Wall Street and Bitcoin: The Role of Central Banks in Recent Rises
Are the Central Banks behind the astronomical rise in the price of Bitcoin?
To avoid a major deflationary crisis, the European Central Bank and the US Federal Reserve have battled with an astronomical debt purchase and an immense shower of liquidity. As a result, the financial markets are being inflated. These effects have not been accidental. That was the intention from the beginning. The aggressive monetary policy implemented seeks to stimulate investment to promote employment. In other words, Wall Street and Ethereum Code review are not on the rise, because the central banks are mismanaging the economy. They are on the rise thanks to the central banks.
Central banks are often portrayed as the villains of the movie. It is assumed that much of our economic problems arise from the irresponsibility of central banks. Any injection of liquidity is automatically thought to be harmful, just because it dilutes the value of the currency. However, in most cases, this argument is an oversimplification of the whole issue.
Economic conservatives are always advocating a hard currency.
Gold beetles in particular are known to have these ideas. Libertarians in general have long defended the doctrine of hard currency. In many cases, they promote the ideas of classical liberalism about the invisible hand, the free market, and government non-intervention in the economy. However, experience has shown that not everything is rosy with the old dogmas. The libertarian path is extremely painful in times of crisis, because deflation can be devastating for people.
Now, we all like to criticize the actions of the government. And we all love to attack the powerful. Of course, it is very easy to criticize the monetary policy of the European Central Bank and the Federal Reserve. „They print money out of thin air. How awful! But, on the other hand, we can’t stand being unemployed. We want the economy to grow. And we like it when our investments rise in value.
During the crisis, Bitcoin went into a tailspin with the drop in demand in March of last year. Business closures, due to coronavirus restrictions, led to a significant drop in income and employment. Deflation invaded the economy. That is, if people don’t spend, there is no economic growth. This is when the government (on behalf of everyone) must intervene in the economy as a stabilizing agent. In other words, the central banks must inject liquidity in order to increase demand. Why is it necessary to increase demand? Well, because you need demand to get revenue. And you need income to create jobs. And people need jobs to make their expenditures.
If there are no buyers, central banks present themselves as the big buyer to get the economy going again.
A business without buyers is forced to lower its prices. But this reduces its profit. Hence, their ability to hire more staff. Assets depreciate, because no one wants to buy. In other words, there is deflation. Something as fatal as inflation. Here is the problem of a hard currency in the context of a system of non-intervention by the government: it is very difficult to control deflation and it is complicated to obtain monetary stability.
How would we be right now if the European Central Bank and the Federal Reserve had not bought debt and injected liquidity? The crisis would have been unbearable. Protests and social tension would have reached very dangerous levels. Society would be on the streets demanding intervention because of famine and poverty.
Right now, the central banks are not Bitcoin’s enemies. The libertarian narrative is not entirely adequate. Institutional fund managers are not investing in Bitcoin, because they have lost their faith in the system and are promoting the libertarian utopia of a world without governments and central banks. They’re investing in Bitcoin, because there’s a lot of liquidity available. Because there is a lot of liquidity, speculative assets become very attractive, because the investor is more willing to take risks. Digital is a trend. And the whole fintech area is a trend. Liquidity creates optimism.
The mission of central banks is to stimulate when there is a need to stimulate. The coronavirus crisis is being combated. And the markets have reacted. Cause and effect. The weakening of the dollar is a state policy to stimulate job creation. The rise in assets is directly related to the political