It was the year of crypto!
For this, the first of two holiday editions of this Money Reimagined column, we frame this remarkable year in terms of how, in different ways, money was reimagined in 2021. We look at five themes, with links to past newsletters and podcasts.
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In 2021, money became…
Whether it was the mania for dogecoin, the surge of interest in non-fungible tokens or the capacity for Wall Street Bets to set the price of “meme stocks” like GameStop, we witnessed a strange merging of finance and popular culture. As incredulous as people were in both traditional financial and Bitcoin circles, we at Money Reimagined felt somewhat vindicated. The trend underscored a theme we’ve explored in both the newsletter and the podcast: that monetary systems require a shared belief in their common value. This era of reimagined money is bound to see the deployment of art, iconography, stories and other cultural products to bolster the sense of belonging and belief among communities that form around these new systems.
A politicized idea
For the past century, no one really questioned the nature and structure of our systems of money. Money was issued by governments and it was run by banks. End of story. With the emergence of Bitcoin, there was suddenly a new way to think about things. But for most of its existence, the political class felt it could simply ignore it.
In 2021, that blissful ignorance suddenly became impossible. We first saw this with the debate over the infrastructure bill, most importantly in the U.S. Senate, when the impositions of a contentious tax reporting provision for cryptocurrency sales had the ironic effect of demonstrating that crypto had arrived in Washington. The fact that legislators wanted to tax crypto was a sign that it was recognized as a long-term prospect, a reliable source of tax revenue. Just as importantly, the crypto lobby, though ultimately unsuccessful in its bid to force changes to those more draconian parts of the provision, showed its clout on Capitol Hill has grown significantly. It forged a large, bipartisan coalition of lawmakers to support its preferred amendments and showed it will be a force going forward.
Around the same time, the conversation around stablecoins as alternatives to central bank digital currencies started taking on greater appreciation in Washington. Randal Quarles, the vice chairman of the Federal Reserve until he resigned from the post in November, even argued that stablecoins could bolster U.S. power overseas by tapping into private sector innovation that central banks inherently won’t have access to. That set the stage for an intense debate on stablecoins through the summer and fall, particularly around whether issuers of stable tokens such as USDC and PAX should be required to get banking licenses.
Finally, in December, a crypto hearing in the House of Representatives revealed something that none of us would have predicted a year ago: some very well-informed questions from lawmakers. It seems that many in Congress have finally done their crypto homework. We had Nik De, CoinDesk’s managing editor for global policy and regulation, on the podcast to discuss it.
A matter of geopolitical importance
Even if it took federal politicians some time to wake up to the political ramifications of cryptocurrencies and of the central bank-led alternatives they helped spawn, China’s rapid development of the latter had caught the attention of academics and think tanks. They recognized that Beijing’s deployment of its Digital Currency Electronic Payments (DCEP) system, which went in for heavy testing in 2021, has the potential to disrupt U.S. dominance of the global financial system.
What few saw coming was that China would also forfeit a dominance of bitcoin mining that it had for many years by launching a crackdown against such operations around the country. That led to a massive drop in the Bitcoin network’s capacity, as about half of the global hashrate, or computing power, shut down. But that hash power soon moved elsewhere, and especially to the U.S. By October, the U.S. had become the biggest mining location in the world. Already people are talking about what this increased role for the U.S. in a decentralized currency means for the U.S. as China pushes its centralized monetary solution on the world.
A speculative force for social innovation
In 2020, the speculative fervor around decentralized finance fueled such a powerful flywheel of investment capital and innovation that it helped frame our look back on the 12 months that preceded the one-year anniversary of the “Money Reimagined” podcast this past October. In 2021, the phenomenon was taken to a new level as speculation around non-fungible tokens fueled a flurry of ideas around the future of media, art and collectibles, which in turn kept attracting more and more money into the space. It all felt very much like a bubble, but it was also clear that speculation in this case was a feature, not a bug, a powerful driver of change – even if we don’t yet know where that change is ultimately taking us.
A dinner party conversation
Perhaps the biggest theme of 2021 was simply how mainstream crypto had become in terms of public awareness. With the NFT zeitgeist, soaring token prices, the fact that Washington was more interested to learn about it and the ideas that swirled around bitcoin being a bet against a failing monetary system, crypto was suddenly everywhere. Everyone wanted to understand it. Meanwhile, plenty of people who did understand it, as well as many who didn’t, formed strong views on crypto’s pros and cons. So, be warned as you sit down for a holiday dinner with family, you may be asked to explain yourself.