I wrote the below post on my on-again / off-again blog at www.arhaik.com on March 29, 2020

Thinking about the $2 Trillion economic package that the US Federal government has recently authorized had me thinking about how that “money” gets used to stimulate the economy. And my first level of analysis was, inflation. That was not a complete analysis; but I could not nail down what I was missing. Then I listened to the #BloombergSurveillance interview with Robert Kaplan, Dallas Fed President, and it became clear to me.

The Federal Reserve will expand their balance sheet across multiple classes of assets, and they will be easing lending restrictions on banks. Those banks will make massive loans available to their largest of commercial clients which tend to be commercial real estate developers. With the massive influx of “money” available, those hard assets will increase in price. This means of adding “money” to the economy is what any political administration would do as it is the quickest way for a government to increase the supply of money into an economy and hopefully stimulate demand. Those who hold a large portion of their wealth in hard assets will benefit from this increase in the prices of those hard assets.

The government is also taking action to help with the consumer economy which is dominated by the services sector. But the government (any government and any political administration) does not have an effective way to quickly stimulate demand in the services industry. Small Business Administration (“SBA”) loans will help, and small cash payouts to households below certain income thresholds will help, but those will take a lot longer to process and to create demand in the consumer economy. And so the consumer/services aspect of the American economy will fall drastically in the short term and take a long time to return. This is what was made clear to me in the interview with Robert Kaplan of the Dallas Fed. He expects unemployment to spike into the high teens by the end of the 2nd Quarter 2020 and only start to ebb beginning in the 4th Quarter of 2020. The Fed will not be able to take actions until 2021 to assist this part of the economy, per the interview. So we are going to see an increase in the prices of hard assets while we see the consumer/services economy stumble badly over the next year.

To this amateur economist, the Fed’s ability to decrease interest rates when it is time to stimulate the consumer/services economy is no longer available. Federal Reserve-controlled Interest rates are as low as they are going to go. So the consumer/services economy will be reliant on fiscal stimulus from the Federal government’s budgetary spending as a means to re-invigorate demand. That would mean more taxes raised to fund those programs.

It is not up to me to predict if a future Administration and Legislators will have the willpower to increase taxes, but what I see clearly now is that investments in hard assets (commercial real estate and equities) for capital gains, is a better investment thesis than investments into cash cow services businesses designed to kick off free cash flow.

Good Questions, great answers.

Recent interpretive letters from the Office of the Comptroller of the Currency (OCC) make clear that Federally-regulated banks can hold reserves for stablecoin issuers. Some of the top line restrictions will be that the stablecoins have to have a 1:1 fiat-to-stablecoin reserve that is validated each day, and that those stablecoins must be in hosted wallets.

While the interpretive letter, and some associated infiormation from the Securities Exchange Cimmission are moving digital assets forward, there are a few questions and concerns.

NOT YOUR KEYS, NOT YOUR BITCOIN

A bit of a rallying cry to the digital asset indutry’s founding principles is that if you do not control the private keys to your digital assets, then you are not really in control; you have to request access to them or the ability to transfer them from another entity like a bank or custodian. In th eOCC’s interpretive letter they clearly state there needs to be “hosted wallets”. This is industry speak for a wallet that is controlled by an outside entity and not the actual owner of the digital assets. With a hosted wallet, your request to transfer your digital assets to someone else (to pay a vendor, or send to a friend) is actually routed to the wallet provider, who executes the transfer for you. Similar to a band sending an ACH on your behalf. Yes it is your money in the bank and yes you can send it….but there is someone approving and tracking that movement of value.

HOW MANY STABLECOINS DO WE NEED?

In my mind there is only need for a single “Digital US Dollar”. And, no, I do not think it needs to be generated by the US Federal government. A independent company who plays by the OCC rules would suffice. But there will be many stablecoins being created by many banks here in the USA. The JP Morgan Dollar, the CitiDollar, the Insert-your-own Local Community Credit Union Dollar. In theory they will all be worth exactly $1.00. But they will be built on different technologies which may effect their value. And though they will all have to abide by the OCC (and other) rules and regulations, the credit of JP Morgan is likely different than the credit of Podunk Community Credit Union. So there will likely be differing values of each coin on different blockchain platforms. And that means that there will need to be an exchange layer. And that adds complexity and friction. And friction is what we are trying to reduce.

FRONT OR BACK OF THE HOUSE?

Multiple, branded digital dollars are what consumers will see. But what about the back end of finance? What about settling trades between counterparties, or netting transactions between vendors and suppliers. If there were a single US Digital Dollar, the super complex, time consuming, riddles with errors and expensive act of settling trades would be done on a single blockchain with a single Digital Dollar coin. These are not transactions the retail public will ever see. It’s the daily operations of global banks and companies. For these activities, the focus should be on a single type of Digital Dollar

https://www.digitaldollarproject.org/

https://www.bis.org/publ/arpdf/ar2020e3.htm

Growing a mainstream user base is far more important than the frothiness of the current DeFi craze.  I sincerely hope there will be lessons learned from DeFi in it’s current iteration (a bunch of food-themed versions of collateralized lending) and that the valuable lessons will then be applied to the next round of Digital Asset products and services.  In the meantime, I am focused on mass adoption of Digital Assets.

Mass adoption has been part of the lexicon and a goal for all who understand the potential of natively digital assets, but for me this takes on new emphasis.  The projects I will focus on will all have to do with getting Digital Assets into the mainstream of consumer use.  And that does not even necessarily mean consumers will all be holding or transacting with Digital Assets.  The Digital Assets may be a part of the banking and finance industry’s payment rails.  You and I may still pay for a ShakeShack burger with US Dollars via our Visa-branded debit card, but the merchant acquisition and actual bank processes to move net payments amongst themselves will be via blockchain networks and the digital assets that reside on those blockchains.

With that being said, I give you Nic Carter’s opinion piece in Coindesk from Sept 3

https://www.coindesk.com/crypto-dollar-surge-opportunity