While some are trying to view the future of cryptocurrencies through kittens on the blockchain, and others dream of contactless payments for everything with Bitcoins, Travis Kling, the former head of Point72 Asset Management (a hedge fund that controls $12.4 billion of assets), offers his vision of the world economy using cryptocurrencies. And these assumptions are not groundless.
The first wave of the global economic crisis began to take shape in the United States back in 2008. Experts believe that this was caused by the overheating of the credit and stock markets, high prices for oil and commodities, and the consequences of the mortgage crisis in the country. As a result of such economic roller coasters, real estate prices dropped to record levels and lost 20% of their value, which is why the owners’ wallets have lost almost $5 trillion.
A little later, the wave covered the European sector of the economy. Iceland was on the verge of bankruptcy. The country’s three largest banks failed, and the authorities were forced to nationalize them. At the same time, the British government recapitalized the Royal Bank of Scotland, and then several other banks.
After that, the crisis affected all regions of the world, and almost every one of them fell into recession. Many companies were in a pre-bankruptcy state, reductions in workers began, and waves of layoffs and bankruptcies of large enterprises started.
In order to somehow offset the crisis flood in the global market, states have to go to extreme measures, and sometimes even create artificial inflation. One of these methods is quantitative easing.
Quantitative easing (QE) is one of the ways of regulating the economy within the state. The United States officially applied quantitative easing in 2009 just at the time when Satoshi Nakamoto introduced Bitcoin to the world.
Quantitative easing is the monetary policy of the country’s central bank, which buys bonds from the public to reduce their financial attractiveness and reduce the flow of investments. To put it simply, the bank prints money to stimulate the private sector of the economy. In this case, the movement of finances in the market is activated and a small level of inflation occurs, which at low values has a positive effect on economic growth.
But this method has its negative sides. With the periodic issuance of money, inflation should be overlapped by economic growth to some extent. But frequent issuance provokes the emergence of financial bubbles and the depreciation/devaluation of the national currency. And while some are trying to carry water in bottomless buckets, others think in perspective and are ready now to share fresh directions and ideas in managing a fragile pre-crisis economy. More precisely, thoughts about how cryptocurrencies will help countries stabilize the state of the market and keep the global crisis on a short leash.
High Volatility on Hand
Travis Kling, the former head of Point72 Asset Management who’s currently leading the cryptocurrency fund Ikigai, has his own opinion on the issue of combating economic problems in the world.
At the end of 2018, Travis shared his thoughts on the future of the economy after quantitative easing on Twitter:
In the replies, he explained that this is not an accurate forecast, but only one of the options for the development of cryptocurrencies in the economy. But such assumptions are not groundless. Considering that a “local” crisis is now reigning over the crypto market, is this not an indicator of real liquidity and the ability of assets to quickly return to former indicators? And if an asset can recover so fast, why not make it a new module for the modern economy?
Cryptocurrencies are an entirely new and unexplored tool for the real economy. As a real asset, they are not yet defined in their niche, although all the prerequisites for this exist. State regulation of the economic situation within the country has long been fluctuating in terms of the choice of strategies and resources. Therefore, the initial task of the regulators is to find new ways to influence the market and the economy in places where no man has gone before.
What Was Wrong with QE in 2018?
Travis Kling touched upon the problem of quantitative easing for a reason. The WSJ published a negative asset return chart that tracks data starting from 1905. A record share of negative returns accounted for 2018. It turns out that the U.S. easing policy was not so easing after all. The expected fall in the market became uncontrollable, and instead of diversifying the profits of 2017, a large sector of the economy pulled small and medium businesses into the rabbit hole.
Kling commented on this situation, saying that in a bear market, cryptocurrencies will jump away from the support line faster than other asset classes, due to higher volatility: “I won’t be surprised if crypto sobers up faster than traditional market assets.”
Despite the utopian attitude, Kling is largely right. After all, the traditional levers of influence on the economy are beginning to weaken and require a fresh look. Assets that are able to take a hit and withstand many of the problems of the modern economy are potentially cryptocurrency assets.
The problem of quantitative easing and a re-emerging crisis in the United States is becoming the first signal of the calamity of the world economy. It is especially important now to turn all our forces into putting out the center of the economic fire that is in the U.S. If this is not done as quickly as possible, the United States is unlikely to keep a bag with empty bank notes cracking at the seams, and the national debt will become the second tsunami wave in the country’s economy, and then around the world. Let us hope the economy of this country does not follow the path of financial bubbles. But so far, everything is moving toward this.
What Others Think about It
Changpeng Zhao calls the year of 2018 “corrective” and is quite optimistic about the future of the cryptocurrency industry. He and his team continue to believe in the crypto industry and think that the real value of cryptocurrencies is supported not by cost but by examples of the use of this technology in life. This is also one of the cases when a cryptocurrency can become a rescue capsule for many things in the future.
The Winklevoss brothers launched the controversial advertisement of their Gemini exchange in the form of the slogan “Cryptocurrencies need rules.” Cameron believes that the stablecoins can become a “dollar on the blockchain,” and this will virtually erase the boundaries of reserve currency transactions, 60% of which are outside the United States. And in general, cryptocurrencies are able to replace gold. Only one thing distinguishes them, and that is a three-thousand-year-old head start.
“Many global trends are only just being formed, some of them are obvious, others are poorly managed, and it is difficult to give an accurate assessment,” Russia’s Prime Minister Dmitry Medvedev estimated the state of cryptocurrencies today. The low cost of Bitcoin is a consequence of high volatility, but this is not a reason to put an end to the industry.