Weeks ago, Moe Vela was saying that cryptocurrencies, contrary to claims by many crypto enthusiasts, were not a viable hedge against inflation. Recent events have served to prove him right.
Actually, Vela is a crypto believer. The former senior adviser to the Clinton and Obama administrations is chief transparency officer of the holding company TransparentBusiness and co-founder of Unicoin, the official virtual coin of the Unicorn Hunters TV show. Unicoin is advertised as “a currency that pays dividends, backed by a growing portfolio of equity stakes in emerging growth companies.”
That statement sets it apart from popular cryptocurrencies like Bitcoin, which have emerged primarily as high-risk investment vehicles with no hard underlying assets. But Vela has also distanced himself from the crypto gospel by warning that major cryptocurrencies aren’t a safe hedge in inflationary times.
Which turns out to be now. After years of low inflation, soaring prices and shrinking currency values are once again rearing their head, spurred by surging energy prices and supply chain logjams that in turn were triggered by the COVID-19 pandemic and Russia’s war against Ukraine.
Vela pointed out early on that cryptocurrencies, which caught on over the last decade, had never been tested in an inflationary economy. And the return of inflation now proves that they aren’t immune. Bitcoin, for one, has lost half its value in the last six months. Even many so-called stablecoins, pegged to the value of traditional currencies, commodities or other types of financial instruments, have fallen below the benchmarks that were supposed to prop them up.
The problem, says Vela, is that the very same concepts that make the cryptocurrency market so attractive to buyers — anonymity and decentralization — also carry risks and disadvantages. “We don’t know who owns these things, who’s trading, who’s exchanging,” he says. And that opens the door to the “nefarious” use of crypto for activities such as drug dealing, ransomware attacks, circumvention of economic sanctions and other illegal transactions over the dark web. At the same time, crypto turns out to be just as vulnerable to inflationary pressures as sovereign currencies.
Vela believes it’s a mistake to tout anonymity as a selling point for crypto. On the contrary, he says, it should be centralized and transparent, at least in the private sector. And that’s the conceit behind Unicoin, of which 25 billion will be minted. The money generated by purchases of the coin will be used to create a “global innovation fund” that acquires equity stakes in emerging growth companies, Vela says. “You as a buyer will always be able to see where your investment went.”
Because the buyer is known, Vela argues, an asset-backed cryptocurrency is less volatile or subject to inflationary changes. He’s also not afraid to tout the coin as a security, subject to regulation by the U.S. Securities and Exchange Commission. (SEC has gone after a number of virtual coin offerings for alleged fraud and attempts to skirt the “security” designation as a means of avoiding regulation.)
Vela says he’s “not scared” of SEC regulations being developed under President Biden’s Executive Order on Ensuring Responsible Development of Digital Assets. Unicoin “will be securitized,” he says. “We will be filing all regulatory requirements.”
He sees the move toward regulation of crypto as inevitable, despite outcries by crypto stalwarts. “After two White House tenures and being a regulatory public policy attorney, I find it absolutely astonishing and naively overwhelming that anybody might have thought they were going to be engaged in a digital currency that was never regulated or taxed,” he says.
“At the end of the day,” Vela adds, “a certain amount of regulation is healthy. Where I draw the line is over-regulation. Call me in two years — if the SEC and administration becomes [over-regulatory] when it comes to digital currency, I’ll be the first one to criticize.”
The final verdict on cryptocurrencies has yet to be written. While Unicoin is predicated on ethical business practices, the initial issuer has no say in who might end up owning the currency down the line. And the plummeting value of cryptocurrencies across the board is undercutting claims that they will eventually become a stable investment vehicle, let alone an alternative means of payment and safe harbor from the ups and downs of traditional currencies.
Unicoin will itself need time prove its viability. It won’t begin minting until 2023, although the presale was oversubscribed within 72 hours, Vela says.
Count Vela as a cheerleader of the concept, albeit with reservations about the Wild West aspect of some coins. “I believe crypto is here to stay,” he says. “It’s the next generation of currency. There’s no doubt about that in my mind.”
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