'The crypto industry’s luxuriant growth since Bitcoin emerged from the ashes of the financial crisis can be directly attributed to the copious monetary fertilizer central banks have been pouring into financial markets.' Opinion Frances_Coppola
Inevitably, crypto skeptics are calling “the end of crypto.” But we’ve seen this kind of correction before. Several times, in fact. In 2014, bitcoin’s price crashed when theexchange collapsed. And in 2018, bitcoin’s price fell 80% as hundreds of “initial coin offerings” crashed and burned. In both cases, the market eventually recovered, and crypto prices rose higher than before.
There was a brief period of relative dollar scarcity from 2016 through 2018, when the Fed raised interest rates and burned money and the U.S. Treasury issued bonds . But as the Fed tightened, other central banks loosened. QE never really ended; it just moved around the world. And in 2019, when dollar shortages caused disruptions onThen came the pandemic.
It’s perhaps easy to see why the end of easy money might spell disaster for those invested in a highly leveraged crypto bubble, but it’s less obvious why it is causing bitcoin to sell off. You’d think it would encourage people to pile into deflationary cryptocurrencies like bitcoin. After all, bitcoin was originally intended to replace the dollar, and some people still think it eventually will.
But these dollars aren’t real. They exist only in the virtual space. They are not, and never were, guaranteed by the only institution in the world that can create real dollars, namely the Fed. The Fed has no obligation whatsoever to ensure that those who have made life-changing amounts of these “virtual dollars” can actually exchange them for real dollars. So when the crypto bubble bursts, the “virtual dollars” simply disappear.
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