Van’s Note: Van Bryan here, Jeff Brown’s longtime managing editor. For the past two weeks, I’ve been asking Jeff to share his biggest predictions for 2021. Remember, readers can always catch up by going right here.
Today, I sat down with Jeff to discuss blockchain technology, state-backed digital currencies, and what will happen to bitcoin in 2021. Read on.
Van Bryan: Jeff, we’re going to cover a few topics today. We’re going to discuss bitcoin, blockchain, and what you see for the cryptocurrency market going forward. But let’s start by revisiting your prediction for 2020. Can you remind readers what it was?
Jeff Brown: When you and I spoke in December 2019, I predicted that China would launch a central bank digital currency (CBDC) sometime in 2020. It would be the first major country to do so.
Van: And is that what happened?
Jeff: It is. I’ve been covering this story all year for readers of The Bleeding Edge.
In October, we got word that the People’s Bank of China (PBC) held a lottery for citizens who wanted to be the first to test the CBDC in the city of Shenzhen. Two million people applied.
Of those, 50,000 citizens each received roughly $30 worth of DCEPs (Digital Currency Electronic Payments), which is China’s new digital currency.
In total, the PBC distributed 10 million DCEPs. With each DCEP pegged one-to-one with the renminbi, this first test batch was worth about $1.5 million.
This was really our first look at China’s digital currency “in the field.” And we also got some details on the technology that supports the digital currency.
It is a form of blockchain technology with asymmetric cryptography. That means DCEPs come with a pair of public/private keys to identify ownership. This is the same as most decentralized cryptocurrencies like bitcoin.
However, the blockchain is not distributed or transparent. Nobody can see what transactions are happening except those who are granted access by the Chinese government.
And, of course, there is no anonymity. The central government can see how many DCEPs everyone has. It can track and tax the transactions that people make with the currency.
Van: When we spoke last year, you also said that this development would “light a fire” under the U.S. to launch its own digital version of the U.S. dollar. Do you think we’re any closer to that?
Jeff: That’s right. When we spoke last year, it seemed like the U.S. lacked any sense of urgency with adopting this technology. In July 2019, I visited Washington, D.C., to discuss blockchain technology with members of Congress and other policymakers.
This was part of my work with the Chamber of Digital Commerce. The chamber is a group that advocates for a light regulatory touch on the industry and clarity on regulations concerning digital assets, token offerings, and taxation.
Jeff (center of photo) listens to a presentation from Representative Schweikert (R-AZ)
When I was in D.C., I remember confronting a senior staffer who claimed that major developments in the blockchain space wouldn’t happen for another three to seven years.
I, of course, knew that was wrong. I knew China was on the verge of launching a digital version of its currency.
And I knew that China launching its digital currency would be a major wake-up call. It would light a fire – as you said – under the U.S. to do the same.
And we got some developments on that in 2020. In February, we learned that the Federal Reserve is actively investigating a digital currency.
And an early draft of the COVID-19 stimulus bill even included a proposal for a U.S. digital dollar. That proposal was ultimately scrapped from the final bill, but it demonstrates that this idea is gaining traction.
That said, I don’t think a U.S. CBDC is coming in 2021. I just have a difficult time seeing the U.S. move that quickly. But even if a “Fed Coin” – as some call it – isn’t launched next year, it will be soon after. It’s inevitable.
Van: What makes you say that?
Jeff: Right now, the U.S. dollar is the world’s reserve currency. But what we’re seeing here is a radically new financial system taking shape. China has already launched its digital currency in a limited fashion. Russia also has plans to release a digital version of the ruble. If the U.S. doesn’t find a way to launch a CBDC, it risks being uncompetitive in this new world.
But the other reason why this is inevitable is because the incentives for the U.S. government – or any government, for that matter – are simply too high.
The idea of a CBDC in America really gained traction this year with COVID-19. A digital dollar would have made it much easier for the government to distribute stimulus funds.
We wouldn’t have to wait weeks to get a stimulus check or receive a direct deposit. We’d simply wake up one day and see that these digital dollars had been “air-dropped” into our digital wallets.
But there’s another side to this, too. It would give the federal government even tighter control over the money we use.
Think about it. A CBDC would allow the government to track and tax every transaction we ever make. The Internal Revenue Service (IRS) would have a field day. And, of course, the government could “print” more digital dollars whenever it wanted. What government wouldn’t want that sort of control?
Van: Where does physical cash fit into this scenario?
Jeff: It would be gone. Once a “Fed Coin” is issued, the government would certainly begin the process of removing all paper bills and coinage from the system.
For starters, there’d be no need for them anymore. But physical cash also can’t be tracked the way a CBDC could be. And if the goal is to track every financial transaction we make, then cash can’t be part of the equation.
I don’t say this to worry people. I know it’s a hot button topic. But this is the direction I think we’re headed.
Van: What about bitcoin? Would investors flock to bitcoin as a sort of “lifeboat?”
Jeff: I think it’s certainly possible. There could be a percentage of the population that adopts bitcoin as a store of value once people realize that the government can simply “print” more digital dollars and drive the value down. Only time will tell.
Van: Let’s stay on that topic. Bitcoin has had a great year. It’s up more than 200% this year as you and I are speaking. The world’s first cryptocurrency even hit a new all-time high recently. What happens to bitcoin in 2021?
Jeff: It’s going to be a good year for bitcoin. I’m bullish on it in 2021. That said, I still think bitcoin will continue to be volatile. We’re close to all time highs. I wouldn’t be surprised if it pulled back – perhaps significantly – before going higher.
I’ve been covering bitcoin for a long time now. One of the first research reports I ever published was on bitcoin. That was in June 2015. At the time, bitcoin was trading for about $240. Bitcoin trades for about $19,000 today. So that’s a 7,749% return on investment for anybody who followed my recommendation.
But do you remember what I titled that report?
Van: The title was “What’s the Big Deal With Bitcoin?”
Jeff: Precisely. That shows you where the conversation was at the time. We were mostly educating readers. But nobody is asking that question anymore.
Now we’re seeing institutional money finally taking an interest in bitcoin. The big news was that Massachusetts Mutual Life Insurance took a $100 million stake in bitcoin in December. This is not some small, niche enterprise. MassMutual is a 150-year-old institution.
So think about that. In five years, we went from educating readers on what bitcoin is to a company like MassMutual taking a $100 million stake.
The institutional adoption of bitcoin will continue. And that’s a big reason why I’m bullish on it next year.
Van: What else do you see for the cryptocurrency space in 2021?
Jeff: The other thing that caught my eye is that Ethereum is undergoing a major network upgrade. Remember, the Ethereum blockchain is programmable. So it can facilitate a lot of applications, not just payments.
Now we’re going to be getting Ethereum 2.0, which will increase the transaction capabilities of the blockchain. That will make it much easier to scale.
This is an upgrade that has been thoughtfully rolled out. It’s not just bullish for ether – the digital asset associated with the Ethereum blockchain – it’s also bullish for the entire blockchain industry.
Van: Let’s talk about the industry. In the past, you’ve been critical of how regulatory agencies have treated the blockchain industry. Has the regulatory climate gotten any better in 2020?
Jeff: No. I’d argue it’s gotten worse in 2020.
Now, to be clear, the Securities and Exchange Commission (SEC) did go after several low-quality blockchain projects. There were so many bad actors in this space. It was low-hanging fruit. The SEC needed to step in. And I’m happy it did.
But on the other hand, it did not make any advancements whatsoever in clarifying how it views digital assets and digital tokens.
Look at Ripple and XRP. It’s a perfect example.
[Ripple is a company that enables cross-border transactions using the digital asset XRP. As of this writing, XRP is the third-largest cryptocurrency by market capitalization.]
The industry knows XRP is a currency. But the SEC hasn’t made it clear what it considers this digital asset. Is it a currency? Is it a security? What are the tax implications? It’s unclear where the SEC stands on these questions. All this uncertainty is really holding back the industry in the United States.
Another disappointment is that we made no progress in giving retail investors access to quality blockchain projects. For the most part, early stage blockchain companies are only accessible to accredited investors, private equity, or large venture capital funds.
And to me, that’s a disappointment because these early stage companies represent some of the best investment opportunities out there. But everyday investors are still locked out. To me, that was a major disappointment.
[Van’s Note: Be sure you read tomorrow’s edition of The Bleeding Edge. I’ll be asking Jeff about different ways retail investors can gain access to private tech companies. And I’ll ask him why 2021 could finally be the year he can make regular recommendations for private companies.]
That said, there have been some bright spots in the blockchain space.
Van: Like what?
Jeff: A big one was MoneyGram. This is a legacy money transfer company that was really dying on the vine. It had been trying to compete with Western Union for years.
Back in 2019, it partnered with the company I mentioned above, Ripple. MoneyGram implemented Ripple’s xRapid platform to facilitate cross-border transactions using Ripple’s digital currency, XRP.
With Ripple’s technology, MoneyGram’s fees will drop to pennies on the dollar. The transactions will be faster, cheaper, and more secure. MoneyGram’s stock shot up 168% right after that was announced. And the stock is up 286% since June 2019.
That was great for MoneyGram’s investors. But the bigger takeaway is that existing industries are finally starting to see how this technology can be used to improve efficiencies and profitability.
This has been obvious to me for years. But it’s finally becoming obvious to all these legacy incumbents. And now that we understand the tangible benefits of this technology, we’re going to see more use cases for blockchain across several industries. That’s setting up blockchain for a very strong year in 2021.
Van: Thanks as always, Jeff.
Van’s Note: Check your inbox tomorrow afternoon for our final 2021 prediction conversation with Jeff. I’ll be asking Jeff about what he sees coming for the booming IPO market. And I’ll ask if 2021 is the year when Jeff finally makes recommendations for private tech companies. All that in tomorrow’s edition of The Bleeding Edge.
And as Jeff said, blockchain is setting up for a great 2021. But 99% of investors are so distracted by bitcoin that they are missing the bigger picture. Learn Jeff’s top blockchain stocks to buy today by going right here.
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