Central banks are increasing money supply in an uncontrolled and unjustified way in what is so far the largest transfer of wealth from savers to governments ever.
While savers see their deposits disappear with negative real rates and devaluations, while central banks seek at all costs to impoverish their neighbors through devaluations to benefit deficit-ridden states, financial repression continues to generate responses from citizens, who seek to safeguard their savings from the monster confiscator: devaluation and inflation.
The main factor that has led Bitcoin to skyrocket is the global fiat currency debasement. In a year where headlines talked about a weak dollar, the US currency has strengthened relative to 67 currencies. It is not a weak dollar, but weak fiat currencies.
Bitcoin and other cryptocurrencies like Ethereum have become an alternative to financial repression and a store of value, especially for citizens in emerging economies where currency depreciation is not a risk but a certainty.
This “ currency start-up ” that we mentioned three years ago has begun to be used in a generalized way for commerce. It is gradually moving from being a financial asset to begin to be used more widely to exchange goods and services.
But we must not ignore the risks. At the moment, countries do not consider Bitcoin a threat, but if its monopoly in currency and devaluing greed is put at risk in a relevant way legal repression may be used to try to stop it. Although it will not be easy and it will likely fail.
Let’s not forget that central banks cannot afford this orgy of monetary madness if they lose the confidence of the secondary market and lose their role as a reserve currency. When trust and status as a reserve currency are lost, welcome to Venezuela.
I am convinced that Bitcoin is going to serve as a brake on the unbridled monetary expansion that we have been experiencing for years with the excuse that “there is no inflation”, creating crazy bubbles in bonds and risky assets and laying the foundations for the next crisis. Bitcoin can be a shock that forces central banks that know they must hold their currencies as a store of value to regain sanity.
For now, those who predicted a Bitcoin crash as a kind of electronic scam have been wrong. I see cryptocurrencies as an urgent and necessary alternative to the lack of control of the so-called Keynesian monetary policies, because they are simply insane.
Daniel Lacalle is one the most influential economists in the world. He is Chief Economist at Tressis SV, Fund Manager at Adriza International Opportunities, Member of the advisory board of the Rafael del Pino foundation, Commissioner of the Community of Madrid in London, President of Instituto Mises Hispano and Professor at IE Business School, London School of Economics, IEB and UNED. Mr. Lacalle has presented and given keynote speeches at the most prestigious forums globally including the Federal Reserve in Houston, the Heritage Foundation in Washington, London School of Economics, Funds Society Forum in Miami, World Economic Forum, Forecast Summit in Peru, Mining Show in Dubai, Our Crowd in Jerusalem, Nordea Investor Summit in Oslo, and many others. Mr Lacalle has more than 24 years of experience in the energy and finance sectors, including experience in North Africa, Latin America and the Middle East. He is currently a fund manager overseeing equities, bonds and commodities. He was voted Top 3 Generalist and Number 1 Pan-European Buyside Individual in Oil & Gas in Thomson Reuters’ Extel Survey in 2011, the leading survey among companies and financial institutions. He is also author of the best-selling books: “Life In The Financial Markets” (Wiley, 2014), translated to Portuguese and Spanish ; “The Energy World Is Flat” (Wiley, 2014, with Diego Parrilla), translated to Portuguese and Chinese ; “Escape from the Central Bank Trap” (2017, BEP), translated to Spanish. Mr Lacalle also contributes at CNBC, World Economic Forum, Epoch Times, Mises Institute, Hedgeye, Zero Hedge, Focus Economics, Seeking Alpha, El Español, The Commentator, and The Wall Street Journal. He holds a PhD in Economics, CIIA financial analyst title, with a post graduate degree in IESE and a master’s degree in economic investigation (UCV).