The Securities and Exchange Commission (SEC) classified cryptocurrency as security. Many in the industry take exception to this. One is Ripple who is still engaged in a multi-year legal battle with the agency. A ruling is expected this year, carrying with it a range of implications.
Is the SEC wrong to view cryptocurrency as a security? Isn't that exactly how we treat it? Do we not approach it in a similar manner as stocks?
We often see words such as "mooning" and "Lambos" tossed around. People are flocking to cryptocurrency. Are they doing that because they want a payment system outside the establishment? That is not likely. Instead, people are entering, buying cryptocurrency in an effort to generate a return. Most want to buy, say, Bitcoin at one price and sell it higher.
In this regard, how is it much different than most approach stock? Isn't that exactly what people are doing in the market? While there might be the odd person who buys a share in Apple or Tesla simply to say he or she owns it, most want to make money. It appears cryptocurrency is the same way.
Of course, stocks have few properties as a medium of exchange. Again, you can find the odd case where it will be transferred but, for the most part, stock is bought and sold. Cryptocurrency can be used as a medium of exchange yet rarely is. HODLing is more commonplace.
There are some other interesting properties to cryptocurrency. Those at the base layer do carry a degree of "ownership". Since many are tied to governance, each token carries a certain amount of influence. This is akin to voting rights with stock. Obviously, one has more impact the greater the amount held.
We see a similar situation resulting in the second layer tokens. Many of these are tied to projects. Just like at the blockchain level, a lot of tokens have governance tied to them. For that reason, people can have some type of influence over the direction of the project. Of course, to be a noticeable player one needs significant stake.
Using this framework, it is not unreasonable for people to expect a long-term gain. If a project, or blockchain, starts to thrive, it is sensible that the market pushes the price higher. After all, if the value is growing, the market ought to reflect that at some point. It is no different than a stock price continually heading higher as a company profits grows and expands.
This is also an unavoidable outcome. As the Network Effect starts to take hold, a common trait in the digital world, the value of things only grows. Basically, it is impossible to stop. There is the simple supply and demand equation. As more people are involved, the availability of tokens is lessened. Trying to spread a similar number of tokens among more people means that something has to give. When growth exceeds the inflation rate, there is no choice but for price to increase.
Under this scenario, liquidity means nothing. In fact, it is a hindrance. No wonder the industry simply gravitates towards token burns. Less tokens available means a higher price if the demand remains the same. From the ownership perspective, this makes sense. Of course, it can negate the entire premise of utility if liquidity is too tight. Monetary equilibrium is really not considered in cryptocurrency.
Not all tokens fall under this mindset. We saw the emergence of stablecoins as an alternative to the HODLer concept. Here there is no incentive to hold a stablecoin unless placing it on some platform that pays a return. Naturally, this is no different than putting fiat currency is in type of interest yielding asset.
At the native level, there is no reason to hold a stablecoin other than the store of value. Since volatility is the enemy, as the name denotes, stablecoins aim to remain pegged to something else, usually the USD. In this instance, it is an ideal more during the risk-off periods.
They are also very easy to engage in commerce. Since the value is within a much tighter range, merchants can easily accept them. The likelihood of a stablecoin dropping 20% overnight not probable. That is not true for many cryptocurrencies.
It can be said that stablecoins are taking on the properties of money. They are a strong medium of exchange and, more importantly, are being used as such. Most cryptocurrency is not. So even if it does have that characteristic, if few are utilizing it for that purpose, does it even matter?
Of course, there are many nuances to an industry and not all tokens need to be the same. Some can fill one purpose while others take care of something else. The key is the overall construction of alternatives, not having one coin solve all issues. In fact, it is probably impossible for this to happen. There are simply to many factors when dealing with global economic conditions and, in turn, needs.
For now, the medium of exchange is not a major focus by the industry. Some of the stablecoin players are pushing ahead. However, when we look at the overall development and individual activity, it appears to be in the minority.
In the end, people are going to follow what they see others doing. Since most of the crypto world is treated like stock, it is only sensible for others who join the party to do the same. We are creature that mirror each other in many ways.
When a particular token, outside the stablecoins, have low volatility and moves sideways in a range, that is viewed as a negative. Who wants to own a token that goes nowhere? It is considered a bad move. After all, if the price does not move, there is no return.
Hence the stock viewpoint. It is now a basic part of the cryptocurrency world. It is how we view things and it is not going to change.
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