I was interested in the fact that the Czechia has the world the fifth highest proportion of bitcoin holders. Why are we so high? Do Czechs trust less money, or are we more willing to support new technologies?
In fact, I didn’t even know we had such statistics, in any case there will be several reasons. I think you are saying this correctly, because there is a certain distrust of the crown. I recently wrote an article about it History of the crown: from gold coins to fiat. In that article, I came to the conclusion that over the last 110 years or so, there have been about seven different national currencies, somehow destroying people’s savings every 20 to 30 years. So I think they still have that in mind. Even during the 1990s, banks went bankrupt here, not so long ago.
The second reason is that Czechs are technical “toys” and like to adopt technology. In addition, we had a great advantage over the rest of the world, because shortly after the formation of bitcoin, Marek Palatinus founded the company Satoshi labs here. For example, they invented the first hardware wallet Trezor, I think it was sometime in 2013, so people had a good access to that technology relatively soon. Also thanks to the Parallel Polis, which was established in 2015, a relatively strong and technically educated community was built here, which thwarted attempts at various scams, such as someone buying bitcoin for someone.
Marek Palatinus and František Fuka evangelized bitcoin about two to three years after it was created, and other projects followed. I would definitely mention General Bytes, the largest manufacturer of bitcoin machines in the world, and one of the first bitcoin machines was located in the Parallel Polis, which has done a lot for community development. Furthermore, the first “mining pool” (a tool for sharing power for cryptocurrency mining) was established in the Czech Republic.
Aren’t you afraid that bitcoin will fall victim to your own popularity? There is a lot of talk about it in the media, on social networks.… Aren’t you afraid that new retail investors will drive the price up and then panic, so the price will fall sharply? In other words, isn’t the popularity of bitcoin a bubble? After all, something similar happened in 2017 …
I definitely think it will happen. A temporary price bubble will inflate, because people will see the possibility of getting rich quick. In 2017, it was not the first major bubble, there were at least two in front of it. In 2011, bitcoin jumped from one dollar to 30 and then fell to 20, and in 2013, bitcoin went from $ 40 to 1,300 to fall again to 200. Only then did the bubble come, but it is interesting that the price never returned below the previous highest price, the so-called all-time-high.
Bitcoin always attracts speculators who want to make money quickly, and it usually “flushes” them away, but at the same time, with them, new proponents of bitcoin come as “non-state money” in those bubbles, who see it as a solution to the current money problem. I don’t think we would be at the top of the bubble, we will probably still rise, however, then a correction of 30 to 80% may come. This is quite common in bitcoin. The question is to what extent today’s price is driven by retail, because, unlike the previous bubbles, institutions such as Microstrategy, Tesla and various funds are entering the bitcoin today. Even the big banks JP Morgan and Goldman Sachs have started publishing various reports on bitcoin, which claim that bitcoin is not just a stupid fever, but could replace gold.
Last year, you published the book Separating Money from the State, which describes why the current monetary policy of central banks is inherently bad. What is the most fundamental mistake in this regard?
It is an effort for central planning in the field of money. It is the assumption that something as terribly complex as interest or the price of money over time can be centrally set and controlled. This intersection also has several negative consequences, such as the way in which inflation statistics are compiled. And one of the main effects is that we have a strong economic cycle and bubbles are forming. Around the year 2000, it was mainly the area of technology, after which the bubble moved into real estate, and today it is corporate and government bonds and the stock market. This causes the so-called Cantillon effect, when new money is inflated by financial instruments and people who save in that currency or have fixed wages pay the most, because the new money reaches them at the latest. Subsequent inflation means that, for example, they cannot hedge their retirement because all financial instruments are inflated.
How can bitcoin handle this situation?
Bitcoin solves this by having a completely stable and predictable monetary policy. This means that the pace of the release of units into the system is not the subject of central planning or decisions of bank boards. We know that there will be only 21 million bitcoins in circulation, and we know that there are now 18.6 million. We know the pace at which the remaining ones will be released. In addition, we have a guarantee that those who create new bitcoins (mining) must make a considerable effort, and the marginal cost should be substantially equal to the marginal yield from mining. This does not allow the Cantillon effect to occur. It is not possible to create bitcoin from essentially anything, as is the case with ordinary money, because it is created at minimal cost compared to the purchasing power, which is then obtained by the person who creates it.
It is generally expected when the first regulation of cryptocurrencies and bitcoin by central banks will come. For example, Christine Lagarde, President of the European Central Bank (ECB), said bitcoin is being used for money laundering. I personally think that possible regulation will only help to establish bitcoin between institutions. Are they confused?
The question is to what extent the central banks will regulate bitcoin. In the US, for example, FinCEN (the US anti-money laundering regulator) now deals with bitcoin instead of the Fed (Federal Central Bank). Before the end of the year, FinCEN suggested that stock exchanges monitor the addresses from which and to which people select cryptocurrencies, which is absurd. The proposal provoked a lot of resentment among experts and FinCEN began to debate with them. In other words, the community did not let itself be thrown at the regulatory network, but rebelled.
In the European Union, it is possible that regulation will be arranged by the ECB, but regulation from the European Commission is also being prepared. This regulation (MiCA) is aimed at service providers, ie mainly stock exchanges, which will have to go through a certain licensing procedure. Developers or wallet manufacturers themselves will not be regulated, nor will transactions. The regulation thus focuses mainly on withdrawals from stock exchanges and the possibility of downloading bitcoin to each other. So there will be pressure to make it easier to keep track of where and who is holding how many bitcoins.
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