Can Bitcoin Lead The World to Hyperinflation? Economist Delivers Forecast

British economist Bernard Connolly has published an article titled “How a bubble in Bitcoin could lead to hyperinflation”. Therein, the author claims that cryptocurrencies could have a negative effect on the global economy if the authority of central banks is undermined. The author believes these institutions must stop the “crypto bubble” before it’s too late.

The global economy has already managed to drag itself into a complicated situation, Connolly said. At the end of the past millennium, the U.S. Federal Reserve led by Alan Greenspan made a mistake and propelled an imbalance in the economy. At that time, 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”.

Thus, during these decades there was a “misallocation” of capital that caused a spending deficit on consumption. In other words, people overspent and were left without savings to create demand for the “new economy” to underpin the dot come era.

In the next decades, many assets enter a “bubble” phase. In some, such as equities, the bubble can be “perfectly rational”, the author claims. This is because this asset class lacks a maturation date; their prices can go up forever. With bonds and assets with negative yields, a bubble is “harder to rationalize”.

However, Connolly believes the “crypto bubble” driven by Bitcoin and digital assets could have “cataclysmic changes in wealth distribution”. Similar to equities, a cryptocurrency doesn’t have a maturation date. Thus, its price can appreciate disregarding a determined timeframe. The author adds:

So a bubble can be rational in the same way. However, once the macroeconomic context is considered, it becomes clear that the bubble must pop.

Bitcoin To Blame For Future Poverty And World Destruction?

Connolly makes a valid point, tied to the inflationary nature of fiat currencies: Bitcoin will appreciate to infinity, or it won’t. There is no middle ground. If the latter is true, the author believes BTC’s price will eventually trend downwards or be supported by large institutions, such as central banks themselves.

On the contrary, if BTC’s price tends to infinity, the cryptocurrency could be an asset that “exhaust all the world’s productive potential”. Thus, a conflict could unleash amongst holders to gain more BTC, more wealth, and in the process, they could “impoverish everyone else”.

Therefore, Connolly called for the immediate intervention of international governments. He claimed that the “crypto bubble” must be stopped now. Otherwise, if central banks pull the plug on crypto, if they succeed, the global economy could take a hit. The author said:

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.

The crypto community has negatively responded to Connolly’s article. Users and experts highlighted that the publication fails to point out the central banks’ and governments’ responsibility in the current economic outlook. Author and Bitcoin defender Preston Pysh responded with the following statement:

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.

At the time of writing, BTC trades at $33,493 with sideways movement. The first cryptocurrency by market cap must hold above $34,000 and $35,000, in order to make a push and reclaim higher territory.

Original Source: https://bitcoinist.com/can-bitcoin-lead-the-world-to-hyperinflation-economist-delivers-forecast/?utm_source=rss&utm_medium=rss&utm_campaign=can-bitcoin-lead-the-world-to-hyperinflation-economist-delivers-forecast