Michael Lewis is a well—known writer and journalist specializing in the financial sector. He began his career in the 1980s as a trader at the investment bank Salomon Brothers, and then worked as a bond seller for several years. His first book (by the way, a bestseller) was “Liar’s Poker”, in which the author described his career in an investment bank and revealed many shortcomings of the financial system.
Since then, he has written many books, often focusing on problems and anomalies in the US financial or political system. He wrote such works as “Boomerang”, “The Invisible Side”, “The Big Short Game” and “Money Ball”.
Lewis recently made comments on the future of cryptocurrencies, observing the heated debate between supporters of the libertarian approach to the currency system and its opponents. Lewis, observing the events from the sidelines, provided an exciting and fairly impartial overview of the situation.
Lewis knows how markets work
It is not surprising that, having such a solid experience in the field of finance, Lewis spoke out on the topic of cryptocurrencies.
In his podcast “Against the Rules,” he said:
“Cryptocurrency involves taking it on faith, as well as gold and the dollar.”
Gold has been the world’s oldest medium of exchange since biblical times. People simply took on faith the fact that metal is a means of saving and a symbol of wealth. Central banks and governments do not deviate from these beliefs, using gold as an integral component of their reserves. In recent years, governments have been net buyers of gold; in 1999, the metal was trading at $252.50 per ounce, while at a recent high, the price was more than $ 2,000.
In the early 1970s, US President Richard Nixon abolished the gold standard, making the dollar an unsecured currency. The value of fiat currencies is determined by the belief in the stability of the political and economic system of their issuers. That is why Lewis placed gold, the dollar and cryptocurrencies in one category — the category of assets that need to be taken on faith.
Cryptocurrencies are not protected from complete collapse
Religions are based on spiritual factors, not empirical evidence. Lewis warned that faith-based rip currencies “could collapse” because faith is fickle.
Ray Dalio’s Concerns
Ray Dalio, who created some of the most successful hedge funds, called the digital asset rally “very impressive.” However, he also said:
“If cryptocurrencies become really successful, they will kill them, and they have the necessary tools.”
By “they,” Dalio means governments.
Expressing his opinion about cryptocurrencies, Lewis essentially agreed with Dalio’s assessment, albeit in milder terms:
“It is difficult (even impossible) to judge whether this belief is stable or not. But the longer this goes on, the greater the threat cryptocurrencies pose to the existing financial order.”
Governments don’t want to lose control
Lewis is generally right. Control over the money supply is one of the pillars of state power, allowing the government to warm up or slow down the economy as necessary.
Cryptocurrencies represent an ideological dilemma for countries, since they return control over money to end users, and their value is determined solely by the balance of supply and demand.
Despite the widespread support of blockchain technology, which increases the speed and efficiency of transaction accounting, cryptocurrencies cause much less trust (although they are built on the basis of the same blockchain). As Lewis notes, for many market participants, investing in digital currencies remains an “act of faith.”
At the same time, he noted some positive aspects of digital assets:
“They exclude intermediaries. If you trade on a cryptocurrency exchange, you have an account; you do not open an account with a broker who moves your assets to and from the exchange. There are no “scalpers” who pay the exchange for faster access to quotes. All these mechanisms, familiar to the stock market, do not work here.”
Bitcoin (BTC) became the first cryptocurrency, generating more than 19,100 altcoins (the number of which continues to grow). The same drivers who raised the value of BTC from five cents (as of 2010) to the recent 69,000 dollars continue to support the entire market; we are talking about ideology and speculators.
Anyone investing in cryptocurrencies should pay attention to these catalysts and heed Lewis’ warning. Everything can “collapse”. Invest no more than you can afford to lose.