Money, Credit & Crypto

Money, Credit & Crypto

Money has taken on innumerable forms throughout history. Whether it’s been salt, tea, spices, rice, potatoes, bullion, bank notes, or even cigarettes, humans have used an impressive array of commodities and conventions to engage in trade and track the exchange of value across time and space.

As standard economic history would have us believe, money is the outgrowth of humans finding creative ways to overcome the frictions of a barter economy. In the book Debt: The First 5,000 Years, the author David Graeber offers up the following summary of this standard view: “Once upon a time there was barter. It was difficult. So people invented money. Then came the development of banking and credit.” (p. 28). However, Graeber throws out this narrative and instead argues that credit, or the mutual understanding that one person owes “something” to another person, preceded the development of money itself.

As such, the history of money involves a much deeper study of our obligations to each other as humans and the norms that developed as a reflection of complex relationships and interchange between family members, neighbors, and ultimately between larger communities and societies. Graeber writes that “[t]he value of a unit of currency is not the measure of an object, but the measure of one’s trust in other human beings.” (p. 47).

With a swipe, tap, or keystroke, we use credit to transact with complete strangers every day. Systems of credit have also evolved to where trust is now institutionalized within systems, rather than explicitly granted to a counterparty in a transaction. Elaborate technologies and regulations underpin these modern financial systems, but the principal of tracking credits and debts in some form or another is strikingly consistent throughout human history.

One of the pernicious characteristics of credit as a form of money, however, is the opportunity for it to be abused. At some point, one or both parties in a credit transaction may take advantage of the system or the other party’s trust in that system. To paraphrase an old saying: “If you owe $1,000 to the bank, that’s your problem. If you owe $100,000 to the bank, that’s the bank’s problem.” Trust can evaporate in an instant, and thus we continue to try and build systems, institutions, and regulations to better foster and protect healthy levels of credit and resiliency throughout the system.

It is instructive to revisit the history of money as an outgrowth of credit with the rising popularity of cryptocurrencies. Proponents of Bitcoin, for instance, point to its finite quantity (a maximum of 21,000,000 Bitcoins can be “mined”) as one of its uniquely beneficial features. The ability to algorithmically program scarcity into a digital asset is an interesting quality of Bitcoin and purportedly lends credence to its “value”, whatever that may be.

But instead of dwelling on Bitcoin’s value, consider the fact that Bitcoin is already being used to underpin systems of not-so-finite credit. If credit (or fractional reserve banking) is layered on top of crypto, is crypto really as revolutionary as its proponents claim it to be? Our relationship to money and credit is complicated and constantly evolving, but common threads run through history that may help us understand how this story will evolve. There will be booms, busts, and eventually the regulators will swoop in. When it comes to money and credit, perhaps there really is nothing new under the sun?


Peak Asset Management, LLC is an SEC registered investment adviser. This is not an offer to buy or sell securities. Past performance is not indicative of current or future performance and is not a guarantee. The information set forth herein was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy.

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