Skip to content

The “extraordinary events” of fiat money only benefit cryptocurrencies

May 31, 2020

Over the past three decades, the world has seen three exceptional “Black Swan” events that have served as a structural crossroads for societies and economies: the September 11 terrorist attacks, the global financial crisis in 2008 and the COVID-19 pandemic.

Almost two decades ago, September 11 triggered new and apparent escalations in state powers over individuals and currency controls, all in the name of the US-led security against terrorism and still worldwide. The 2008 economic collapse caused by the US housing crisis highlighted the fundamental problems of economic inequality that fueled movements such as “We Are 99%” and the “Arab Spring”, and Bitcoin (BTC) and cryptocurrencies were born almost directly peer-to-peer -Peer. The final social and economic outcomes of the COVID-19 crisis remain to be seen, but the impact is already strong and is likely to be the most transformative of them all.

Each of these black swan events has affected both the growth of authoritarianism and state control, with a backlash from popular movements that focus on individual empowerment as a response.

The “extraordinary events” of fiat money only benefit cryptocurrenciesThe “extraordinary events” of fiat money only benefit cryptocurrencies

Centralized governments work according to their old standards for centralized solutions, as they should. S.Few national governments are up to the task of implementing national testing and contact tracking policies, evidence-based approaches to addressing the health crisis, or leveraging their country’s industrial capacity to quickly meet the needs of teams that save livesAt least most governments have the power of monetary policy to build a kind of bridge and safety net between the 11-year bullish economy of the 2010s and a fully theoretical “recovery” economy of the 2010s This will likely result in a long-term depreciation of national currencies and an opening for alternative currencies like Bitcoin to gain popularity among the population.

Money printers continue to print, but the value decreases when they run out of ink

National governments have no choice but to continue spending on economic incentivesbecause the alternative is financial contagion in ever deeper areas of their economies. The real economy cannot return for a long time until effective treatment and a preventive vaccine against COVID-19 are available.

The stagnating economy runs the risk of permanently losing important pillars unless economic stimulus is used to keep workers and companies going until the reopening of societies. While there will be many warnings of long-term damage to printing swaths of new money, they are less immediate than the risk of no incentives and are unlikely to be followed.

Hope, cognitive dissonance and political expediency will implement these livelihoods of economic incentives more as a series of short-term measures than as coordinated and evidence-based measures. Politicians have a long history of addressing immediate issues across distant issues, particularly in election years.

Nowhere is this more true than in the United States, where more than $ 2.4 trillion in aid from COVID-19 (more than total US government debt in 1987) has been provided for standard small business and corporate bailouts Help for unemployed lower and middle class citizenswho will have difficulties with the initial economic situation and a patchwork of unemployment benefits from the federal and state governments to survive the summer. Ultimately, these are very small, temporary injections (a one-time check of $ 1,200 for individual U.S. citizen taxpayers and eight weeks of salary and leasing costs for small businesses fortunate enough to get forgivable SBA short-term PPP credits). These are only used for a limited time and of limited duration with unclear rules and premature implementation.

In addition, there were no noteworthy incentives or bailouts for U.S. states and cities. USA, residential and commercial real estate, insurance companies or pension funds, although their needs will be enormous, structurally and clearly visible, which will take several months of the pandemic and beyond.

It is reasonable to expect that at least four times current spending for $ 10 trillion (total more than total US sovereign debt just prior to the Great Recession of 2008) will be at least prior to the pandemic.

Most countries will be in similar positions, but without the economic scale or favorable cash position to print the excessive amounts that the United States has. The conservative’s best hope is that economic spending will be used for infrastructure projects that offer at least short-term economic benefits to offset the economic damage of massive inflation in the world money supply.

As the “brrr” of the money printing machine rings, the US dollar and other global foundation currencies will find an economy between Scylla and Charybdis where too much encouragement is not enough.

As the US government continues to give up its previous leadership in world and economic affairs and isolates itself from its major trading partners, even the valued dollar is losing its appeal as a de facto global settlement currency without an obvious legacy. The potential successors, the euro, the pound sterling and the renminbi, still have the same shortcomings that prevented them from outperforming the US dollar and will almost certainly have the same inflation problems as the dollar.

As a result, there will be an unprecedented and unexpected opportunity for alternative currencies to become globally relevant, especially for those with strong and lasting control over inflation. This opportunity to move up to cryptocurrencies might be the blackest of all swans.

Strength in the constancy of the numbers.

A result of the global economic collapse of 2008 (in retrospect, it seems almost picturesque to use such terms compared to the level we see in the COVID 19 era) was the birth of Bitcoin, a currency protocol developed by no world government has been issued, so it is not subject to the vagaries of a nation’s politics.

Bitcoin’s main strength – its own steady monetary policy based entirely on math – is now more evident than ever. Bitcoin’s offer and emission rates remain unchanged during the crises and political solutions that trigger them. For this reason, other cryptocurrencies can flourish, which can combine this programmatic control of inflation with a significant degree of acceptance.

The new economic reality created by excessive currency inflation required by government incentives will be two strong forces for the price of Bitcoin and other cryptocurrencies that are considered real and limited. On the one hand, people will be more aware of the inflation and degradation forces of the government-issued currency (Fiat). With the simultaneous reduction in real economic activity and the increase in the money supply, many countries will experience high inflation or even hyperinflation. This will lead many people to high quality cryptocurrencies like Bitcoin. Ultimately, this can trigger a FOMO retail requirement that far outstrips the 2017 cryptocurrency bull market.

The opposite force, however, will be a big problem for individual finances, which will weigh on many people despite inflation concerns, as people are more concerned with covering daily expenses than maximizing long-term financial returns. This power is also real.

For many of those who have climbed the tough business leaders, there is real fear that they will suddenly fall down the elevator shaft. For the billions around the world living from one salary to another (or worse, the value of their long-term portfolio), this is not a problem they can imagine. It should be recalled that the 2017 crypto bull market was a product of a robust economy, in which many had discretionary mutual funds to pursue the promise of ever better returns from cryptocurrencies. You can’t eat bitcoin, ether (ETH), or gold, and people who spend all their money on rent and potatoes have little money left to raise cryptocurrency prices.

How will this ultimately change? A reality of this volatile and uncertain economy is that we do not materialize one future or the other, but rather see both futures with wild fluctuations between polar extremes appearing in short periods of time. This is likely the result of financial planning in a scenario without a roadmap or historical precedent that competes with both bifurcated political “realities” and bogus news. Expect volatile fluctuations between these countries, such as the Schrödinger economy of currency prices, which show several possible realities in a short period of time.

However, the more government incentives protect the real economic pillars and give people confidence in the future, the more the liquidity inflows to Bitcoin and other cryptocurrencies with low inflation and high usage will be supported.

If governments succeed in using stimulus programs to alleviate people’s fears of immediate hunger and homelessness across broad economic sectors, the same stimulus measures will inevitably increase inflation concerns and give cryptocurrencies a better argument, even if they give people freedom to use part of this stimulus revenue to purchase crypto assets.

In other words, If governments can keep the world economy alive, a larger proportion will tend to Bitcoin and other non-inflationary cryptocurrencies, especially those that provide meaningful functions to users that are not just a store of value. These blockchain projects, which can deal with real-world problems arising from economic and governance problems, are better able to win people’s trust in bankrupt fiat currencies.

The views, thoughts and opinions expressed here are only those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Douglas Horn He is the author of the white paper and chief architect of the Telos blockchain. He is the founder and CEO of GoodBlock, a decentralized application development company founded in 2015 that creates cutting-edge protocols, DApps, tools and games. Prior to the blockchain, Douglas worked in the entertainment and gaming industry. He has written and directed award-winning feature films and designed and produced mass market games for Disney, Pokémon, Warner Bros. and other brands. He has also worked as a creative for various technology companies.