The guest commentary below was written by written by Daniel Lacalle. This piece does not necessarily reflect the opinions of Hedgeye.
The main central banks of the world 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 weak dollar, but weak fiat currencies.
Bitcoin and other cryptocurrencies like Ethereum become as 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.
EDITOR'S NOTE
This is a Hedgeye Guest Contributor note by economist Daniel Lacalle. He previously worked at PIMCO and was a portfolio manager at Ecofin Global Oil & Gas Fund and Citadel. Lacalle is CIO of Tressis Gestion and author of Life In The Financial Markets, The Energy World Is Flat and the most recent Escape from the Central Bank Trap. This piece does not necessarily reflect the opinions of Hedgeye.
