The year that was 2020 was nothing short of life-altering moments and decisions. In an instance, society was forced to juxtapose emotions ranging from love and hate to outright fear, disobedience, and nonchalance. One emotion or feeling reigned supreme throughout 2020: frustration. The word ‘frustration’ comes from 1550s Latin, frustrationem, meaning “a deception, a disappointment.” [1]  While frustration reigned supreme, society socially distanced to associate a sub-par level of normalcy back to their lives. While normality is distant, rapidly developed behaviors derived from pandemic induced factors are current. Two particular behaviors that can be elaborated on are transactions and investing. Like frustration for 2020, the two rapidly developed behaviors, transactions and investing, can be correlated to one word: coin. This greek society derivative has been influential in shaping trade and commerce for centuries, and 2020 was no different. Two specific events, the rise in the value of Bitcoin and the summer national coin shortage, can be combined to derive a cautionary note tailored to historical events and consequences. Similar to how very few strawberries in a punnet look alike but inevitably share similar characteristics, history can serve as a credible reference to learn and understand for the upcoming decade.

A review of Google Trends for the word ‘coin’ between ‘2004-present’ illustrates an exciting scenario. Searches related to the word ‘coin’ spiked over 50 between 2017 and as recent as 2020. The 2017 spike can be correlated to the rise in Bitcoin, and 2020 can be attributed to the national coin shortage.  Relative to those spikes, the word ‘coin’ or ‘coin’ related searches range below 50. Even though Bitcoin paralleled its 2017 streak of value appreciation in 2020, it is not reflected in Google Trends search results. A reference to a Global Newswire article, Will Bitcoin Continue to Rise? Crypto Experts Finixio Make Their Predictions, specifically, “In 2020, the rise of Bitcoin is driven by institutional investment. Large hedge funds and publically traded companies are driving this bull cycle and they don’t present the same reputational drawbacks that retail investors do” [2] renders an understanding where bitcoin is no longer a fringe asset. Individuals and companies alike are creating an atmosphere of credibility and assurance for this one time crazy, aloof asset class that would revolutionize money. While our lack of financial qualification should render any opinion illegitimate, an attempt to report the crypto market condition can still be consistently presented. No valid number can be ascertained to state the total number of cryptocurrencies in the market. Reuters reports that as of November 2018, there were over 2000 cryptocurrencies in the market [3].  In a foolish attempt to sound silly, Bitcoin is like John Cena of the WWE Universe. The second he enters the arena, half of the hall cheers him on, and the other half vehemently and aggressively discredit him. Moreover, other players like Ethereum, Ripple, Litecoin are The Undertaker, Stone Cold, The Rock, [4] compiling to develop the entire cryptocurrency universe. Similar to WWE, there are different levels of stardom in the bitcoin universe.

An analysis by Florian Uffer in Application of the Howey Test to Cryptocurrency, for the Journal of Law and Technology, points us in a cautious direction. He states, “cryptocurrency used as a medium of exchange is not an “investment” contract under the Howey standard. Therefore, the SEC would not have the authority to govern it as such” [5]. The Howey standard is named after William John Howey, a citrus pioneer from Florida who’s method of developing profits were far from proper. This former unsuccessful Republican candidate for Governor is 1928 and 1932 [6] held a monopoly over the vertical citrus supply chain in exchange for a “service contract, generally of a 10-year duration without option of cancellation” giving his company, Howey in the Hills Service Inc, “a leasehold interest and full and complete possession of the acreage” [7]. In 1946, in the Securities & Exchange Commission vs. W.J. Howey Co. et al., Supreme Court Associate Justice Frank Murphy from Michigan opined, “They are offering an opportunity to contribute money and to share in the profits of a large citrus fruit enterprise managed and partly owned by respondents. They are offering this opportunity to persons who reside in distant localities and who lack the equipment and experience requisite to the cultivation, harvesting, and marketing of the citrus products. Such persons have no desire to occupy the land or to develop it themselves; they are attracted solely by the prospects of a return on their investment” [8]. The Howey Test helps confine a finite definition of an investment and how such contracts should be viewed. It explains that investors are merely individuals looking to expect a return for their capital that they seek to invest. Referring to Uffer, “just like stock, purchasers of Bitcoin are hoping that outside factors will cause its value to go up, there is no effort or work in the background which affects the value of Bitcoin” [9]. To look at cryptocurrency as the future of money would diminish the digitization efforts of cash that have already taken place. For money to work, society needs to believe in its effectiveness and efficacy, and while crypto allows for a futuristic unregulated marketplace, it must be understood that it is unregulated. There are no backstops, and unlike the circuit breakers that existed in the market during the wild, crazy month of March, cryptocurrencies do not have such luxuries. Scarcity plays a critical role in market dynamics.

When a thing is scarce, the price is high: it’s just that simple. In June, Reuters reported that “U.S. public companies sold more than $60 billion in shares in May, the biggest monthly haul ever, as they capitalized on a stock market rally fueled by hopes that the COVID-19 pandemic is subsiding” [10]. The many U.S. publically traded companies increased the size of shares available for a new generation of investors. The beauty and the beast in the cryptocurrencies is its limit. Only so many bitcoins are in circulation, and the rally in bitcoin price can be attributed not to new issues but scarcity. Paul Vigna of the Wall Street Journal explains, “Bitcoin is still very small. It doesn’t take a lot of people to come and push the value up. The smallness of the market contributes to these sort of explosive price moves that we’ve seen” [11].  An amalgam of literature provides direction to a bizarre parallel universe that supports a lack of faith in the financial systems and derivatives it created to lure investors into the crypto enterprise. This lack of confidence, coupled with the scarcity, could cause a rise in bitcoin prices. Extreme caution should be applied since, like investors in Howey in the Hills Service Inc, investors are encouraged to contribute money and share profits in a large crypto enterprise. While scarcity in bitcoin contributed to its price increase, the summer coin shortage in the United States was another interesting paradigm in money in 2020.The same Google Trends search for the word ‘coin’ for 2020 registers questions regarding the U.S. coin shortage. Businesses across the United States fashioned an unattractive poster asking patrons to pay in exact change in honor of the coin shortage across the United States. According to the Federal Reserve, “Business and bank closures associated with the COVID-19 pandemic have significantly disrupted the supply chain and normal circulation patterns for U.S. coins. While there is an adequate overall amount of coins in the economy, the slowed pace of circulation has reduced available inventories in some areas of the country” [12]. Coupled with the U.S. Mint closure, the coin shortage affected various population centers in the United States. While the transition to cashless transactions was encouraged and seamless for many in America, a 2019 FDIC Survey, How America Banks: Household Use of Banking and Financial Services, highlights that “An estimated 5.4 percent of U.S. households were “unbanked” in 2019, meaning that no one in the household had a checking or savings account at a bank or credit union” [13]. Even though the United States recovered quickly from the shortages once restrictions eased and more establishments open, an assessment can be made that the theme of coin shortage only strengthened crypto enthusiasts’ argument. The fragility in the current financial systems only serves to bolster the justification for the widespread adoption of cryptocurrency as a medium of exchange.

For an 18th century American, the concept of cryptocurrency would be as foreign as knowing the acceptance that once strikingly divided United States government would claim an area of land, wholly sealed from human interaction and knowledge and call it Area 51. But the concept of coin shortages and alternative currencies would not be new as opined by Stephen Mihm for Bloomberg, “The outbreak of the Civil War, though, took the problem to a higher level, as virtually all government-issued coins disappeared from circulation” [14]. In The Use of Private Tokens for Money in the United States, Barnard provides a historical perspective on the history of token currency in the United States. Barnard highlights, “The Coin Collector’s Journal for 1876 mentions about 5000 varieties of one-cent tokens, both tradesman and general … From the various collections described, possibly with some duplication, there are records of approximately 4500 varieties of tradesmen’s tokens alone” [14]. Of the many tradesmen tokens, the Lindenmueller currency of New York required a review since it clarified the need to install standard and regulatory practices.Gustav Lindenmueller was the owner of a beer salon located in Manhattan, New York, and had issued “more than one million of his one-cent tokens struck and placed into circulation” [15]. The tokens were so engrained in New York society that Lindenmueller tokens were an accepted payment form with the Third Avenue Railroad Company. The railroad company accumulated and chose to avail it as a lump sum to avoid daily redemption, which did not work in its favor. When the representative visited Lindemueller, “he refused, and the railroad had no legal recourse” [16]. The Lindemueller token helped establish that there needed to be a backstop to the way currency was exchanged between individuals. Alongside the Lindemueller tokens, a similar lack of redemption of other tokens pushed the United States government to intervene. On February 25, 1862, the United States Congress passed the Legal Tender Act, specifically Sec.6.  which prohibited the private issuance of Treasury notes or bonds [17]  and expanded on April 22, 1864, when the United States Congress amended Sec.5 in the An Act Relating to Foreign Coins and the Coinage of Cents at the Mint of the United States, “if any person or persons shall make, issue, or cause to be made, issued, or passed, any coin, card, token or device whatsoever, in metals or its compounds, intended to pass or be passed as money for a one-cent piece or two-cent piece, such person or persons shall be deemed guilty of a misdemeanor, and shall, on conviction thereof, be punished by a fine not exceeding one thousand dollars, and by imprisonment for a term not exceeding five years” [18]. In the historical timeline of money, the introduction of the above mentioned legal vernacular was crucial to provide a legal framework to the concept of money and who could be held responsible. Historically, we are also aware that the Civil War commenced in 1864, causing a natural mistrust in the United States government and its objectives. But over time, we have come to accept a world where the money held in dollars is backed by the United States government and its many oversight agencies.

The essay is not an attempt to turn a bitcoin lover into a hater or vice versa, but merely a portrait of how fragile an ecosystem cryptocurrencies are. With a recent price of over $30,000, bitcoin has explicitly served as a darling cryptocurrency. We are in uncharted territory with arguments such as “Bitcoin’s scarcity combined with “rampant money printing” by the Federal Reserve mean the digital token should eventually climb to about $400,000, Minerd, the firm’s chief investment officer, said in an interview. His comments came on the same day Bitcoin breached $20,000 for the first time, bringing its 2020 gain to 190%”, as Bloomberg reported on December 16, 2020 [19]. In a world that is forced to change habits and living standards, it is not difficult to see why cryptocurrencies and bitcoin specifically pose an excellent argument as an alternative to money’s current concept. But, lessons learned from the late 1800s can only direct reliance on the traditional route since the other options do not have the same oversight. Oversight and regulation are essential, especially with money and knowing that it is backed by the United States government and its oversight agencies. On March 9, 12, 16, and 18 of 2020, circuit breakers were imposed in response to extreme volatility in the market [20]. Unlike the markets, bitcoin’s price is purely speculative, so if the price drops to $10 overnight, there is no backstop to the mayhem. Accepting that it’s the rules of supply and demand that determine a commodity’s price, it’s challenging to further that translate into tangible assets.