We are living in a very interesting time right now… Sovereign money is facing a massive debt crisis, and it’s causing interest rates to plunge lower and lower without the ability to recover. Central banks around the world (the US especially) are being put into a no-win predicament: 1) Raise interest rates and crush the economy, or 2) Continue to lower interest rates and debase the currency via inflation. Either option would presumably deliver a crushing blow to the general public’s view of fiat money in developed countries. (There’s plenty of skepticism already in many developing countries)
Many of the cryptocurrency believers see Bitcoin and the like as being a savior to this problem. We believe that these solutions can force true and free market dynamics to prevail. The problem is that we are still a niche group–We represent an extremely small percent of the population. (A small percent of people own crypto, but an even smaller subset actually subscribe to the ethos it represents) The general public has not made up their minds about it, and really are dependent upon the mainstream media to determine what they should think about it.
So where am I going with this?
It seems fairly evident at this point that the US Federal Reserve is going to be forced into a position where they will have to bail out the debt crisis with 0% interest rates and more rounds of quantitative easing… How soon this would have to happen? That’s anyone’s guess. The one thing I do know is that doing so will be a political nightmare. After all, permanently monetizing debt is something that only poorly managed countries do, not large and stable superpowers like the US! So how could the Fed save it’s image, and preserve the integrity of the USD all at the same time?
We saw the FOMO in 2017. Retail investors flocking into cryptocurrencies. Some got into them, many were interested, but the on-ramps were too complicated and congested to really capture a large percent of the market. Fast forward 16 months, and here we are building out better infrastructure, beginning to see regulation being passed, and introduction to institutional custodianship services. The highways are being paved to bring many, many people into the ecosystem in a short amount of time.
I think most professionals in the crypto space would all agree that destroying the Bitcoin network via a prolonged attack at this point would be nearly impossible. So if one can’t destroy the asset itself, maybe the next best option would be to attack the perception of the asset? I know many people that bought Bitcoin, Cardano and other cryptocurrencies during the '17 bull run, only to be left feeling sour and holding a bag of sorrow and depression. These friends have no interest to invest more money in crypto and have written it off as dead. They still hold the coins, but have considered the money to be gone. They never check prices, they never read about tech advancements in the space and they never talk about it… They’re bitter AF. I can only assume that most of us that are still around this space know at least one or two people that have this affiliation with crypto at this point.
My question is this, what would it look like if this happened on an exponentially larger scale? What if the next bull run brings in the institutional money (pensions, 401k, commercial banks). What does that boom/bust look like? What would the impacts on the global economies be? My theory is that the inevitable would happen… The Federal Reserve could jump in and generate massive amounts of money out of thin air to “bail out” the economy. It would require massively debasing the USD, but it could be sold to the public as an “ethical mandate” to prevent a global meltdown. The Federal Reserve is the good guy and decentralized cryptos backed by nothing are the bad guys.
I’m curious to hear others’ take on this… am I onto something, or on something?