentle reminder from Morgan Stanley about where we stand in the current scheme of things. We could perhaps also include the bond market on this chart as well, but ultimately the global M2 money supply is a reasonable long term target for bitcoin.
M2 is a measure of the money supply that includes cash, checking deposits, and money market funds. The great news about M2 is that currently it is growing at around 20% per year. There is a 150x increase for bitcoin to go on this journey, that’s ignoring the growth of the target itself. You might rank the chances of success as low but that ranking would need to be <0.7%.
When bitcoin launched in 2009, the chances were probably that low. Indeed, the debate about whether it could ever be worth $100 lasted four years and it would be another four years before it broke $1,000.
The reminder here is that this market we address is very large indeed. Bitcoin is providing a new reference point for value and is better at that than anything else that currently exists.
Along the way there has been pain, doubt, uncertainty and nothing but unrelenting criticism and predictions of failure. Long may that continue.
Over the past decade, India has become quietly technically advanced. A project known as ‘India Stack’ began in 2009 and has been developing and progressing since then. The system enables APIs for businesses so they can interact with both government databases which help identify other parties, as well as collecting payment and obtaining user consent. India is so large and complex that the potential gains from such a system are absolutely enormous.
It’s not perfect though. It comes with a privacy cost because to use it, because people need to register their biometric data with the government. The idea is the right one though, particularly as the consent to share and access data is devolved to the individual. Would you rather share your fingerprint or your passport? Arguably, you leave the former everywhere you go, so it is hardly a secret.
There is a similar system planned in Australia known as ‘Open Banking’ it does not go live formally until 2022 and it encompasses only banking data where the India project includes government, identification, consent and payment layers. Sufficient information that you can fully interact with a person or business whenever you wish. The Indian project is far more developed, they are a decade in front and it shows.
India Stack is now facing the issue of cryptocurrency. The Indian government has banned and unbanned bitcoin and other currencies on multiple occasions but we seem to be making some progress.
Slowly but surely there is acceptance that digital assets are here to stay. No doubt governments are concerned about how they will impact their own currencies. Indeed, their main concern is that they introduce new risk to the financial system. The days of ignoring it and hoping it goes away are now gone. Some countries will do a good job of regulation and others will make a mess of it, to their cost.
India has led the way, with very little fanfare, in terms of embracing a digital economy. As time progresses, these advancements are going to compound. Some countries will be left behind and Australia will likely be one of them.
Ignore code at your peril.
The Basel Committee
The Basel Committee oversees banking governance worldwide. Its decisions are not binding on members unless they decide to adopt them themselves but nonetheless it is a powerful group. Rather uniquely for a global organisation its composition includes banks from every major country in the world including China, Russia and India as well as the usual suspects.
On Friday the group released their proposals for the regulation of banks that hold what is termed in the paper “crypto-assets”. They have separated those assets into two categories. Firstly, assets which tokenise another asset, like stable coins. Secondly, standalone assets like bitcoin.
The proposals, as expected, are rather punitive. In fact without going through the detail they make it un-economic for banks to trade in cryptocurrency or to use leverage because the implied reserve requirements are virtually 100%, such that $100 of cryptocurrency exposure requires $100 in equity. If a bank uses 10x leverage in a trade, they would need the full $1,000 in reserve requirement. For a bank, this is prohibitive since it uses up a great deal of their reserve requirement on a particular asset class and comes therefore with huge opportunity cost for other trading possibilities.
The likely outcome is that banks become involved in a very small way. However the whole proposal does not prohibit banks from taking custody of digital assets, settling trades or running investment funds that hold them. They just can’t trade them on balance sheet.
Bitcoin’s Taproot was locked in over the weekend when over 90% of miners signaled that they would support the change. Note, the change does not require miner support. Bitcoin is ruled by users, not miners, but miner signalling is an easy first point of call for upgrades.
This is the first time we have had a major upgrade managed in this way. It was very successful and very encouraging given the over 97% support from the mining group.
The code itself will launch in November this year, at which point users will have the option to upgrade their software (which will be backwards compatible).
Taproot offers a lot of possibilities given the way it manages transaction and contract size. Imagine the banking industry suddenly announcing they could operate their systems for 30 cents in the dollar against their current average of 50 cents in the dollar. It’s roughly that kind of significance.
The G7 met in Cornwall, UK, last week. A mutually inconvenient choice for almost everyone involved.
It’s an unusual gathering as it excludes China, Russia, Africa and all of South America. India was only invited as an observer. There isn’t really much point announcing things when the two biggest populations and two entire continents are excluded but that didn’t hold back our favourite cabal.
The non-G7 world (so most of it) was unimpressed. Here’s a taste from the Chinese press in a cartoon titled “The Last G7”. Australia is depicted in the picture, bottom left, as a money grabbing Kangaroo. Rather harsh, but we knew they weren’t happy with us. If you look closely you will see a frog slowly boiling in water in the foreground.
The Russian President, Vladimir Putin didn’t miss an opportunity to put the boot in either. He was interviewed by the NBC prior to his meeting with Joe Biden. Unfortunately Joe himself had just finished an interview in which he managed to confuse Syria and Libya three times inside a minute. I guess they’re similar, you know, that sandy bit over there.
Putin was asked about cyber-attacks and human rights. He put the question back to the American interviewer highlighting some of the less than bright spots in recent US history.
Unfortunately he has a point. Apart from becoming an embarrassment, the G7 is a glass house, no point throwing stones.