In my last Bitcoin post I made a few big points:

I want to expand on a few of those points because there’s an interesting potential development here that is the center of this post:

The government will not be able to stop the growth of a decentralized peer-to-peer economy

I previously theorized that a reserve cryptocurrency that doesn’t settle at par is a huge problem. No one wants to transact in a currency that doesn’t settle at par. Par isn’t generally thought of as a price, but it’s actually the most important price in the whole economy. You just don’t realize it because it doesn’t change. But everything else changes relative to it. This is why I believe a stable coin will become the center of the entire crpyto ecosystem at some point. We are in the Netscape phase of the crypto world. Everyone thinks Netscape (Bitcoin) is the next big thing, but Internet Explorer hasn’t arrived on the scene yet. It’s coming. We just don’t know what it is yet.

Par settlement is essential for a reserve currency so a viable stable coin that is pegged to the USD (or other currencies) will develop.² It must develop. Consumers don’t want to transact in a volatile asset, but corporations definitely don’t want to accept a volatile asset. For instance, everyone keeps asking when Amazon will accept Bitcoin? My guess is that they never will (or if they do they’ll stop) because you can’t generate revenues in a currency that rises and falls by 20% in a matter of hours.¹ For instance, if you generate a $100 sale in Bitcoin and the price falls 20% the next instant then your entire profit margin could be wiped out. Accepting volatile assets as a means of payment is a bad way to run a business. That’s why stocks and other volatile assets have a low level of moneyness – they’re too volatile to serve as a viable medium of exchange. So my guess is that Bitcoin’s most attractive feature at this point (its volatility) is also what will keep it from becoming what many people think it can become (a viable medium of exchange that rivals the USD).³