When you buy shares of any equity like AMZN or AAPL, you are buying ownership in the company. Your shares entitled you to fractional ownership of the company in proportion to the percentage of shares you own. Along with your fractional share holdings comes all the rights of your proportional ownership. You have voting rights, participation in board meetings, a voice in who manages the company, and proportional influence in the overall direction of the company. When the company prospers and increases in value, so to do the value of your shares. Similarly, you take losses when the company fails to prosper. One purchases an equity in the belief that it has growth and revenue potential, and that you will economically share in those future prospects.
When you buy the crypto of an onchain company, you are purchasing its currency. You are not buying ownership in the company. You do not have ownership in the future growth and revenue return of a crypto company. You own its currency.
Depending on the crypto company and its specific currency (or token), you may get participation rights in the future direction of the company and its protocol. Unlike a traditional equity investment that has uniform rules, protections, and required disclosures set by government regulation, crypto has no central governing authority at this time. You have to evaluate every onchain company for your participation rights based on the individual company’s own merits.
A common misconception is that purchasing a crypto is the same as purchasing an equity. That just as share ownership will enjoy the rewards of future growth and revenue from a traditional equity investment, so will the purchase of a crypto result in its appreciation along with the growth of the underlying onchain company. This is not true. There is no investment similarity between owning shares of an equity and purchasing a crypto currency. It’s night and day. To understand a crypto investment, requires understanding money.
The demand for a currency relative to its supply determines its value. That’s true for any currency whether gold, fiat, or crypto. It’s axiomatic that a currency should remain stable in value without inflation or deflation. Gold and the gold standard provided the world with stable value for most of the 19th and 20th century. Since Nixon ended Bretton Woods in 1971, the world has been on a floating fiat standard and the dollar has lost 99 percent of its value. Bitcoin came along as an end run around centralized fiat devaluation, but its deflationary 21 million fixed supply made it unworkable as a functional currency. All fixed supply crypto is deflationary with increased demand and unworkable as functional currency.
That a currency should remain stable in value is just as true for crypto. Crypto companies that are actually creating onchain enterprises with future growth and revenue potential require an underlying stable value currency in order for customers to transact on their platform. If you’re an artist creating content through an onchain company, you don’t want volatile price changes of the underlying crypto currency to occur within the term of your contract. You want a stable value crypto currency. It’s a zero sum game that under volatile crypto price changes, either the content creator or the buyer will win or lose based on changes in the value of the crypto over the life of the contract. Artists want to create onchain content and have their work paid at their contracted value. They do not want to have to speculate in currency like a Wall Street trader.
However, all investment in crypto is predicated on its price going higher—much higher, and the faster its price goes higher, the greater the demand and the more its price increases. This is deflationary and unworkable as a functional currency. A growing crypto company requires a stable value currency. Contrast this with a crypto investment in that company whose investor requires the currency to appreciate in price for investment return. The two are mutually exclusive. You cannot have a growing enterprise with an underlying deflationary currency, and no one will invest in a crypto currency whose price doesn’t increase. The crypto Catch-22.
An onchain crypto enterprise is dead in its tracks over a longer term as long as their crypto currency remains fixed in supply. It’s the story of BTC. Satoshi created BTC to be a decentralized global currency alternate to the inflationary centralized fiat dollar, but no one uses highly deflationary BTC for every day goods and services transactions. A fixed supply currency can never be a functional currency. When the raison d’etre for BTC’s existence fails, the goal post gets moved. Many leaders in the crypto space no longer consider BTC to even be a currency. According to Saylor, it’s digital capital, digital gold, digital commodity, digital, energy, digital real estate, and no doubt for him, digital aphrodisiac. Anything but money, because that no longer works. The new story is that BTC will for some reason magically become the base layer of the new digital economy. That is a fevered fantasy. Without offsetting transaction rewards, fixed supply BTC will never be anything other than a speculative asset with a limited shelf-life as its halving approaches fractional mining rewards.
Because BTC failed as a functional alternative currency disrupting the fiat dollar, the entire fixed supply crypto space is working its way to regulation in the same financial system Satoshi meant for it to disrupt. This is the result of Satoshi’s fixed supply error. Satoshi rooted his monetary system in Rothbardian Austrian economics that posited that supply limited physical gold should be the only money. A limited gold supply is deflationary and unworkable, and it’s worse for 21 million fixed supply BTC–despite its infinite divisibility and digital origin. A fixed supply currency has never existed as a functional currency in any advanced economic system and never will.
Had Satoshi autonomously linked BTC’s supply to gold instead of 21 million bitcoins, BTC would act as a functional currency disrupting the fiat dollar. All the thousands of useless cryptos and shitcoins would not exist because they would have no purpose. Their only purpose is as speculative assets, the same as BTC. They are just BTC speculative asset knockoffs. Had Satoshi designed BTC as a stable value currency, its currency and blockchain would have created the foundation for building a decentralized financial system as he envisioned. Productive enterprises could build on that foundation using a stable value bitcoin as their currency. There would be no need for stablecoins, and the Tether fraud underlying the entire house of cards crypto foundation wouldn’t exist.
Companies are building productive enterprises on the digital economy, but their fixed supply currency hampers their growth potential. They are trapped in the crypto Catch-22. They have a choice. Either end their currency’s fixed supply and attain a stable value—at least as stable as the dollar—or limit their future growth through their deflationary fixed supply currency. In which case they will become another speculative asset.
The irony of the crypto Catch-22 is that with a stable value crypto, there is no reason to invest in a company’s crypto. In that case, a blockchain enterprise would need to sell shares in their company. This would require full compliance with all financial regulatory authorities the same as any other equity investment. Fixed supply crypto will come full circle. From Satoshi’s decentralized financial vision to full regulation by the same system Satoshi meant to disrupt.
BTC and crypto will continue to play out as speculative assets until the underlying system can no longer sustain itself. Then BTC and crypto will move on to the next phase of either compliance with the existing financial system, or the end of fixed supply bitcoin and creation of a decentralized stable value bitcoin that would disrupt the fiat system.
The ultimate irony is that fixed supply BTC has laid the foundation for the coming CBDC. The nightmare opposite of everything Satoshi meant BTC to be.