Bernard Connolly, a British economist, has written an article titled “How a Bitcoin Bubble Could Lead to Hyperinflation.” The author thinks that cryptocurrency could have a negative impact on the global economy if central banks’ authority is weakened. The author believes that these institutions must intervene before it is too late to stop the “crypto bubble.”
According to Connolly, the global economy has already dragged itself into a difficult scenario. The United States Federal Reserve, led by Alan Greenspan, made a blunder around the turn of 2000, causing an economic imbalance. Greenspan said at the time:
failed to enable real long-term interest rates to rise at the correct time in response to the internet-driven “new economy’s” burgeoning entrepreneurial ambitions.
As a result, there was a “misallocation” of capital during these decades, resulting in a consumption spending deficit. In other words, consumers overspent and were left with little savings to fuel demand for the dot-com era’s “new economy.”
Many assets will undergo a “bubble” phase in the coming decades. The author contends that in other cases, such as equities, the bubble can be “absolutely reasonable.” This is due to the fact that this asset class has no expiration date; its prices might continue to rise indefinitely. A bubble is “harder to understand” when bonds and assets have negative yields.
Connolly, on the other hand, feels that the “crypto bubble” fueled by Bitcoin and other digital assets could result in “cataclysmic changes in wealth distribution.” A cryptocurrency, like stocks, does not have a set maturity date. As a result, its value can rise without regard to a set timeline. The author goes on to say:
In the same way, a bubble can be reasonable. When the macroeconomic backdrop is taken into account, however, it becomes evident that the bubble must burst.
Is Bitcoin to Blame For Future Poverty And Destruction Of The World? Connolly makes a reasonable point about fiat currencies’ inflationary nature: Bitcoin will either appreciate indefinitely or not at all. There is no such thing as a middle ground. If the latter is correct, the author argues that BTC’s price will eventually fall or be maintained by huge institutions such as central banks.
On the other hand, if BTC’s price continues to rise indefinitely, it may become an asset that “exhausts all of the world’s productive capacity.” As a result, a battle might erupt among holders as they compete for more BTC and money, perhaps “impoverishing everyone else” in the process.
As a result, Connolly urged for rapid international government intervention. He argued that the “crypto bubble” needed to be debunked right immediately. Otherwise, if central banks succeed in shutting down crypto, the entire economy could suffer. According to the author:
However, if the bubble continues to build, they must grab the nettle and inflict losses now, or face a future frantic dash to convert crypto assets into products and services, resulting in hyperinflation and the destruction of society.
Connolly’s piece has received a critical response from the crypto community. Users and experts have criticized the magazine for failing to emphasize the role of central banks and governments in the current economic outlook. Preston Pysh, an author and proponent of Bitcoin, responded with the following statement:
Prepare yourself for the following deceptive media headline in the future: The world economy will be destroyed by Bitcoin. Make no mistake: central banks are to blame for the current state of affairs. Period. They’re causing global social unrest, the division, the wealth polarization, etc.
BTC is currently trading at $33,493 with a sideways movement. To make a push and recapture greater ground, the first cryptocurrency by market cap must hold above $34,000 and $35,000.