By Buster Nicholson, Public Sector Outreach at American Public University
There is a lot of buzz in the financial world concerning cryptocurrencies. According to Forbes, some major players such as Microsoft and Apple are beginning to think about diversifying their portfolios to include cryptos, and even some mainstream “normies,” such as state and local governments, are starting to take notice.
[Related: An Introduction to the Darknet and Bitcoin]
The timing is right to investigate this growing interest in cryptocurrency for the sheer fact that those who get in early on a positive growth trend stand to gain the most.
The Federal Reserve has gone into overdrive printing money in order to deal with the economic implications from COVID-19 ($6 trillion so far). This level of inflation in such a short period of time is unsustainable.
Since states and local governments do not have the ability to print fiat money, it only makes sense for these institutions to begin the process of diversifying their portfolios in order to protect their positions.
Here are the top five reasons why local governments should start researching the cryptocurrency market and consider allowing residents to pay their taxes and utility bills in cryptocurrency:
Hedge against Inflation
Inflation is simply defined as printing money. There are no impediments to the Federal Reserve’s ability to print money out of thin air. In contrast, cryptocurrencies are a finite asset. For example, there are 21 million Bitcoins, and there will never be any more.
By defining assets to limited quantities and backing the asset with proof of work, cryptocurrencies have placed themselves in a key position of strength as opposed to fiat currency, which fluctuates at the whim of the Federal Reserve.
While the fiat money supply will definitely continue to grow and thus weaken the dollar, cryptos are beginning to attract investors of all levels who wish to hold onto their wealth.
Solid Growth Potential
Have you ever looked at your bank account and wondered, “Why am I not making any interest?” Back in the 1980s, it was possible to open an interest-bearing savings account that gave you a decent yield. Today, you are lucky to find one with a 2% APR. In contrast, here is a breakdown of this year’s gains from some top cryptocurrencies as of November 3, 2020:
- Bitcoin (BTC) +86.85 %
- Ethereum (ETH) +191.68%
- Chainlink (LINK) +446.13%
- Theta (THETA) +548.48%
Although this level of growth should not be anticipated year-after-year, investors can probably count on these tokens to continue to be bullish through 2021.
Because of the nature of blockchain, cryptocurrencies have stipulations—set forth in their source codes—requiring them to have a limited and finite supply. This is the antithesis of fiat currency.
The crypto-market creates a decentralized financial system or “DeFi” which removes the control of the currency’s value from an unelected board (the Fed) and allows the currency to find its value based on investors. The public is waking up to this and turning toward DeFi as a means to protect their assets from unaccountable inflationary policies.
Countries Are Moving Their Currency to Blockchain
The list of countries moving to cryptocurrencies is stunning in its pace. Australia is moving toward blockchain solutions for the country’s regulation and standards: skills, capability, and innovation; and international investment and collaboration by 2025. Canada’s central bank is actively working on rolling out a new digital currency. The U.S., UK and the EU are exploring a digital currency. Many large central banks have made serious moves toward cryptocurrency adoption. China has developed a digital yuan and literally air dropped $1.5 million (USD) on 50,000 residents of Shenzhen as a test run prior to a full rollout of the digital yuan. Considering the sheer number of countries moving toward adoption, it can only be surmised that we are at the cusp of a complete overhaul of world financial systems.
Consumer Demand for Cryptocurrency Will Only Grow
As countries try to spend their way out of the COVID-19 pandemic, debt to GDP ratio is skyrocketing. (In 2017, the U.S. reached 104% debt to GDP). Perceptive consumers are aware of these trends as they continue to lose confidence in central bank currencies. If a customer wishes to pay his utility bill in Bitcoin Cash (BCH), why shouldn’t he be permitted to do so? Many states have noticed this emerging consumer sentiment and are moving toward accepting cryptocurrencies for payment. In our increasingly global economy, states and municipalities are positioned to lead the way with more efficient forms of exchange.
With businesses failing due to government-mandated shutdowns to slow the COVID-19 spread, municipalities need to look at other forms of revenue and exchange. And as their tax base shrinks it becomes less politically palatable to raise tax and utility rates.
Local political bodies can make moves toward cryptocurrency adoption that will bolster their economies, bring greater liquidity, and fill in revenue gaps due to COVID-19 that will present themselves as the number one issue in the near future.
About the Author: Buster Nicholson is a senior manager of Public Sector Outreach at American Public University. He has a Master’s degree in Public Administration and has worked as a public school teacher, an analyst for the United States Secret Service, a town administrator, and a director of public works. At APU, he works with directors, senior managers, and staff from state and local government entities to facilitate leadership growth through education and professional development. He can be reached at ANicholson@apus.edu.