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Beep Boop 2 minutes reading from Bitcoin

Bitcoin and Cryptocurrency: What to Watch Out For

1) Watching the Crypto market is like watching the early 1900s traditional markets. Totally lacking financial infrastructure results in hyper volatility and market failures.

A monetary economists thoughts on what must happen in this market moving forward… BTC ETH FTX

2) It is, and always has been mad to float marginal debt on fractional reserve banking practices. The Crypto market does just that. The traditional markets figured this out decades ago and built out the necessary infrastructure to avoid the constant threat of bank runs.

3) So, what small steps can we take to address at least a couple of these issues? First, DeFi needs its own dynamic unit of account. Like a decentralized version of USD. (No, not BTC ).

4) A real unit of account must be able to adjust to constantly shifting market sentiment. BTC , being perfectly rigid at 21million supply cannot be used as a unit of account because any shifts in market sentiment will be manifest entirely in the price of BTC .

5) This means that the price of Bitcoin will always experience a higher degree of price volatility than a real unit of account like USD. This price volatility greatly increases the risk of cascading market failure, especially when the market is built on margin.

6) So a big part of our problem now is A) The Crypto market is built on margin and naturally gets margin called all the time and B) Crypto needs to adopt a more dynamic unit of account to begin to introduce more dynamic debt infrastructure.

7) The only project that I know of that has identified this issue and is actively trying to fix it is @AmpleforthOrg … They’ve built a wonderfully dynamic currency ( AMPL) that I believe is capable of supporting a much more dynamic financial ecosystem.

8) I would love to hear everyone’s thoughts. I know this is a very broad overview that is lacking in detail. I am happy to explain further if you shoot a dm or leave a comment.

This post is based on this twitter thread.


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