Tokens Past The Civil War Cryptocurrencies And Bitcoin This Time Isnt Different

The word is out, there's always something new.

They say the next great thing is here, and that the revolution's near. But to my eyes, it seems quite obvious, That it's all just history being repeated.

The newspapers shout a new style is growing, But it don't know if it's coming or going,

There is fashion, there is fad. Some is good, some is bad. The joke is rather sad. It's just history repeating itself.

Source: Propellerheads with Shirley Bassey, History Repeating

Thesis on Investment

Bitcoin (BTC/USD) was revolutionary in that it introduced a new technology to our world - the Blockchain. This technology has the potential and potential to be a more important part of society. But, with such great potential comes a lot of speculation on the part investors. History shows that this is not a new phenomenon. New technologies attract a lot of hype and entice the masses. This phenomenon can lead to many problems. It is important to remember that an investment made in Bitcoin is not the same as an investment made in the underlying blockchain technology.

While tokens aren't new, speculation on tokens has been around for some time. But, just because a token is rare or unique does not make it worthless to society. There are examples of this in history which we can learn from, such as Civil War tokens.

To me, cryptocurrency is a trading platform and nothing more. If you wish to trade digital coins in this vast sector, please consider the possibility that in the long-term, many cryptocurrencies could fail as a store of value. Cryptocurrencies I am neutral in the short-term on Bitcoin, and bearish in the long-term.

Bitcoin and other cryptocurrencies have experienced a sharp decline in value, to the point when many market participants are questioning whether it is the right moment to invest in the sector. Trading in cryptocurrencies has gained in popularity over the years, and while many in the younger generation see this sector as the 'future of finance,' some notable investors in the older generation sees this, as Charlie Munger eloquently put it in a recent interview, "an open sewer full of malicious organisms." While some older generations are becoming more open to cryptocurrency, most of the investors are 18-29 year olds. Forbes.com estimates that only 8% (50-64) are buying cryptocurrency. The figure is even lower for those 65-65, who account for 3%.

Chart of Bitcoin YTD (Google)

Although Bitcoin may have seen a temporary bottom, the future is uncertain. My take on cryptocurrencies is somewhat similar to what Howard Marks recently said on the sector - "assets that don't have cash flow don't have intrinsic value." In my opinion, it seems that the crypto sector is merely a trading vehicle, and not a long-term store of value for investors.

Money cannot be considered money if it is not both a medium of trade and a store or value. Bitcoin is most certainly a medium of exchange, but the main problem is that no one is obligated to take it from you as payment for goods and services - the debt aspect of crypto is hazy. There have been many variations in the concept and acceptance of what was considered money throughout history. It used be that the dollar was tied with a fixed amount gold. But, for long periods of time, gold and silver have been considered money. As with Bitcoin, gold is not able to produce cash flow, so its intrinsic value could be questioned. Many notable investors will have differences of opinion on this matter. The main difference between Bitcoin and other cryptocurrency is that many people are still uncertain whether it should be considered a commodity, a currency, or an asset. I don't believe that it meets any of the criteria.

In today's modern world, money cannot be obtained without having debt. This is why paper currency exists and is circulated in society. If a government, business, or other entity is not required to take Bitcoin or other cryptocurrencies as payment, then it has no value and problems may arise. Such an entity may choose to accept cryptocurrencies as payment, but there is no obligation to, and this is where things get tricky legally. History shows examples of this problem which far predate modern cryptocurrencies, but the underlying phenomenon remains apparent.

Paradoxes, Stores of Value, Sentiment

One paradox of cryptocurrency, however, is the fact that there will always be another coin. It will be similar to Bitcoin but slightly better. To upgrade the existing coins and how they function, such as Bitcoin, one must have something of a committee that decides on changes, which makes the prospect inherently centralized. This has caused problems in the past, with lengthy discussions and even quits from Bitcoin Core contributors. The whole point behind cryptocurrency is that it is supposed be decentralized. So the paradoxes keep mounting and it becomes difficult to understand the complexities.

I believe that if there's always a new coin that is better or more attractive for a particular use-case, then cryptocurrency will never truly be a store of value. Instead, the speculators will abandon ship for the better, novel coins. This makes it extremely risky to trade and speculate on the sector. There is a lot of uncertainty about price movements in the sector due to the nature of speculators and government intervention such as we saw recently with China. History has repeatedly shown that even though bubbles and manias occur, the underlying object behind speculation always returns to its true value. I will discuss this later in this article.

I believe cryptocurrency is best for market speculators who want to make quick profits and move on. It is not something long-term investors should be investing in with the hope that their currency will one day become the standard currency. Concerning the current state, market sentiment is so negative and pessimistic due to crypto platforms filing for bankruptcy and other such events, that it's more likely that the sector will welcome optimism from contrarians. Howard Marks, to be exact, once more.

Skepticism calls for pessimism when optimism is excessive. It also encourages optimism when pessimism becomes excessive.

Source: Memo - The Limits of Negativism

While I don't recommend investing in cryptocurrency at current price, I can demonstrate that this speculative phenomenon doesn't seem new and is not different than times that have been observed throughout history.

For Bitcoin, the best I can say is that I am neutral and consider it a Hold. A listing with a Hold rating implies that one must purchase it. I will leave it up to readers to decide if investing in digital tokens is something they are interested after reading a brief history lesson.

Tokens Past - A Lesson From History

One great example from history is the Civil War tokens. These tokens were a revolutionary new technology at the time during the 1860s, which were privately minted and distributed throughout the United States of America. These tokens could be called the first widespread crypto' currencies in the world. Although they were used as money to replace government-issued money in America, they were not backed with anything.

Behold, One Of The World's First Cryptocurrencies (Coinquest.com)

During the Civil War, "government-issued coinage began vanishing from circulation" because of hoarding. As a result, it became "difficult" for businesses to transact.

The solution was for merchants and businesses to turn to private minters in order to fill the gap caused by the shortage of government coin. It is estimated that from 1861 to 1864, there "25,000,000 Civil War tokens, (nearly all redeemable for one cent)." Today, the tokens can be considered collectors items. The value of these tokens varies depending on their scarcity and type.

Lindenmueller tokens "are among the most well-known types of Civil War tokens" and "had more that one million one cent tokens... placed into circulatory in 1863." Cryptocurrencies Because of their historical context, these Lindenmueller tokens have been a significant and well-known item in the world of private cash collectors.

Here's the story.

The Third Avenue Railroad Company of New York accepted large quantities of Lindenmueller coins in lieu of actual money and asked Lindenmueller to redeem them. He refused and the railroad did not have any legal recourse. Incidents like these eventually forced government intervention.

Source: An Overview of Civil War Tokens

This scandal led to the passage of the Coinage Act in 1864. This act "effectively ended the usage of Civil War tokens." Before this, the U.S. Mint began to issue small nickel-copper coins at a cent. These replaced the bulky and cumbersome large cent pieces. The composition of the new one-cent coins was now changed from a nickel-copper alloy to 95% copper, which was lighter and less thick. These new one-cent coins were quickly accepted by the general population much better than Civil War tokens.

It was only later that year that the legality Civil War tokens were decided. Congress passed legislation declaring that any non-government-issued coin minting was illegal.

Even though the tokens were becoming impractical, they were now considered counterfeit cash and a forgery. However, this law did not make it illegal to own Civil War tokens, just illegal to use them as money for everyday transactions. They became collectors' items almost immediately, and their rarity determined their value.

These Civil War tokens are not as expensive as Bitcoins, but they do fetch high prices. Perhaps those who love to speculate on digital tokens could instead find some value in owning a piece of history.

Lesson Learned? What's the Difference?

Civil War tokens, especially the story about the Lindenmueller coins, show that technology and currency changes can not always be as you expect. Actually, there are many parallels between the Civil War tokens and today's modern cryptocurrencies.

The tokens were initially accepted by society and used by many businesses including the powerful railroads. However, legal issues quickly arose as people realized that they were not under any obligation to fulfill their promises made with these tokens. As the government intervened, the new one-cent pieces became lighter, thinner, and more easily used in society like the Civil War tokens (similar to how Ethereum (ETH-USD) has gained market cap against Bitcoin). The new one-cent pieces, which were minted in a technological breakthrough, quickly made the older tokens obsolete. They also proved that there was no inherent value for anyone but coin collectors who wanted to have the tokens for the past.

The Coinage Act of 1864 was eventually created by the Civil War tokens. It brought several important changes to currency in the United States of America. One was that the one-cent piece was almost entirely made of copper, which was a significant advancement. Another was that "In God We Trust," was first printed on government currency. Both of these developments exist today ("In God We Trust") was changed to E Pluribus Unum 1956. Because the new one-cent pieces were 95% copper, they became true token-coins, due to them trading for their face value as opposed to their precious metal content.

Importantly, Congress passed the Coinage Act of1864 which outlawed privately mint money and declared such coins fake and forgery. Today, cryptocurrencies have been allowed to flourish in America because these digital coins do not use the terms 'cent' or 'dollar' and are more considered assets than currencies. The term cryptocurrencies' currency is a misnomer. This creates confusion for the public. Investors are bound to speculate when anyone is able to create their own digital asset, crypto-platform, or NFT project. Eventually, the mania ends and prices of such things revert back to their true value.

A modern problem that somewhat resembles Third Avenue Railroad Company is the subsequent rise and fall crypto-lending or brokerage platforms. Over the past few months, various platforms which all promised high-yield returns on crypto accounts have struggled with solvency, and it is being reported that many are now filing for bankruptcy. Voyager Digital's (OTCMKTS.VYGVQ) bankruptcy filings were two that spring to mind. Investors will lose millions, if no billions, in these cases. Similar to the Third Avenue Railroad Company, these cases may not have legal recourse and it is likely that it won't be resolved for years. Even if there is some precedent that becomes established as a result of this, the customers of these crypto platforms will most likely not recover their whole investment. What happens to the money that has been sent to money heaven, and where does it go?

Bearish Thesis: Risks

What scenarios could I see my outlook changing? One development that could occur is government intervention in America. Regulation of cryptocurrencies as commodities or government adoption allowing taxpayers to be able to use crypto for paying debts would be a huge revelation, and would likely boost the price of Bitcoin and other 'alt-coins' further, giving them legitimacy. If the U.S. were to accept and recognize Bitcoin as the 'standard' cryptocurrency, then it could have potential as a long-term store of value. It is however unlikely, as it would harm the U.S. Dollar(DXY), and make trade more difficult with other countries.

While countries such as China have taken steps to ban cryptocurrencies, they have also been experimenting with creating their own digital currency. While this e-CNY isn't a typical cryptocurrency such as Bitcoin and is not yet functional, it is part of China’s long-term financial plan through 2035. Developments such as these could be viewed as bullish long-term for cryptocurrencies. Nevertheless,

Unlike Bitcoin and other cryptocurrencies, e-CNY does not operate through a blockchain-based decentralized ledger; rather, it is a centralized operation, issued and supervised by the PBOC. The e-CNY is technically not different from other online payment options in China like AliPay or WeChat.

Source: digichina.stanford.edu

It is possible the Chinese government could create a functioning digital currency. This could then act as a stabilizing coin based on the blockchain technology. If the U.S. set a precedent by accepting Bitcoin or other cryptocurrency as part our centralized system, together with a national stabilizecoin, my views on this matter would change. This comes back to the paradox in which something which is supposed not to be decentralized but centralized can be made completely decentralized. Although I think we might follow the same path that China did, there is still uncertainty about the widespread adoption of cryptocurrency in society.

In my opinion, Bitcoin and other cryptocurrencies seem to be merely trading vehicles, and not long-term stores of value. We have seen this phenomenon play out before with Civil War tokens. The government had no choice but to improve the currency. This result made the old tokens obsolete and was widely accepted by the public. Much like the Lindenmueller Tokens, cryptocurrencies lack the obligation element with which businesses, individuals, or governments require for paying back debts. Modern times are characterized by debt as an integral part of the financial system. One cannot have money and not have debt. Perhaps a new precedent will be established in response to the numerous crypto lending/brokerage platform that have gone bankrupt in recent weeks. Or, the status quo will remain the same and things in the crypto market will normalize, offering contrarian investors a buying opportunity. Although Bitcoin may trade higher right now due to the contrarians who are accumulating on the backs of extreme negative sentiment, I believe that it will eventually fail as a store-of-value. Please keep in mind that speculating on digital coins is extremely risky, and there is a possibility of losing up to 100% of your total investment in the sector.