In the past week, market attention has been focused on the event where the US Securities and Exchange Commission (SEC) approved the official trading of 11 spot Bitcoin ETFs on centralized exchanges. Impressive figures on spot Bitcoin ETF demand and public interest have flooded financial media outlets. Some notable figures from the first day of listing for the 11 spot Bitcoin ETFs are quite impressive:
Total trading value of 11 spot BTC ETFs on the first day (01/11) reached > USD 4.3 billion.
Trading volume for the ticker alone reached USD 2.09 billion.
There were 703,931 trades executed on the first day.
Due to the significant impact of this event on currency history, this week's Macroeconomics article from Viet Hustler will focus on the new topic of cryptocurrency with 3 main contents:
Brief overview of the history of cryptocurrency development.
The position of cryptocurrency alongside fiat currency and in monetary economics.
And the impact of the SEC approval of Bitcoin spot ETF on the Bitcoin market in particular and the development of cryptocurrencies in general.
Disclaimer: Some opinions below are the author's personal assessments, including subjective academic opinions. Therefore, the article serves only as a reference and is not investment advice.
Key milestones in the history of cryptocurrency development
1980s - 1990s decade: the first ideas about electronic money
During the 1980s-1990s period, the first ideas about electronic money were sparked in the Netherlands and the US (according to The Balance).
The first effort was the DigiCash: launched in 1989 - using cryptographic protocols invented by David Chaum.
David Chaum is a genius American computer scientist and cryptographer, DigiCash by Chaum can be considered an advanced "ahead of its time" idea.
However, Chaum could not convince banks and the public at that time about usage potential, security and guaranteed value of Digicash.
His company went bankrupt in 1998 (though acquired in 2002), just 10 years before Bitcoin was born.
After Digicash, other electronic currencies using cryptographic protocols technology also emerged but had less prominence such as B-Money, Hashcash, Flooz and Bit Gold ….
1998: The first concept of electronic money
Major contribution to building the first concept of electronic money came from Wei Dai, a computer engineer from the University of Washington - and the father of B-money.
Wei Dai put forward the basic definition of modern electronic money and security technology cryptographic protocols in 1998 - when he wrote about B-money in his thesis.
1998 – 2008: Satoshi Nakamoto and the birth of Bitcoin
August 2008: the domain bitcoin.org was registered. The first blockchain database was probably built from here.
October 2008: the White Paper on the basic principles of blockchain technology and its application to Bitcoin was published by the author (or group of authors) under the pseudonym "Satoshi Nakamoto".
2008-2010: blockchain technology and its application to Bitcoin were gradually perfected by “Satoshi Nakamoto”.
Bitcoin was officially born from here! However, the interesting thing is that the identity of “Satoshi Nakamoto” has never been revealed.
Why did Bitcoin succeed more than DigiCash and previous cryptocurrencies?
The main reason is probably because Bitcoin's transaction method is public and combines all 3 factors:
decentralized transaction control + transparency + privacy still protected
Bitcoin's blockchain technology is known as the “triple-entry” bookkeeping system.
Each transaction must be confirmed by: sender, receiver, and independent third party.
Bitcoin transactions are recorded on the blockchain - public by default.
However, participants remain anonymous: Bitcoin transactions are public but the identity of owners/performers of transactions is kept confidential.
(According to The Balance)
From 2011: Alternative cryptocurrencies emerge one after another
After Bitcoin, other cryptocurrencies emerged one after another - these coins are collectively called alternative cryptocurrencies (altcoins) to Bitcoin.
The first altcoins include Namecoin (2011) and Litecoin (2011), Peercoin (2012), Dodgecoin (2013) …. (details here).
2013 – 2014: Bitcoin's stagnation
Year 2013: after the price of one Bitcoin first surpassed the 1.000 USD/BTC threshold, Bitcoin's price fell below the 1,000 threshold for nearly 4 years.
Year 2014: Mt.Gox (the world's largest Bitcoin exchange at that time) collapsed…
850.000 Bitcoin disappeared ~ Bitcoin holders at that time suffered a loss of 4.4 billion USD (calculated at current prices).
2015: Ethereum and the birth of “smart contracts”
Year 2015: Ethereum was born with the term “smart contract” - software storing Ethereum's blockchain at a single address.
Ethereum became the second-largest cryptocurrency by market cap after Bitcoin.
2017: Bitcoin and blockchain technology return strongly
Although Bitcoin's value was always unstable and always below 1000 USD/BTC before 2017, Bitcoin developers and users endeavored to expand the usage scope of this currency throughout the period from 2013 - 2017.
… this contributed to Bitcoin's strong rise since 2017.
With increasing public interest, Bitcoin's value broke through more and more after 2017 (although the value fluctuated quite erratically with 4 extreme drops in value).
Bitcoin price peaked at USD 68,000 in November 2021, making its creator “Satoshi Nakamoto” the 15th richest person in the world at that time.
Bitcoin-supporting blockchain technology was also promoted as a revolution in financial security.
Food for thought: Some basic Cryptocurrency terms.
Cryptocurrency and monetary economics
Fiat money (legal tender) and digital currency
Fiat money (legal tender)
The word “fiat” originates from Latin meaning “let it be done” – a phrase that perfectly describes the meaning of fiat money.
In the narrow sense: fiat money is legal tender issued by the government and designated “legal” by the government (legal tender)..
Therefore, fiat money has no intrinsic value (intrinsic values - value backed by other assets): it simply has value because the government says it has value (let it be done)..
FYI:
Exchange rates (or relative values between fiat currencies) are all based on users' “trust” in the economic strength of the issuing country.
Therefore, the exchange rate can fluctuate based on economic policies, user supply-demand, and economic conditions (inflation, growth, employment)...
On the US dollar bill, there is always the phrase: “In God We Trust”, expressing faith in the value of the USD and the strength of the US economy
(not based on the value of gold after the collapse of Brendon Wood…)
– this is the inspiration for one of the articles by Viet Hustler on the strength of the USD.
Crypto-currency is digital currency using cryptography for security.
The decentralized nature - decentralization (not issued and regulated by a single organization) makes cryptocurrencies more transparent and public.
Some debates between fiat money and cryptocurrency:
Debate on inflation and money supply
The biggest criticism of fiat money is that it has no intrinsic value and depends on supply from the government.
Therefore, fiat money can face hyperinflation if the government prints money without limits....
Conversely, cryptocurrencies have a limit on Token supply, reducing the risk of hyperinflation.
Note: digital currency issued by the government (e.g., the new Digital Euro of ECB) is still fiat money!
Debate on the government's ability to regulate currency and ensure value:
Cryptocurrency can also experience inflation or deflation if token supply is excessive - scarce, or demand suddenly increases or decreases.
i.e., the value of cryptocurrency largely depends on market supply-demand dynamics…
=> the value of cryptocurrency can easily fluctuate strongly (high volatility)…
If cryptocurrency is used as “money”, the Central Bank will have difficulty regulating market balance with traditional monetary policies.
Cryptocurrency is also a major challenge for governments regarding new forms of economic crime related to currency terrorism and money laundering.
In addition, according to the Viet Hustler author group, cryptocurrency today is not yet considered “money” from the perspective of monetary economics (monetary economics).
Crypto-currency and the definition of “money”
In the article Currency Balance - basic KTVM series by Viet Hustler, the definition of money given is: a common medium of exchange for goods, services and widely used...
In which, an asset to be considered money must fulfill 3 main functions:
medium of circulation and payment intermediary (Medium of exchange)
medium for storing value (Store of value)
medium for measuring value (Unit of account: to ensure equivalent exchange).
In monetary economics: if an asset can only be used as a unit of account, it is only called numéraire, not called money.
Any other assets (e.g.: bonds, rare metals…), if used as a value standard for other assets, can be considered numéraire.
Therefore, initially, cryptocurrency is simply numéraire, not called money.
Spot Bitcoin ETF: closer to the definition of money
For the above reasons, in recent years, the cryptocurrency supporter community has tried to transform them from numéraire into “money” – through efforts to help cryptocurrencies complete the remaining functions of money:
Efforts for the payment intermediary function:
May 2010: an unidentified person paid Jeremy Sturdivant 10,000 Bitcoin (worth 41 USD at the time) to deliver 2 large pizzas.
This is probably the first time Bitcoin was recorded as a medium of exchange.
End of 2012: WordPress was the first major retailer to accept Bitcoin payments.
Over different periods, Bitcoin was successively accepted as more payment methods…
For example: Expedia (2014), Microsoft (2014), Newegg.com (2019) and recently Tesla (2021)…
A 2020 HSB survey showed: 36% of small and medium-sized businesses in the US accept Bitcoin payments.
This shows the efforts of the Bitcoin supporter community to perfect this currency's payment function.
Efforts for the function as a store of value:
The function as a store of value for a currency must come with widespread belief in the value of that currency.
Therefore, Bitcoin initially did not have the store of value function of currency simply because its value was not widely recognized:
The initial number of bitcoin holders (mainly miners) was too low for its value to be recognized by the majority.
Initially, Bitcoin was also not used for payments (closely related to the payment function above) —> value not guaranteed by other assets or backed by the government.
Until 2020, cryptocurrency was not yet widely used in major markets:
Over time, the increasing number of Bitcoin users has gradually ensured recognition of this currency's store of value function:
Currently, there are 1.3 billion Bitcoin users - equal to the number of internet users in 1997.
However, it can be said that Bitcoin's store of value function is still not perfected due to the large and unstable fluctuations in its value.
Investors only see it as an investment asset for profit rather than a means to store assets long-term.
Spot Bitcoin ETF: Efforts to perfect the medium of exchange and store of value functions
Before the SEC approved Spot Bitcoin ETF for trading on stock exchanges last week, Bitcoin Future ETF was already available on the market.
Although Bitcoin Future ETF made the Bitcoin market more dynamic, it reduced Bitcoin's store of value and circulation functions for the following reasons:
Bitcoin Future ETF investors do not directly buy Bitcoin but invest in futures contracts based on bitcoin price (derivatives from Bitcoin).
These contracts allow investors to profit (or lose) from Bitcoin price fluctuations without actually holding the currency.
Thus, Bitcoin Future ETF increases Bitcoin speculation - making the currency's value fluctuate more strongly - making Bitcoin harder in its store of value role for users.
Also due to this speculation, bitcoin is not put into circulation - direct buying and selling, but used more for speculative profit purposes.
Therefore, the SEC's decision to approve Spot Bitcoin ETF for trading on stock exchanges has great significance for the Bitcoin user community because:
Buyers of Spot Bitcoin ETF will invest directly in Bitcoin - meaning the number of Bitcoin users will increase…
(even though they do not use Bitcoin as a payment medium…)
In addition, the value of Spot Bitcoin ETF will be directly linked to the current value of Bitcoin.
This aims to ensure that Bitcoin's price will fluctuate less unexpectedly than before - due to less influence from speculative activities.
Bitcoin's storage value will also be more assured as financial institutions can buy spot Bitcoin ETF as reserve assets: this is recognition of Bitcoin's value.
Bitcoin's circulation value will also increase as retail investors (with small capital) can buy and sell Bitcoin with less risk.
However, spot Bitcoin ETF traded mainly in a centralized manner will increase Bitcoin's liquidity. But there is still a considerable gap for Bitcoin in particular and cryptocurrency in general to replace fiat money!
CONCLUSION
Cryptocurrency has gone through more than 40 years of history, but its explosion has only occurred in the past more than 10 years.
When it first received public attention, cryptocurrencies were at the center of discussions about their potential to replace fiat currencies. However, initially, cryptocurrencies did not meet the requirements to be recognized as a type of “currency”.
Over time, supporters of cryptocurrency in general and bitcoin in particular have worked to gradually give this currency sufficient payment, wealth storage value, and circulation functions.
Viet Hustler still believes that it is still quite far for Bitcoin to achieve circulation and asset storage functions for all people - the remaining 2 functions of a typical “currency”. However, the listing of Bitcoin spot ETF also makes Bitcoin's value more stable - getting closer to perfecting those 2 functions.
In addition, the approval of Bitcoin spot ETF for trading on stock exchanges is also the SEC's commitment to supervising the Bitcoin market and recognizing the value of this asset type.
Who knows whether cryptocurrency is a breakthrough step in the history of currency development?
Comments (1)
Đã clear rùi. Cảm ơn tác giả nhiều nhé.
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