Stagflation hasn’t exactly been a booster of crypto prices so far. Crypto is being compared to stocks as the latter plunge through some historically red quarters. The more crypto decouples from stocks and news of corporate pullback, the more we are once again left with the why.
Why can’t crypto reap the benefits of economic turmoil as it should?
Stagflation as a new normal
For starters, there are still many who denounce the idea that we’ve entered a national (possibly a global) stagflationary period. It seems to have become a matter of belief more than anything else.
While some attempt to lock themselves away from stagflation, the equivalent of sticking your fingers in your ears and singing until the bad news ends, realists are ready to acknowledge it’s already here. By definition, everyday investors and savers aren’t supposed to have easy fixes or even safe havens in a stagflationary environment.
If we did, the term wouldn’t carry such awful weight.
Still, stagflation falls comfortably under the definition of man-made economic calamity.
Wait, that phrase “man-made economic calamity” sounds familiar, doesn’t it? Reminiscent of the Great Financial Crisis?
Didn’t that disaster teach us anything?
Well, yes, it did…
Crypto was developed as an antidote for man-made economic calamities
Lest we forget, the Great Financial Crisis was the incident that inspired Satoshi Nakamoto’s famous bitcoin whitepaper. Bitcoin was intended to be decentralized, effectively eliminating the crypto equivalent of a Federal Reserve, with ultimate authority over how much cash was in circulation.
Essentially, stagflation highlights one of bitcoin’s fundamental purposes.
For everything that bitcoin is supposed to be guarding against, shouldn’t it soar during a time like this? (And, if it did, would it be announced by the mainstream media?)
You might assume cryptocurrencies have fallen out of favor. You probably aren’t aware that banking and finance giants like JPMorgan Chase and Goldman Sachs are making a quiet back-end switch to trading traditional financial assets on the blockchain.
For all the speculation about how legacy finance will meet cryptocurrencies head on, it appears stealthy upgrades will be the norm.
Why? Well, it also didn’t make headlines that Goldman’s head of digital assets settled a five-day-long transaction in an hour using blockchain.
In other words, Goldman’s settlement speed increased by over 99%. I’d assume the nature of blockchain also made auditing the trade vastly simpler.
So here’s my theory… I believe we’re well beyond the days of Long Island Iced Tea/Blockchain Corp hype. “Crypto” and “blockchain” aren’t buzzwords anymore. As the Goldman case above shows us, upgrading from tradfi pipes to blockchain-powered trades are a strategic advantage. The technology has matured to the point where it’s probably worth a whole lot more to actually use than to simply write press releases about.
As much as we talk about crypto here, this is still an important moment!
So, what does that have to do with stagflation?
The same economic circumstances, a different economy
As countless analysts have outlined, we would have to go back a minimum of 50 years to find an environment with comparable stagflationary conditions. The one in the 1970s had much easier conditions and still took a decade to get out of. On the other hand, we have differences coming from the other side that could spell out optimism.
What’s the biggest difference between now and back then? A lot of people will insist the internet was around back then. So it goes to the second-biggest difference, that being the existence of cryptocurrencies.
Many hesitate to even make the 1970s comparison because it’s economically depressing. 13% interest rates, right? Yet what folks in the 1970s didn’t have was a financial market whose purpose is to fight inflation, stagflation and everything in-between.
Onlookers seem in agreement that this round of stagflation will be long. The conditions are neither there to show economic strength nor bolster the currency. Instead of wondering how crypto will do strictly from a prices standpoint, it might instead pay to assess if its bottom line holds up. The longer centralized financial authorities present an untenable situation, the more people will flock to decentralized alternatives.
The argument can easily be made, if only in terms of length, that we’re there already. Bond investment has been rendered a mostly nostalgic point. It’s almost bewildering that it’s still being propped up. A thorough reassessment of the bond market has been in the works for a long time. Avoiding it has seemingly become a necessity along the lines of avoiding the sovereign debt burden. If nothing else, it tells us what makes for a bad investment these days.
At least this man-made economic calamity coexists with an independent asset class that exists separately, firewalled from the centralized institutions that, once again, set the global economy up for failure.