Undeniably, the concept of cryptocurrencies have brought on a sharp rethink of our monetary system. As digital assets, they operate above mainstream investment platforms. One of the most obvious “consequences” of this new paradigm is that blockchain assets trade 24/7/365. Unlike your typical stocks and bonds, cryptocurrencies are not tethered to the banking system.
Naturally, this has aroused both praise and criticism. On one hand, proponents of the blockchain and its myriad innovations argue that cutting ties to mainstream finance facilitates true free markets; that is, no one entity (i.e. the U.S. Federal Reserve) levers undue influence over other players. This allows anyone to participate in cryptocurrencies, so long as they have internet access.
But on the other hand, blockchain tokens completely lack the benefits of mainstream financial tethering. In contrast to other assets, cryptocurrencies don’t necessarily transfer easily from one party to another. That’s especially the case if a crypto holder dies. Interestingly, Liam Stack of The New York Times detailed this very scenario:
After Gerald W. Cotten died last year, his clients at the cryptocurrency exchange Quadriga CX found themselves unable to gain access to at least $250 million in their accounts. The company’s operations were encrypted, and he was the only person who knew the passwords needed to move the funds, the company said.
Now, with law enforcement officials in two countries investigating potential wrongdoing at the firm, frustrated investors want definitive proof that Mr. Cotten is actually dead.
Admittedly, this is a weakness or vulnerability in the crypto narrative. But it also makes for its remarkable upside potential.
Supply of Cryptocurrencies Limited Beyond the Print
One of the reasons why bitcoin has ranked number one against other cryptocurrencies is its extremely limited supply. At most, there will only be 21 million units of this token. While I can’t speak for all virtual currencies, arguably most are comparatively “dilutive.”
Now, 21 million units is a very small number as it is. But as Stack demonstrates above, the actual number of available cryptocurrencies could be much, much lower. Of course, this specific situation involves a possible fraud, which investors want to confirm with absolute certainty. Undoubtedly, though, many crypto holders have died, leaving their next of kin nothing.
And it’s not just the macabre incidents that drive down supply. People could lose access to their cryptocurrencies for any number of reasons. And it’s not just one virtual currency but several that could be affected.
That suggests these assets are much rarer than meets the eye. Once more investors realize this, we could see a spike in demand to reflect this fact.