British economist Bernard Connolly published an article entitled “How a Bitcoin bubble could lead to hyperinflation”. The author states that cryptocurrency could have a negative impact on the global economy if central banks are undermined. These institutions should stop the “crypto bubble” before it is too late, according to the author.
Connolly stated that the global economy has already been able to get itself into a difficult situation. The U.S. was at the end of the last millennium. The Federal Reserve, headed by Alan Greenspan, made a mistake that led to an economic imbalance. Greenspan was:
(…) did not allow long-term real interest rates to rise at the appropriate time to meet the very buoyant entrepreneurial expectations of the internet-driven “new economy”.
In other words, there was a misallocation of capital during these decades that led to a deficit in consumption spending. This means that people spent too much and didn’t have enough savings to support the new economy.
Many assets will enter a “bubble” phase over the next decade. The author asserts that some assets, such as equities can become ‘perfectly rational’. This is because these assets do not have a maturity date and their prices can rise forever. A bubble can be more difficult to justify with assets and bonds that have negative yields.
Connolly however believes that the “crypto bubble” fueled by Bitcoin and other digital assets could cause ‘cataclysmic shifts in wealth distribution’. A cryptocurrency does not have a maturity date. Its price can rise or fall without regard to a time frame. The author also adds:
A bubble can also be rational. But, when you consider the macroeconomic context, it becomes obvious that the bubble must burst.
Bitcoin to Blame for Future Poverty and World Destruction
Connolly’s point is valid, and it is tied to inflationary nature fiat currencies. Bitcoin can either appreciate to infinity or it will not. There is no middle ground. If this is true, then the author believes that BTC’s prices will eventually trend down or be supported in some way by large institutions such as central banks.
Contrarily, if BTC prices tend to infinity, then the cryptocurrency could be an asset which ‘exhausts all the world’s productive capacity’. A conflict among holders could result in them gaining more BTC and more wealth. In the end, they could ‘impoverish all others’.
Connolly urged international governments to immediately intervene. Connolly stated that the “crypto bubble” must be stopped immediately. If central banks do not pull the plug on crypto, it could lead to a global economic collapse. According to the author:
If the bubble continues to grow, they need to grasp the nettle now and inflict losses. Otherwise, there will be a sharp-elbowed scramble for crypto holdings to be converted into goods or services. This will lead towards hyperinflation that will ultimately destroy society.
Connolly’s article has been criticized by the crypto community. Experts and users pointed out that Connolly’s article fails to mention the central banks and governments’ responsibility for the current economic outlook. The following statement was made by Preston Pysh, author and Bitcoin Defender.
Be prepared for the false headline in media: Bitcoin will endanger the global economy. This mess is caused by central banks, it’s not accidental. They are the cause of this mess. Period. They are causing global social unrest, division, wealth polarization, and other problems.
BTC is trading at $33,493 at the time of this writing with sideways movements. To make a push to reclaim higher territory, the first cryptocurrency must have a market cap of at least $34,000 and $35,000 respectively.