Cashlessness

count-back-change cashier

Say goodbye to cash.  You might want to frame a few crisp new one dollar bills.  They are about to become history.

Have you noticed how few occasions we have left to use cash? The decline started years ago when credit cards were introduced.  However, as banks were earning windfall profits as we all went into massive debt, we     learned to temper our enthusiasm for the new ‘currency.’  Banks then introduced debit cards to earn fees in another way.  Cash was really beginning to take a backseat.  In 2011, with changing regulations and fees to merchants limited, the banks wavered for a moment, while they tried to decide if debit cards were still good business. Banks are getting people to use debit and credit cards in greater and greater numbers, earning more and more fees.

Mastercard and Visa once charged merchants a flat $0.15 fee plus a percentage of the billed amount. When the item was very small, $1 to $5, the $0.15 plus 2 1/2% or more fees became a hefty portion of the overall transaction.  This caused merchants to discourage card use for small items.  Merchants posted signs “Minimum $10 purchase to use credit cards”.  Those signs are all but a thing of the past when regulations made the fees for all purchases big and small the same. The days of cash for small items were numbered.

People don’t carry much cash anymore.  Now, there are just a few cash holdouts left.  Using cash for tips became more difficult as the check amounts got larger and people paid the bill with a card.  It was just easier to add the tip to the amount.  EZPASS made cash for tolls a thing of the past.    There’s a small “cash only” Italian restaurant in Brooklyn that we frequent and cash only sidewalk food carts.  You can still buy a “BEER HERE!” at the ballpark with cash.  The babysitter still requests cash.   Taxis have had to accept cards when the bills got too damn big.  I’m still in the habit of going to the atm and withdrawing cash the day before long trips.  I’m used to cash-intensive taxi/hotel/airport travel days.  But even those days have become cashless.  It seems like the only thing my wallet is good for now is to hold my bank cards and thousands of receipts.

Take a selfie with a dollar bill. They are soon to go the way of the subway token.

Bitcoin Valuation: As Cash; As Gold

Gold bars

There are 5.5B ounces of gold in the world and 7.5B people, an average of 3/4 ounce per person @$1232 is worth $961.50.  If gold’s market cap is 6,776B is divided by the total number of bitcoin ($6,776,000,000,000  / 16,600,000 Bitcoin = $408,192).  One bitcoin would be worth $408,192.

Here’s another way to evaluate bitcoin: How much cash is there in the world? That is a complicated question which depends on your definition of cash.  Low estimates start at five trillion.  High estimates go from thirty-five to ninety trillion.

pile of cash

Cash, for our purposes, is the liquid money that you keep on hand to use for pleasure, maintenance, and emergencies.  That would be all the money you have in the bank and under your mattress that is NOT stocks or bonds, gold, real estate or fine art.  If bitcoin were to be the currency of choice, then one bitcoin will equal USD $5T / 16,600,000 Bitcoin (the total number in circulation) = $301,204.  Remember, this is a low estimate of the amount of cash available.

The two numbers, $408,192  in gold and $301,204 in cash equivalencies respectively, are not all that far apart. There might be some truth to this valuation.

 

Bitcoin: Going from Speculative Investment to Currency Equivalent

Screen Shot 2017-12-03 at 1.05.02 PMAs markets wake up to the fact that bitcoin is a legitimate currency, there will be a mad dash to acquire some.  However, when bitcoin is rising at the rate of 750%  per year it is seen as a strong speculative investment, not just as a currency. The amount of dollars held in investments is something close to $25 trillion depending on what you want to call an investment and what asset classes you include in the evaluation. Let’s just consider the cash equivalents.

People will want to hold what they need in bitcoin as cash, and, what they want to hold in bitcoin as an investment.  Later on, when it reaches its natural value and behaves more like a currency in relation to other currencies, people will be comfortable holding just enough cash to satisfy their liquidity needs.  We’re not there yet.  Instead, you can expect the amount of bitcoin people hold will be equal to the amount of cash they currently have in fiat currency PLUS an investment amount.

If you had a very, very good investment idea, one so good that there was barely any risk at all, and the reward was phenomenal, would you invest between 25% and 40% of your portfolio?  Let’s be conservative and call bitcoin a good investment but not phenomenal.  Then, you might expect a 10% – 20% investment.  If bitcoin rises to that level of speculation and that amount is invested then a bitcoin would reach $225,903. = ($25T x 20%)/ 16,600,000 bitcoins. There would be some overlap between the money you considered an investment and the money you considered cash.

Bitcoin will run up in value to $225,903. as an investment.  It will then transition to cash from speculative investment.  At that point, bitcoin values will go to $301,204.  We are witnessing the run up to $225,903 as people speculate on a good thing and bitcoin becomes fully invested.  As more and more people have more and more bitcoin and the value stops going higher, it will slow.  Before it stops altogether, however, it will transition to being just another currency which that we won’t pay attention to.  Bitcoin will go up to $301,204 as people throughout the world hold an average somewhere between $666 (cash equivalent) and $961 (gold equivalent) in bitcoin.

171101 Bitcoin Isn’t Doing Its Thing Yet

Bitcoin is the currency of the future. But the future isn’t here yet. Bitcoin should be the workhorse that facilitates trading.  It should be the currency to use for all online purchases, for transmitting value across borders and great distances, for storing value in troubled times, for making trusted trade between strangers possible, and growing one’s nest egg. However, it is at present, a speculative bubble.  Its skyrocketing valuation is breathtaking and not for the faint-hearted.  How can anyone looking to invest, purchase something that is 137% the price it was just four months ago?  A Bitcoin, in June, was $2450, and on November 1, 2017, is $6650. If tomorrow morning we woke up to Bitcoin prices at $5800, down $850 or -13% from today’s stratospheric prices would we still consider Bitcoin a good investment?  No. Yet, here we are.

For things to right themselves, more of bitcoin’s real potential must materialize.  People have to recognize that Bitcoin is here to stay, has no intrinsic worth but for its ability to facilitate trust, help accomplish the conveyance of wealth, and its ability to be converted to any other acceptable form of currency.  This morning there was an article about an Amazon subsidiary purchasing the domain names amazonethereum.com and amazonlitecoin.com.  Amazon already has owned amazonbitcoin.com since 2013.  If Amazon were to announce its acceptance of Bitcoin as a payment method option on its website, that would be huge and go a long way to improving Bitcoin’s worth.  The value of Bitcoin would grow as significantly as if JP Morgan Chase were to announce their acceptance of Bitcoin as a currency.

The marketing of Bitcoin would instantly see 2X growth.  Bitcoin going to $13,000.00 would happen immediately.  Visa and Mastercard would take a big hit as their fee-based transactions gave way in favor of feeless Bitcoin payments.  Businesses which work on tiny margins, such as the grocery business, would rush to become Amazon vendors.

There are laws on the books which prevent merchants from displaying two-tiered pricing.  Nowhere in the United States will you see merchandise displayed with two-tiered pricing: one price for cash purchases and another for purchases with credit cards except, of course, at the gas pump.  There are Merchant/credit card/bank agreements which prohibit that.  It’s a matter of semantics.  Purchases must not have a credit card surcharge.  However, it’s ok to have a cash discount, if that law is understood correctly.

3-tier pricingImagine three-tiered pricing: Bitcoin, cash, or credit.  Bitcoin would be cheapest.  Ask any merchant if they’d rather have their employees handling Bitcoin transactions or taking cash for 2% more.  Bitcoin means instant payments, no fraud, no theft, no loss, no credit card/debit card processing, no bank fees and no delays.

There is much to be done before we get from here to there, but we’d best begin.  Don’t get me wrong.  I love when my investments jump 15% overnight.  But I’d rest a whole lot better knowing Bitcoin’s price was based on its being used to facilitate trade and add trust, than as a speculative bubble.

 

171022 Hidden Bitcoin Opportunities for Banks

Banks are missing the huge opportunity Bitcoin and cryptocurrencies afford them.  Take a look at the following chart published in Cointelegraph:

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The most preferred payment method is debit card, followed by cash, followed by credit card.  Digital payments are fourth.  Checks are fifth.  The chart is NOT about which is the easiest or most secure payment method.  The chart is about PREFERRED payment methods.  Even though digital is the easiest payment method and perhaps the most secure, debit cards, cash, and credit cards still win out.  So what?

This presents a huge opportunity for banks to facilitate cryptocurrency accounts for clients, while enjoying the security, ease-of-use and low overhead cryptocurrencies provide.  People are frightened, a little bewildered and uneasy about cryptocurrencies, yet most are curious, if not downright desirous, to start a cryptocurrency account or investment.  Why not provide them with the assurance they need while benefiting from continuing to be their financial advisors.  Banks are missing out on a huge opportunity.  If the banks continue only to view cryptocurrencies as undermining their business, banks will be left high and dry which the rest of the world cruises on cryptocurrency’s many benefits.

Most people are terrified by the security steps most cryptocurrency exchanges employ today.  Remember, too, most people are still not comfortable making purchases using a credit card online. If a Goldman Sachs or a Wells Fargo were to offer a Bitcoin account for savings and trading, people would jump at the chance to open a cryptocurrency account, while the banks offer them the ability to trade, send and receive cryptocurrency securely.   Instead of trying to hide and make cryptocurrencies go away, banks should be prospering by embracing the inevitable and fostering cryptocurrency’s growth.