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Crypto Pundits Romance the Hyperinflation and Dollar Death Narrative. Is It a Real Scare?

One narrative stands out among crypto bulls: Bitcoin (BTC) is a remedy for unconventional Federal Reserve monetary policies. Due to venture capitalist and angel investor Balaji Srinivasan’s wager that bitcoin will reach the $1 million mark within 90 days, it has recently reached a fever pitch on Crypto Twitter. The former CTO of Coinbase also foresaw a U.S. banking crisis that would devalue the dollar and trigger hyperinflation—an unreasonably rapid increase in the cost of goods and services.

The de facto global reserve currency, the U.S. dollar, has not yet experienced this level of extreme devaluation. Following the collapse of Silicon Valley Bank, the Fed opened liquidity taps in the form of dollar lending programs to control the instability in the banking sector. Balaji made this prediction.

Following the covid-spurred crash of March 2020 and the global meltdown in 2008, similar predictions of Weimar Republic-style U.S. hyperinflation generated a lot of buzz. In both cases, the Fed pumped trillions of dollars into the system through quantitative easing or outright asset purchases (QE).

A lot of money “chasing” the same amount of goods and services being supplied in an economy almost always leads to hyperinflation. In other words, in order to increase inflation, the money generated by QE or other policies must be spent on the low stock of goods and services. If the newly created money enters the financial markets rather than the real economy, assets like stocks or cryptocurrencies could experience a hyperinflation in terms of valuation (as it did following the 2008 and 2020 crashes).

The Bank Term Funding Program (BTFP), the Fed’s most recent initiative, is not quantitative easing (QE), despite expanding the Fed’s balance sheet in a manner similar to QE.

“Regarding the effects of American government actions to calm the banking turmoil, there is a lot of misunderstanding and exaggeration out there. While inflation will remain sticky, it won’t be hyperinflation, so it’s not quantitative easing “According to Martha Reyes, a member of the Digital Economy Initiative’s advisory council.

 

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