Digital companies are looking forward to institutional investors: not only their lots of money but also the share of legitimacy in the market that they transfer to their counterpart during the investment process. But it is quite possible that these expectations are just another illusion, since the usual global market, which the “new business” is aiming at, may disappear soon.
The other day, 9 Japanese banks united in the clearing network Zengin-net started testing a DLT-platform for interbank payments both in fiat and in digital currencies. This is a small step for banking companies but a large leap for the global economy. The market is actively looking for a real replacement of the existing financial institutions, including the SWIFT interbank transaction system controlled by the USA; and, probably, in the coming years, the entire Bretton Woods system will face a serious audit, up to the total cancellation.
Experts have already called this trend “the BREXIT-effect”. This is exactly the case when the political model is almost entirely applicable to the macroeconomic situation. The withdrawal of Great Britain from the European Union generated not only a financial collapse but also tectonic changes in global politics and economy. It all began in 2008, when, after another global crisis, the credibility of world elites was undermined and there was a rejection of generally accepted conventions. Communication between representatives of the establishment and ordinary people was interrupted because the former were telling lies too much, trying to increase their already considerable incomes and the latter believed, not paying attention to the wake-up calls.
In order to understand the essence of the BREXIT effect better, let us recall how back in August 2007 a number of Central Banks undertook the obligations of bankrupt credit organizations, and all the same, it did not help them. By 2009, the largest mortgage providers Fannie Mae, Freddie Mac, and AIG, Lehman Brothers Bank, and Merill Lynch Investment Company completed their life cycle. The world market recovered after the collapse only by 2011, but the previous level of traditional economic and political institutions credibility has not recovered.
This was followed by the Middle East Political Crisis and the Migration Crisis in Europe. Exactly it was what became the final nail in the coffin of the patience: since the ruling European elites cannot protect people from economic or social shocks, then why are they necessary.
BREXIT became a kind of a signal for “disobedience”. During the elections, politicians and parties won that previously could not have reached under any circumstances, and assets that are not connected with any political system began to gain popularity in the market. If you look at the Bitcoin chart, the explosive growth of its value coincided in time with the referendum on British withdrawal from the EU. If from the middle of 2013 it had been steadily traded at around $300-500, with a slight burst in January 2014, then after June 2016 it went up sharply so that by the middle of 2017 it would approach the $20,000 mark.
Just about the same deal happened with other popular digital currencies. This phenomenon is called “social pumping” of value - when the value is ensured by the popularity and loyalty of society. This is exactly what happened with all decentralized assets: due to the attention of consumers, the analogue of items of value declared a kind of brexit from traditional financial institutions such as fiat currencies, securities, and gold.
At the moment, the value of bitcoin is fluctuating between $6 000 and $7 000 and, consequently, the value of cryptocurrencies is still preserved.
This does not mean that states are inactive: there are 7 ways of fighting against the BREXIT-effect. But we are interested only in the two most currently widespread ones.
The first one is "To clip the dragon's claws and wings." It means the introduction of strict censorship and the maximum distribution of legal restrictive instruments but, at the same time, the growth of controlled models of innovative development is not excluded. China has followed this way. Possession of digital currencies in the Celestial Empire is not banned, and even the court officially recognizes them as property, but all transactions with them and trading platforms are outlawed. At the same time, the government is investing a lot of money in promoting the DLT. In other words, forbidden cryptocurrencies and ICOs can be considered to be clipped claws and wings, but the “body” of the digital economy, the blockchain, is actively funded and used by the state.
This model of behavior has one major drawback: sooner or later, the situation will result in the explosion of public anger due to the internal contradiction: there is the infrastructure, and the assets that must give economic sense to it are banned.
The second way to resist the BREXIT-effect is called “To grow your own dragon”. It means the creation of a managed tool for the outburst of business and political activity. The United States is following this way. Recently, one can observe how the Ripple digital currency is being pumped with legitimacy. The Mass Media regularly and, by the way, fairly associate it with the active head of the state, Donald TRUMP. For example, Ken KERSON, a longtime associate and assistant to the president, became one of the members of the managing board of the company. In 2011, he participated in TRUMP’s pre-election campaign. In addition, Ripple actively cooperates with such financial giants controlled by the United States as American Express, Mastercard, and Western Union. Moreover, it is possible that the partnership was imposed on companies from above.
The public demand for truth is actively resisting "growing your dragon" model. The problem is that the connection of a new financial instrument with the power institution that has discredited itself may lead to the loss of trust, and therefore (in the case of Ripple in particular), of the value of a coin.
But, in addition to states and governments, there is another important player in this field - the global market, and it has one unpleasant feature for elites: it will always adapt to the mass-market consumer. The project of Japanese banks is proof of this. Institutional investors will undoubtedly come to the digital market, but, perhaps, no longer as carriers, but as consumers of legitimacy, that is, the vector will be the opposite of what all the community is expecting now.
According to the World Bank’s forecasts, in the next 2-3 years, the world economy will slow down its growth from 3.1% to 2.9%, with a high risk of transition to the global recession. Moreover, the British economist Robert GORDON believes that in the next 250 years, the market of Europe and the USA will grow by no more than 0.2% per year in general. According to the scientist, there are simply no objective reasons for the growth, but there are plenty of them for the recession: the horrible demographic situation in Western countries, the 20-year decline in education, and the constant increase in the gap between the rich and the poor. And it is possible that for large companies, the transition to the digital economy will be the only chance for survival, since the social capital standing for cryptocurrencies may soon remain the only value generator.