Bitcoin & co, because the financial storm is turning them into digital “devaluations”

According to an empirical law, bad money should drive out good money, in a sort of survival instinct of wealth. But what happens when the currency doesn’t exist at all, as in the case of crypto-currencies? Who plays the role of good money in the drawer? The time has come to ask oneself given the concentration of negative events that are now overlapping one another on Bitcoin, Ethereum, Terra Luna and on the whole complex ecosystem that was born around them.

In fact, the week did not start well: Binance, one of the most important cryptocurrency exchanges, blocked the withdrawal of cash from customers who had Bitcoin. And the Celsius platform froze repayments too. An action that states and banks resort to only in extremely serious cases: it happened in December 2001 with the collapse of the Argentine state. Long lines of people poured into the streets in front of branches and ATMs to collect their pesos. Without succeeding. The same fear was at the root of the US bailout of banks after the Lehman crash: people began to question the solvency of the system. Liquidity freezing is never a good sign.

To complete the picture, in the last month the value of Terra Luna, a token belonging to the so-called stablecoins, has also zeroed: it is a system of anchoring cryptocurrencies to the dollar. Except that when it was discovered what had never been objectively hidden, namely that the underlying of this anchor was nothing, a piece of digital Moon, the value plummeted from above one hundred dollars to zero. 100 percent loss.

The painting

Now it is true that the whole economy, starting with the American one, is in great difficulty. The shares of many companies have been burning thrilling shares in the last month. Elon Musk himself has raised the alarm on employment with his usual delicacy, however, at a time when inflation is rising to the highest levels of the last forty years and rates are low, starting monetary policies. it is, precisely, whether we must consider the world of cryptocurrencies comparable to that of fiat coins (issued by the States) or not. In other words, is what Bitcoin and the like are undergoing is a price collapse or a devaluation? Are we facing “cryptocurrencies”?

The phenomenon of bad money dates back to the Middle Ages when the league of minted currency in circulation was doubtful and those who were sure they had good quality gold coins preferred to keep them in the drawer.

But what happens when money doesn’t exist at all? In theory we know this because we have been experimenting with it for about a century. With the abandonment of the Gold standard – which provided for a precise relationship between currency in circulation and stored gold and which was omitted for the first time in 1914 to allow countries to print money to finance the war – all banknotes and fiat currencies, which they have no intrinsic value, they are based on two fundamental principles: trust in the system and awareness of the regulations that defend people’s savings. The bank in which we deposit our now intangible currency must respect strict capital parameters and allocate funds. When the first component fails, confidence in the real value of the underlying economy, the solvency of a state or the procurement of goods and services determines the devaluation, either internal (called inflation) or external (exchange between currencies).

If cryptocurrencies are, as the name itself would like, coins, they have the exceptionality of being based on a general distrust of the system and regulation.. They were born out of opposition to the rules of central banks and are based on decentralization and a general blind faith in algorithms. If they are coins, then, the collapse is caused by a mistrust of mistrust: a squared mistrust. The belief in algorithms and in the complexity of computer systems, however, sometimes conflicts with the same story: the first to measure the circumference of the Earth was Eratosthenes of Cyrene, in the third century BC. His calculations based on the distance between two Greek cities gave the answer 40,000 kilometers. A measure incredibly close to the real value (40,075). Stell, the great refraction physicist contemporary of Galilei, used the mathematics of the 1600s. And he missed 2,000 kilometers.