The Commoditization Of Currencies And Role Of Crypto

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The world is changing, and it is very clear to some people. For thousands of years, things were paid for with accepted commodities. Gold and metals were the standard because they physically existed. The peak of the Gold Rush years was 1849 in California. People continued to move West to be a part of finding gold.

When it comes to currencies, the US Dollar was based on gold for several periods of time, including from 1870 to 1920. We re-established the standard in the late 1920’s, and it held until 1932. We brought it back one final time globally in 1944 via the Bretton Woods agreement. That lasted until 1971, when the Nixon Administration eliminated the gold standard for good.

Globally, we have used many different metals as currencies. In reality, silver has been a more commonly used standard than gold over time. But this still assumes that metal is the core value of a currency. Many States in the USA still have gold stockpiles. There are still mints in Colorado, Kentucky, Pennsylvania, California, Washington DC, and New York.

As the world has become “flatter,” or more globally organized over the last 30-40 years, metal standards have evaporated. There have often been discussions about creating a global government, tax system, and currency system, all of which have been interesting to some and not at all interesting to others.

And now along comes cryptocurrency.

When you commoditize something, it means that you make it so commonplace that anyone can buy or sell it. In the early 1990’s, it cost several percent to buy and sell a stock. I remember those days. In 2013, Robinhood (HOOD) came onto the scene and opened millions of accounts by offering no-commission trading. This had been attempted before by other US brokers, such as Zecco, but the world was more ready for Robinhood’s app-based approach. Other US brokers took notice. Three years ago, Charles Schwab (SCHW), lowered their stock commissions to zero. The rest of the industry fell in line. The stock trading world was now commoditized.

You can say the same of many products that we use daily in our lives. But what happens when we commoditize the one thing that was always used to transact commodities themselves: our currency?

I don’t think there is a clear answer to this. Our trading platform allows customers to trade stocks, options, and crypto through some of the leading brokerage platforms in the United States. In a sense, we have helped commoditize the trading platform itself because many users prefer the functionality that we provide without having to be confined to the platform provided by their broker. But all we really do is make trading these asset classes easier for our customers, no matter which broker they prefer.

Crypto is a different situation. The goal of crypto is to create a system away from the globally-accepted currency markets to transact business and purchases. In a sense, it seeks to create a system that works like this: a globally-accepted currency, albeit one that is less trackable, just like cash money. Think about it. If I take $300 out of my bank at the ATM and buy a TV from my neighbor and hand him cash for the TV, what he does with that is only his concern and no one would know. But if I pay him via credit card, there is a tracking mechanism that the government can use to decide if the transaction was trackable. Bitcoin (BITCOMP) solves both issues. It’s not completely trackable (yet) and it doesn’t exist in a physical form. It makes everything that goes along with a cash transaction easier in theory.

So what that means is that we have, by allowing Bitcoin and all of the cryptocurrencies to become mainstream, commoditized our own currencies. The value is no longer based on metals. It’s no longer based on the government backing it. It’s based on what everyone agrees that it is worth. And now, you have an industry with terms like “defi,” “soft wallets,” “physical wallets,” “blockchains,” and “explorers.” If the goal was to make a globally accepted currency based on whatever someone wants to agree that it is worth, that’s what cryptocurrencies are. The actual process of transacting is now commoditized, and I don’t think everyone yet has their heads around what this means.

We provide a lot of deep crypto data on our platform and allow people to trade crypto in a way that lets them analyze their results. We want to continue to expand that universe because the world is heading that way. However, I think the real answer is that there is no need for 500 cryptocurrencies. It’s not sustainable. That was the instinct over COVID as the world had time to play with this emerging market. If crypto is to survive long term, it needs to be the commoditized solution for currencies that it really is, which means a limited number of secure coins that people can agree to the value of. We can’t all buy a TV from our neighbor with a coin that no one has ever heard of.

The more that the crypto markets get focused on 20-50 coins, the better the chance that it all becomes a legitimate part of the global economy. The US GDP is over $20 trillion annually. Bitcoin has a market cap around $400 billion, which is still significant, but only a fraction of the Dollar’s value. But if you drop to the 10th largest crypto, you land on Dogecoin currently, which is worth a mere $8 billion. It doesn’t even measure up. As a company, Apple (AAPL) is worth around $2.4 trillion. Think about that.

The only real endgame for crypto is for it to be the commoditized version of currency itself at a global level. I’m not here to say whether it will be or not. We provide the opportunity for people to trade it just like stocks and options, which have much larger market capitalizations. Even with the recent market correction, US stocks are currently valued near $45 trillion. But let’s not disagree about what cryptocurrency is. It’s a potential replacement for government-backed currencies. Full stop. Short of that, it’s an alternative for a certain piece of the population, just like cash always existed for illegal transactions. A few more years will tell the story.

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