Cryptocurrencies already have several problems based on how they were created. Bad user experiences, unsustainable transaction fees, inability to assess risks in the face of inflexible innovation, and more. But until this year, I doubt anyone would have suggested a US dollar interdependence was one of them.
Stablecoins can be a way out
The introduction of easily traded stablecoins, even decentralized ones, has been a godsend for millions of people. Now they can protect themselves from the constant fluctuations in the price of ETH and BTC - here it is quotation in real time. And price stability means that global trade obviously no longer needs to be discouraged from integrating programmable money into their digital operations.
Still, the dollar land is in trouble. The economic repercussions of shutting down an economy for many months are yet to reach its peak. Debt is monetized on a large scale. There are huge divisions of wealth between generations, races and cities.
The cultural and political divisions are equally deep. The population of the United States is so aptly polarized that even wearing a mask is party policy. Moreover, the country is led by an administration intent on fueling more division and alignments. US politics is so problematic that it is not unlikely that a full blown civil conflict could break out. Indeed, it is something that US journalists and generals have openly contemplated.
What is the fate of the greenback?
And if America is so precariously balanced between prosperity and potential disaster, the fate of the US dollar also hangs in the balance for the rest of the world. Only the issue of US Treasury debt issuance caused professional money managers to warn this month that US reserve currency status is under threat.
Traditional markets have mature financial products to protect themselves from or escape such tectonic shifts. There are many other world currencies or other non-USD denominated assets to which to transfer funds in the event of a severe dollar drop.
Cryptocurrencies lack these products, what an economist or trader might coldly describe as “financial tools to hedge against external political risks”. Despite Web 3.0's goal of being both global and free from the control of nation states, its fate is still incredibly tied to the USD.
The crypto ecosystem uses the global reserve currency in almost every aspect of its user experience. Sure, there are native ones like BTC or ETH that sleep and breathe Satoshi and Gwei, but go to any stock exchange, or check the gas prices in your wallet - crypto was built and is used by people who still work in greenbacks .
Decentralized stablecoins are possible, backed by euros or yen, but all of this would take time, perhaps years, to really gain community trust. A tight deadline, but, in order not to face the worst, it is a possibility that cryptocurrencies may soon face.
