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One of the most frequently touted advantages of Bitcoin over fiat currency is that the latter is vulnerable to inflation or loss of value over time. According to Bitcoin proponents, the king coin’s fixed quantity of 21 million offers a buffer against inflation.
Not all economic experts, however, are in agreement on this point. For instance, British economist Bernard Connolly in a recently published article, titled, “How a Bitcoin Bubble Could Lead to Hyperinflation” criticized the largest cryptocurrency against its potential to offset inflation. According to the economist, several institutions must work together to put a stop to the “crypto bubble” before it is too late. Connolly also mentioned inflation as a contributing factor to the economy’s growing imbalance. According to him, the United States Federal Reserve, led by Alan Greenspan,
“…failed to allow real long-term interest rates to rise at the right time in response to very buoyant entrepreneurial expectations in the internet-driven “new economy.”
He added that this triggered a “misallocation” of capital that caused a spending deficit on consumption.
Connolly also provided an interesting perspective in relation to Bitcoin by stating,
“Bitcoin will appreciate to infinity, or it won’t. There is no middle ground.”
If the latter is correct, the price of Bitcoin will ultimately fall or be maintained by major entities such as central banks themselves. However, if Bitcoin continues to rise in value, it may become an asset that “exhausts all of the world’s productive potential.” According to Connolly, this may lead to a competition among holders to obtain more BTC, thereby impoverishing everyone else. All the more reason for the “crypto bubble” to implode. He went on to say,
“But if the bubble keeps growing, they must grasp the nettle and inflict losses now, or face a future sharp-elbowed scramble to convert crypto holdings into goods and services, which will produce hyperinflation and destroy society.”
Connolly’s criticism of bitcoin did not go unnoticed and was also met with disapproval from the crypto community.
Prepare yourself for this false media headline moving forward: Bitcoin will destroy the global economy.
Make no mistake – central banks are causing this mess. Period
They’re causing the global social unrest, the division, the wealth polarization, etc https://t.co/ltH3ZJJYXj
— Preston Pysh (@PrestonPysh) July 10, 2021
in the coming months, attacks on bitcoin and to some degree, the broader crypto ecosystem, will become much more aggressive
elites and their institutions are preparing for hyperinflation, and they will crush the middle class to own all productive assets
21st century feudalism
— Meltem Demir◎rs (@Melt_Dem) July 10, 2021
Looking further into the issue of inflation, according to a recent Bank Of America survey, 81% of fund managers believed Bitcoin was in a bubble. Furthermore, the graphic below depicts Consumer Price Index-based information in the United States from 2010 to 2021, with further estimates up to 2026.
The CPI in the United States monitors changes in the prices of consumer goods and services purchased by various households, which is an essential component in calculating inflation and the health of the economy. As previously said, inflation will continue to rise, affecting the US community’s salaries, social security payments, and pensions.
Argentina and Venezuela, for example, have extremely high inflation rates. In Venezuela, printing money led to an astonishing increase in food prices last year. The international monetary fund (IMF) reported that the inflation rate in Venezuela was as high as 6500% in 2020.
Use of cryptocurrency possibly proved to be a better option for the Venezuelans as the country continues to suffer from severe political and economic unrest. Strict regulations haven’t stopped them from using cryptocurrency.