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Crypto & Fiat - The Chicken or the Egg Question

Former Secretary of State Hillary Clinton recently shared the "establishment" position on cryptocurrencies during Bloomberg's New Economy Forum in Singapore. View these comments here (https://www.bloomberg.com/news/articles/2021-11-19/cryptocurrencies-can-destabilize-nations-hillary-clinton-warns).



Her thoughts on crypto offer an interesting ‘chicken or the egg’ question:


Is crypto’s rise due to:


1. A wish for crypto to undermine currencies and replace their role as reserve currencies


Or,


2. Fiat currency devaluation undermining the ability to maintain status as a monetary reserve, opening the door to crypto


Excessive deficit spending requires additional “money printing”. Deficit spending is also required for reserve currencies as excess dollars allow for overseas reserve holdings.


Crypto, by design with a fixed unit of coins, theoretically increases in value with increased demand and use (why it’s often compared to gold).


Fiat has an inverse relationship and hurts long-term holders/savers of those currencies in a low interest rate environment where value erosion > interest rate for savings accounts.


Likely this is one of the key considerations in China banning crypto recently as it undermines a centralized financial control mechanism (and that they’re likely also developing their own stable coin).


Ultimately three things will determine crypto as a future reserve currency:


1. Increased use as a day-to-day medium of exchange for goods and services


2. Developed economies with legal, policing, and regulatory powers continue to allow it to develop and propagate within the society as a medium of exchange


3. Normalization of crypto price volatility


Clinton on Bitcoin and Crypto:


"One more area that I hope nation-states start paying greater attention to is the rise of cryptocurrency -- because what looks like a very interesting and somewhat exotic effort to literally mine new coins in order to trade with them has the potential for undermining currencies, for undermining the role of the dollar as the reserve currency, for destabilizing nations, perhaps starting with small ones but going much larger.”


What side do you come on?


1. Crypto’s rise as a wish to become a global reserve currencies, or,


2. fiat value erosion offering an opening for other longer value stability by design units of exchange?