Cryptocurrency War: BTC's Pizza, the Ambition of Crypto Dollar
Global currency is a significant interest: to achieve this, the U.S. government, in collaboration with Wall Street, aims to expand the dollar's hegemony through the digital cryptocurrency payment market created by Bitcoin.Author: Armonio, AC capital
This literature is dedicated to the fourteenth Pizza Day, where BTC cannot buy pizza, and to the crypto culture that is not part of the mainstream.
As spring comes and autumn goes, it has been fourteen years, and in the blink of an eye, crypto punks have welcomed the fourteenth Pizza Day globally.
This holiday commemorates the legendary transaction where crypto pioneer Laszlo Hanyecz bought two pizzas for 10,000 BTC. This was not only the first transaction in the history of cryptocurrency but also represented BTC achieving all functions of a currency. This means that digital cryptocurrency officially stepped onto the historical stage of global currency. A brand new market slowly opens up to adventurers around the world.
Fourteen years later, even though the price of BTC has multiplied by millions, pizza still tastes the same. To exchange BTC for pizza, one still has to go through fiat currency (except in El Salvador and the Central African Republic). BTC has made significant progress in value consensus, but in application consensus, we have been hesitant since Satoshi left. The "peer-to-peer electronic cash system" envisioned by Satoshi remains technically feasible but has not yet materialized into a product.
It is precisely because of the slow application of BTC that we find ourselves in the current situation: BTC is surrounded by stablecoins and other cryptocurrencies like XRP. In global convenient and cheap remittance systems, and in traditional markets like the black market for anonymous currencies, BTC's share has been repeatedly eroded. Global currency is a significant interest: to obtain it, the U.S. government, in collaboration with Wall Street, aims to use the digital payment market created by Bitcoin to further expand the dollar's hegemony.
At the beginning of the article, let’s ask a question:
When did the habit of crypto organizations paying salaries in BTC suddenly stop? When did various airdrop activities that gifted BTC turn into gifts of dollar stablecoins and altcoins?
With the loosening of crypto faith, the liquidity logic of the crypto market has undergone a qualitative change. Since 2021, how many people entering the market still stubbornly adhere to BTC and ETH standards? When the intermediary status of BTC and ETH in trading is shaken, and the pricing of BTC and ETH is controlled by Wall Street, the entire valuation of cryptocurrency falls deeper into American hands.
Dollar stablecoins have encroached upon the trading intermediary functions originally held by BTC and ETH, weakening the value capture of BTC and ETH.
In decentralized exchanges, BTC and ETH can still maintain their primary market:
However, in centralized exchanges, a large number of trading pairs are calculated in dollar stablecoins, and the number of trading pairs with dollar stablecoins far exceeds that of BTC and ETH. The pricing power of cryptocurrencies has already begun to be eroded before Wall Street even locks BTC and ETH into ETFs.
Thus, what was originally the price support market for BTC and ETH has become a mere vassal of dollar hegemony. The identity of digital cryptocurrency holders and traders has transformed from liberal crypto punks into short-sighted sources of dollar liquidity and supporters of dollar hegemony.
The current situation is inevitably a bit bleak.
Desire: America Devours Global Finance
This is the call of the great era of crypto
The blockchain system is a systematic technological revolution of a new genesis. Decentralized payment not only replicates the functions of Alipay, reducing cross-border payment time from days to seconds. The birth of blockchain creates a low-cost, multi-party trust trading environment. This trust, when applied to transactions, lowers transaction costs, and when applied within organizations, can give rise to entirely new organizational structures. Despite the resistance from entrenched interests in the old world, the world's elites have never given up on integrating blockchain technology into traditional financial systems. The BIS and the World Bank continuously provide policy guidance on crypto assets and even DCEP in their documents.
In the grand trend, all sovereign countries capable of issuing fiat currency will consider how their national currency should establish itself in this new monetary environment. The blockchain accounting method solves the trust issue between financial entities and represents the latest form of currency with productive advantages. Combining blockchain technology to issue digital fiat currency has become the only choice for major powers. China and Europe are on a similar path, introducing blockchain technology to rebuild a payment and settlement system. In contrast, China is relatively ahead: it issues its own digital encrypted RMB within its self-built alliance chain. Meanwhile, after two years of research, the European Central Bank has found that their digital asset system can achieve TPS of 40,000 concurrent transactions, laying the technical foundation for the further development of the digital euro. Comparatively, the U.S. has adopted a more open attitude. Historically, U.S. currency has also been issued by private banks, and the U.S. government does not absolutely reject the issuance of digital dollars by private companies. Therefore, as of now, the scale of centralized plus decentralized stablecoins has exceeded $160 billion, bearing the liquidity responsibility of major digital cryptocurrencies globally. Although the digital dollar is not issued by the Federal Reserve, in terms of market acceptance, it has undoubtedly far surpassed other competitors.
Issuing fiat currency as crypto assets is the most effective and direct way to counter native crypto asset tokens. This is something that both the BIS and the World Bank do not shy away from.
Not only will currency become encrypted, but assets will also become encrypted. The massive encryption of assets will form an integrated global financial market, including commodity and service markets. Whoever can keep up with the fast-paced development of crypto and capture the largest market share will reap the greatest benefits.
This is the welfare of the world's currency issuers
During the pandemic, the U.S. base currency was massively overissued. The Federal Reserve's balance sheet expanded more than double after the pandemic. To address the overissued credit currency, tapering is an inevitable choice. Additionally, if a new market can be provided for the overissued base credit currency, it can also support the valuation of the dollar from the demand side.
Crypto dollars erode the crypto liquidity market. In contrast, the crypto world is not just a lawless free land where any currency can compete freely. The stablecoins deployed by Tether and Circle not only dominate the third and sixth positions in the cryptocurrency market cap but also serve as important equivalents in the crypto world, possessing the highest level of liquidity. Due to the high volatility of native crypto assets like BTC and ETH, using dollar stablecoins as a risk-averse asset has become a consensus among the indigenous people of the crypto world. This undoubtedly lays a solid foundation for the U.S. financial assault on the crypto world.
Crypto dollars not only erode the liquidity market of BTC and ETH in the crypto world. The crypto world spans traditional financial markets across the globe. Its decentralized nature makes it difficult for traditional powers to regulate. Therefore, crypto finance not only interfaces with the markets of various countries but has also deeply integrated and penetrated these sovereign markets. Reports from the World Bank reflect this: cryptocurrencies pose higher demands for regulation. Due to regulatory and demand factors, cryptocurrencies are more popular in emerging countries and impoverished regions. In areas like Turkey and Zimbabwe, where currency credit has collapsed, digital currencies, including dollar stablecoins, have already entered circulation. Cryptocurrency OTC trading booths are everywhere on the streets of Turkey.
"Erasure" represents enormous interests. Behind every centralized stablecoin is nearly 90% U.S. Treasury bonds.
In USDC, over 90% is managed by BlackRock's money market fund, which holds only repurchase agreements and U.S. Treasury bonds.
Every dollar of centralized stablecoin is backed by $0.90 of U.S. Treasury bonds. Dollar stablecoins provide a better value scale and trading medium for the digital crypto world. The liquidity demand of the digital crypto world also provides the kind of value capture or value support that any token economist dreams of for the underlying U.S. Treasury bonds.
This is Wall Street's ticket
We must understand that the Federal Reserve's predecessor was a commercial bank cartel. In the early days of the Federal Reserve, the right to issue currency oscillated between core commercial banks and the government. Most financial institutions died from a lack of liquidity; having their own pipeline ensured their own profits. This is why Wall Street has always harvested the global market. However, placing credit power in the hands of the government is not as satisfying as holding it oneself. Today's mainstream centralized stablecoins are tricks to convert commercial paper and money market funds into dollars. Taking USDC as an example, only 10% is cash reserves; the rest consists of assets in the money market managed by BlackRock.
(https://www.blackrock.com/cash/en-us/products/329365/)
This ability to directly monetize assets is akin to turning stone into gold. Previously, only the Federal Reserve had such capability; now, anyone who can become a stablecoin issuer can share in the seigniorage of providing credit to emerging markets.
Moreover, having the faucet in one's own hands allows for infinite ammunition to bottom out.
The tokenization of the financial industry is a vast canvas slowly unfolding; it represents a revolution in finance.
Currently, RWA brings real assets onto the blockchain, allowing for low-cost sales of dollar assets worldwide, expanding the buyer market, and promoting U.S.-dominant financial services globally. So far, global investors entering the U.S. capital market have needed intermediary brokers. After completing KYC and opening accounts, they still need to convert their currency into dollars and remit it to the broker's designated account. Personal cash accounts and investment accounts are fragmented and cannot be interconnected. Brokers must obtain operational qualifications in each country. This cumbersome structure of cross-border financial markets will be replaced by simple wallets + front-end and tokens + blockchain. As long as the money is on-chain, combined with decentralized KYC, anyone can participate in all financial transactions that meet the conditions. RWA can even finance projects in developing countries using U.S. financial services.
The industrialization and standardization of tokens will inevitably introduce more services. As U.S. Silicon Valley leads industrial innovation, we use dollar stablecoins to participate in token financial instruments provided by Wall Street, regulated by the SEC. Where should we find lawyers? Where should we find tax accountants? Whose policy guidance should we follow? Whose face should we look at? It is self-evident.
The expansion of the industry, accompanied by financial leverage, the issuance of securities and tokens, will bring direct credit asset wealth to Wall Street. The industrial influence gained by the U.S. through industrial encroachment will enable U.S. capital to continue to fleece in the future.
BTC Surrounded by Enemies
Due to anti-money laundering and anti-terrorism requirements, even payments face compliance pressure. Therefore, the current situation is: fiat currency firmly guards the payment track. Stablecoins compete for the trading medium of BTC.
Payment Track
If the advantage of crypto assets is the on-chain constraints, then the advantage of the dollar is the off-chain payment.
Crypto asset dollar stablecoins have both on-chain constraints and off-chain payments.
Through crypto accounts and signatures, centralized dollar stablecoins have the endorsement of cryptographic signatures. In terms of practical payments, U.S. financial institutions are already well-prepared.
Currently, the most common digital asset storage cards mostly use MasterCard or Visa to complete the last mile of the transaction. MasterCard and Visa act like community gatekeepers, allowing certain deliveries to enter, thus granting access to the global real payment market.
Even without stablecoins competing for the status of on-chain trading mediums, all off-chain payments cannot bypass the coercion of licensed payment institutions. With the most extensive payment interfaces globally, MasterCard and Visa force issuers of digital crypto storage cards to comply with their rules: settle in dollars. As long as the issuing institution can meet standard KYC and AML requirements, it can convert various crypto assets into dollars legally, allowing U.S. financial institutions to complete global payments for holders. Payments from Binance and Dupay are completed in this manner. In this process, digital crypto assets exist merely as financial assets or storage means, playing a negligible role in the payment phase.
For most non-crypto people, paying with stablecoins is more intuitive and convenient.
RWA Track
Utilizing a global decentralized network, financial services from various countries will face zero-distance competition. The peer-to-peer cash system of BTC is also a form of financial service. Under these assets more closely related to fiat currency, stablecoins serve as a more convenient base currency.
One of the biggest characteristics of digital crypto assets is their penetrative nature regarding financial regulation. Because they are both decentralized and anonymous, regulatory agencies in various countries find it difficult to manage them. Unlike financial institutions that must comply with local regulations upon entering a country and obtain local business licenses, Web3 is a lawless land promised to crypto enthusiasts by Satoshi, where issuers of digital crypto assets can conduct business on-chain without establishing physical offices or branches. Dollar stablecoins have higher predictability in the payment field and are more easily accepted by the public. However, merely having payment functionality is not enough; it also needs to have wealth management functions like Alipay. Wall Street can provide clients with a complete set of compliant financial products to meet the diverse needs of various groups, allowing the public to support Wall Street after the U.S. government takes over.
Compared to decentralized exchanges, centralized exchanges have much better liquidity. Binance and OKX are quality exchanges; are the New York Stock Exchange, NASDAQ, and London Stock Exchange not quality exchanges? Why can't the pink sheet market and penny stocks on them become shell resources for memes? How many small pink sheets and penny stocks, if they change names and stories to reflect on-chain, can capture immense wealth? SBF has done this, but unfortunately, he missed the current good times for memes.
Compared to BTC, most financial assets on Wall Street are denominated in dollars, including notes, commodities, stocks, and fixed assets. Establishing trading pairs for dollar stablecoins not only aligns better with user habits but also reduces risks. We can even see that because USDC's compliance is stronger than USDT's, many RWA projects prefer USDC.
RWA builds a more suitable application scenario for dollar stablecoins while bringing U.S. financial services to the world. Holders of stablecoins can consume while enjoying consumer finance.
Blockchain Track
Blockchain technology is a decentralized ledger system that cannot be replaced by fiat currency. Moreover, most digital cryptocurrencies have strict token issuance disciplines that no central bank in any country can replicate. Therefore, in the future, blockchain technology will be irreplaceable. On the blockchain, there exists chain-level sovereignty: the accounting currency of BTC is BTC, and the accounting currency of ETH is ETH.
To prevent BTC from becoming too large, cultivating competitors is one means. Beyond BTC, ETH, Solana, Cosmos, Polkadot, and various layer 2 solutions have emerged: whatever BTC can do, they can do too; whatever BTC cannot do, these newcomers can also achieve. This diverts attention from BTC and reduces its monopoly.
Breaking BTC's monopoly and increasing competition in the blockchain track is fundamentally a good thing. However, in the competitive landscape between fiat currency and native digital cryptocurrencies, segmenting the digital crypto market and dispersing BTC's value consensus is more conducive to Wall Street controlling the pricing of BTC and other native crypto assets, facilitating the formation of an industry structure favorable to Wall Street, and further enhancing the status and weight of dollar stablecoins as trading mediums in the crypto world.
Ideological Branding
Killing the spirit, this is what the U.S. wants to do now.
In both primary and secondary markets, what permeates our minds are dollar pricing and dollar equivalents. How much money did this project raise in dollars? What is the valuation of that project in dollars? Once upon a time, we forgot that ETH financing was paid in BTC; many early projects like EOS, DAO, Near, 1inch, DANT, and BNB used BTC and ETH as financing means. We have forgotten the years when we valued project valuations in BTC and ETH. The constraint of thought is the real reason the digital crypto world has lost liquidity.
Throughout human history, the core of a nation's cohesion is cultural identity. What is being done is to destroy the culture and ideals of cryptoism. After 2020, how many newcomers to the crypto world have read the Bitcoin white paper? How many have seen Satoshi's letters? How many know about the Austrian school, and have reflected on its value and feasibility? Some say NFTs and memes are massive adoption. I raise a middle finger; this is the crypto world's massive adoption, not the legacy of Satoshi. Through several bull markets, crypto elders have been caught, and those who left have departed. In the crypto world, crypto thought is no longer mainstream. As the U.S. wishes, a cultural fracture has formed.
When the faith of an organization collapses, all order will fail, and every individual will desperately seek their own benefits. Isn't this the most accurate portrayal of the current market and industry?
Postscript
Another form of progress: U.S. credit de-intermediation and anti-monopoly
The dollar, as the world currency, sweeps across the globe through an all-pervasive digital crypto network, in collaboration with Wall Street's might. For various countries, this is a dire omen. However, for humanity, it is a form of progress. The eurozone gradually formed under the consensus of European countries, coordinating national payment, fiscal, and monetary policies for many years, based on the Mundell theory. This process took decades and left serious aftereffects.
In contrast, the dollar erodes global finance through the digital crypto network, achieving a "silent nurturing." Many countries in the world have monetary disciplines that are not as strong as those of the U.S., and their monetary credit is certainly far below that of the dollar. However, due to payment requirements and financial environments, many people are forced to choose to hold local currency. Countries will back their own currencies by holding dollars and U.S. Treasury bonds.
In fact, the transmission of credit here is the U.S. government's credit being transmitted to a certain country's government through U.S. Treasury bonds and U.S. assets, and that government then uses this credit to back its own currency issuance. In this chain, the government of that country acts as an intermediary. We recognize that de-intermediation and breaking the interests of intermediaries are valuable.
Moreover, this move has made global capital markets more integrated, breaking the local powers' monopoly over local financial resources.
Although the globalization of crypto dollars has not achieved de-centralization, it has realized the de-intermediation of credit, accelerating the integration of global finance. This is objectively a progress in financial history.
The best is yet to come: the rebirth of crypto
In the past, I thought I was a native of the crypto world. In fact, I am not. I am merely in sync with the liberalism promoted by BTC due to past experiences, willing to take the ideals of cryptoism as my own ideals and goals. Our generation does not have natives; we do not have enough time to accept the baptism and inspiration of cryptoism and crypto culture. Generation Z is just the first generation of the internet.
Twenty or thirty years from now, those truly born under the influence of crypto technology and culture will grow up. They will read the Bitcoin white paper, study cryptographic algorithms, play with NFTs, and enjoy the conveniences of DePIN. In their minds, there will no longer be China, the U.S., East, or West. By then, decentralized technology will be more advanced, and the costs of decentralization will decline exponentially according to Moore's Law, while the drawbacks of centralization will become evident in the culture and understanding of decentralization.
At that time, a spark can start a prairie fire. Perhaps a free and harmonious world will be reborn amidst dollar hegemony.
Note: The content and views of this article were inspired by Rebecca, the founder of Deschool, and BrainSeong, a developer relations person at Polygon. Thanks to them.
References:
Payment Financial Geography: Global Perspectives on Crypto Adoption
Eurosystem launches digital euro project
