Betting on Salaries
Terry H. Schwadron
Jan. 31, 2022
Amid the building campaign for legitimacy of cryptocurrencies, the inevitable turnabout came to fruition this last week: The value of digital currencies plummeted.
OK, we understand that the use of crypto dollars is more like gambling or a volatile financial market than a steady income. Play the game and you might win — or lose.
The issue for the moment is that any number of mayors and members of Congress are looking at relying on cryptocurrencies and are making moves to bring unregulated digital payments into more regular legal use as salaries.
New York City Mayor Eric Adams asked to take his own first paychecks in Bitcoin, as part of a symbolic campaign to make his city a hub for the daily digital juggling that amounts to a rival financial market to stocks, bonds, marketplace futures and the like. Other mayors in Miami, Jackson, Miss. and elsewhere are following suit.
As The New York Times notes, the growing ranks of crypto-believing mayors reflect the increasing mainstream acceptance of risky, digital currencies and a bet that digital payments may create new revenue streams for cities. The building international business embrace of various advantages is meeting up with a raw desire to participate in what amounts to a democratic lottery for individuals.
At this point, more than 100,000 merchants worldwide accept Bitcoin payments, including Microsoft, Overstock, Tesla, Virgin, and Expedia. This speculation in currency is forcing us to adjust the way we think about money and how to transfer value into everyday use.
Just how widely digital currency will be the future of how employers pay their workforces is an emergent question in the business press. As economist Paul Krugman notes, before this plunge in value, crypto was being seen at about a $3 trillion industry, one whose risk falls disproportionately on the little guy.
Translation: There is too much money to be made to think that digital currency is going away.
Apart from technical questions about how all this works — and the environmental impact of digital trades using a disproportionate amount of electricity — a key question is how these leaders square the risks against employee and stockholder demands for security.
What It’s All About
For four years, Bitcoin has been the world’s most popular virtual currency, but others, including TRON, Ethereum, Dogecoin, Tether and Ripple, are emerging. These currencies are not tied to a bank or government and operate like bets whose value rises or falls as investor moves indicate, much like general financial markets worldwide. Bitcoin maintains a finite limit on the number of “coins” in circulation to foster trades.
Of course, stocks traditionally have been based on the performance of companies themselves and are government-regulated, and bonds have been backed by government or business promises. By contrast, cryptocurrencies are unregulated and generally are not tied to other items of value. They are reflections of what a marketplace decides, based on “blockchain” ledger claims on owning a crypto corner, akin to a gold mine claim.
Some people and companies will make a lot of money from investing in Bitcoin, others will lose, depending on timing, frequency of trades and other intricacies in the “mining” of digital coin. For those wondering about motivation, there was an interesting essay this week around one family discussion about opting into cryptocurrency here.
It’s not difficult to see that how much these currencies are worth can change any moment or any week. You and I don’t pay our grocery tab in lottery tickets, but digital wallets are said to reflect real-time value.
This lure to move away from steady income to market-based bets refuses to go away. Periodically, for example, we hear from one government administration or another — most Republican administrations — that we should abandon Social Security payments for an amount of cash placed in a private investment account and leave you and me at the whims of the marketplace to plan our retirement.
Fans of individualism over government programs of any sort find this approach desirable. It also flies in the face of the implicit contract that employers make with workers to pay them for their work — either through hourly wages, salaries or pension arrangements. With support of government policies and supportive court decisions, companies have moved over the last 20 years in widespread numbers to change pension programs into IRAs or market funds. We’ve heard plenty of complaints when pension funds go bust or from seniors whose income declined in down years.
Now companies see digital currencies as useful internationally, skipping conversion fees and outlasting changes in national currencies, for example, and anonymously. Some say they can attract workers who are more interested in hitting a big payday than steady salary.
Is It the Right Time?
It takes an enormous infrastructure and electric power to sustain the amount of daily global trading to sustain cryptocurrency — in a time where climate change is demanding the opposite. Indeed, there is a pending bill in the New York legislature aimed at limiting electric plants from using fossil fuels to power crypto,
The mayors are talking about setting aside unused municipal facilities to house computer server set-ups to facilitate trading, and essentially approach crypto support as a new industry, however controversial.
In addition to the ever-changing value of the currency itself, The Chicago Board Options Exchange and the Chicago Mercantile Exchange have both started trading Bitcoin futures.
The debate on the merits of cryptocurrencies includes the idea that anonymous payments also can facilitate money laundering and illicit trade.
Digital currencies have run into a fair amount of criticism on Wall Street, according to the Challenger newsletter that follows this market. JPMorgan Chase CEO Jamie Dimon has called Bitcoin “a fraud” and Thomas Peterffy, chair of the broker-dealer Interactive Brokers Group, noted “there is no fundamental basis for valuation of Bitcoin and other cryptocurrencies.”
Since November, The Washington Post tells us, thousands of Americans who jumped into crypto investing in hopes of a rocket ride to instant wealth have lost half their investment. Losses total an astonishing $1.35 trillion in value globally, according to CoinMarketCap.
White House officials reportedly are working on policies to coordinate what has been a fractured approach to crypto from federal agencies. That could include some new form of digital cash that would be backed by the Federal Reserve and could compete with some privately issued cryptocurrencies. Or it might involve regulation and oversight.
In either case, those steps would be towards throwing a lariat around a wild financial horse — seemingly the exact opposite goal for the lure of rebellious individualism.
Still, other than the lure of big money gain, as in all gambling, the current loud expressions of frustration over high prices and inflation, for example, make it hard to see vast subscription to a different form of salary and benefits.
Something here is just hard to square between demands for security in the price of gas and food and the willingness to work without knowing what your pay will be. One must ask whether the gamble for a big payday is worth the risk in work for contracted pay.
In a world in which we don’t trust, apparently there are many who prefer to bet on money too.