An Argument for the Necessity of Crypto Credit Markets
Cryptocurrency is frequently maligned because of its purported lack of fundamental, intrinsic value. While it can be argued that decentralized transaction networks do have intrinsic value in that a third party is not necessary to carry out transactions over long distances, in order to help legitimize the crypto economy as a whole there needs to be something in the crypto asset space to trade with more attachment to the everyday economy beyond providing utility for merchant sales.
Obviously we need Bitcoin and others for speculators to trade to determine crypto networks’ everyday value, but the future valuation of coins like Bitcoin are mostly understood under technical analysis and the speculative behavior of market participants TA describes because it is a unit of account and not a raw material used to create a product to sell in a separate market or to simply consume directly. Fiat currencies, although they too are simply units of account and reside at least partly under influence of speculative activity, are issued by central banks and do have claim to fundamental value via the politics and nature of the country they function for, as well as the effect that different events have on that country’s economy which all cause changes to a central bank’s monetary policy and thus the money supply it is responsible for. Cryptocurrency does not have that luxury by design since it is explicitly not issued by a governing authority.
Therefore we believe the crypto community needs proper crypto asset based credit markets to create a path toward a fundamental valuation of cryptocurrencies in the present as well as the future. Surely using crypto IOUs that are backed by physical commodities are an option, but there is also value in issuing debt based crypto assets because interest rates determined by the market can be used to ground the valuation of cryptocurrencies into a more real world, functional economic paradigm via our hypothesis that many loans will be used for real world projects outside of just raw speculative trading. We believe this because there is always a demand for credit as new participants enter markets, therefore new avenues to create credit will be used if they are either cheaper, more convenient, or simply the only option.
Depending on how the classes of individuals and organizations utilize the availability of credit in cryptocurrencies, we can amplify the understanding of those currencies’ future value via how willing people are to take out loans based in each currency for real world activities in the present. Lastly, by securitizing the debts of borrowers, we can provide new investment and growth opportunities in the crypto space as well as increase the amount of capital available in the ecosystem with which to draw credit on.