Expert Commentary

Qwick Takes: The economic effect of cryptocurrencies

November 19, 2021

Posted by Irina Slav

This week, Talking Biz News Deputy Editor Erica Thompson reached out to Qwoted’s community of experts to inquire about the economic effects of cryptocurrencies like bitcoin, and the impact of this market on U.S. inflation. Check out some of the top commentary:

Chris Kline, Co-Founder and COO at Bitcoin IRA:

Cryptocurrencies, specifically bitcoin, are being seen as another monetary instrument and a new store of value against inflation. This inflation is already impacting middle class Americans and is not transitory. It is sucking the life out of the working and middle class and will force people to find an alternative to protect their assets. In the past, gold and real estate were strong options. Now that real estate prices are off the charts and gold is inaccessible to the average American, crypto has become part of that inflationary hedge mix. Why bitcoin? Because of its finite supply. The government has been printing unprecedented amounts of money since 2008 and it is starting to have an impact on the wider economy. That manipulation cannot be manufactured in the same way since bitcoin is limited to only 21 million coins, providing an alternative to the fiat money system.

Diane Dai, Co-Founder and CMO at DODO

Cryptocurrency can’t in and of itself solve inflation issues. There are other structural issues related to supply chain and workforce that contribute to growing inflation. But crypto, in the general sense, offers a more nuanced monetary policy due to the fact that each currency has its own tokenomics. With different levers, such as burning tokens or pegging inflation to specific network metrics, crypto can prevent the runaway economics of central banks from constantly printing money. When supply is unconstrained, it can lead to rampant inflation.

Another core area that crypto outperforms is transparency. Once a currency has been minted, its smart contract defines its parameters — including its governance. That means that insiders can’t just mint more currency without adhering to the smart contract. And most contracts have consensus mechanisms to make sure that any changes are approved by the majority.

Russell Starr, CEO at DeFi Technologies: 

The U.S. dollar has eroded 90 percent over the last 50 years, and the amount of inflation that is coming out of nonstop printing presses of money is having an impact everywhere, globally. Historically, the only way to address this problem has been gold. Now, the best new option is cryptocurrency. DeFi and crypto is something that everyone should embrace. The whole concept of decentralized finance (DeFi) and crypto protecting the currency to avoid debasement. Yes, there is an incredible opportunity to make money, but the most important thing to remember is that this industry is putting the power back into the peoples hands.

Jahon Jamali, Managing Partner/Co-Founder at Sarson Funds: 

When it comes to considering cryptocurrencies as an inflation hedge, it’s important to remember that not all of these digital assets are built alike. However, Bitcoin – with its market dominance and capped supply – makes it the leading “digital gold” contender. The maturation of the internet age has very clearly ushered in a new paradigm of what fuels economic growth. The immutable transfer, exchange, and use of data will fuel the next century of economic prosperity. Nothing encapsulates this phenomenon more than Bitcoin does. Bitcoin is a network of immutable value and data transfer. Despite its growth volatility, Bitcoin presents a forward-looking option to hedge against inflation and the monetary policy miscalculations of the past several decades.

Fergus Hodgson, Director at Econ Americas: 

Bitcoin, although a noble idea, has failed to become a widely used medium of exchange. Its transaction costs are too high, and it remains a speculative alternative investment vehicle, one which I am reluctant to promote.

In the long run, though, yes; I am hopeful that private cryptocurrencies, those with better technology than bitcoin, will rise to outcompete central-bank fiat currencies. That remains at least a few years off and does not offer any immediate respite to the severe and out-of-control inflation the United States is experiencing. Even if cryptocurrencies were to take the place of the dollar, that would only offer an escape and hasten the downfall of the US dollar and its declining purchasing power.

 

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