Your favorite crypto news blog

Bubble In Bitcoin Could Lead To Hyperinflation – Warns Economist Bernard Connolly

Bitcoin 2021/07/20 19:01 by Newton Gitonga
The Bitcoin Price Bubble That Never Bursts

The number of banks and regulators moving in to control or ban the use of cryptocurrencies has risen in the past few years. While most have strongly argued for the unconditional adoption of crypto in replacing fiat currency, some specialists fear that such a move is naïve and would cause more harm than good.

On July 9, British economist Bernard Connolly spelled out the problem which he believes has already been hinted at by central banks, the dilemma of ‘bubbles’.

In a cautious article christened “How A Bitcoin Bubble Could Lead To Hyperinflation,” he emphasizes that cryptocurrencies could lead to hyperinflation if their adoption threatens to weaken the authority of central banks.

Connolly states that bubbles in the financial system draw a picture of deeply entrenched inequity in economies anywhere.

“The downward trend in real long-term interest rates which has persisted throughout this millennium and has only been accentuated by the pandemic fuelled the bubbles which have been needed to regain and maintain full employment and fend off deflation,” he says

Crypto is creating “illusory wealth

Connolly recounts how such a scenario arose during the Dotcom era in the 90s advanced by excited Millenials. The period saw unrestrained spending which created an illusion of wealth, sold in the era. He believes that the current era is worse than the 90s as more people seem to blindly join the space.

He warns that the resulting wealth inequalities caused in the current bubble are concocting trouble but have not just yet reached a tipping point. Dangerous spending created by this illusory upsurge in wealth has created a hazardous wealth gap.

Connolly argues that if for example, Bitcoin price could go to infinity then the worth of one person’s wealth would exhaust all the world’s productive potential and they would control all the world resources by being the first to send and sell. The wealth that Bitcoin threatens to produce is thus unsustainable and bad to governments and their people.

Burst the bubble before it is too late

He says that the only way to avert this impending trouble would be if governments burst this Bitcoin bubble before it establishes roots that can prove harder to uproot in the future. If this fails, he sees serious social and political discontent which could lead to unrest and a breakdown of civil societies.

“The longer that central banks wait before taking action to prevent the swelling of cryptocurrency bubbles, the more difficult they will make their task,” he warns

Proceeding with caution

Earlier in the year, a series of crypto bans and warnings by regulators based on the same fears across various countries have been raised. The Bank of England governor has previously warned investors that they should be prepared to lose all their money if they choose to invest in Bitcoin. 

Regulators such as in Tanzania have been asked to research the viability of adopting mainstream cryptocurrencies before making any major decision. Some banks have opted to create their digital currencies to cushion themselves from the unpredictable effect of mainstream cryptocurrencies, while others have opted to stay all out, sending warnings against the adoption of crypto.

0 Like(s)

You should also read...

Bitcoin 17/11/19 09:19 by Matthew Hrones
3 Things Stopping Bitcoin From Returning to $20k
Bitcoin is known for its meteoric rises and plummeting dips, but the price has not seen much upward momentum over the past few months. Ever since Bitcoin topped $20k in December 2017, people have been...
Read More
Altcoins 16/11/19 02:00 by Jamie Redman
Royal Bank of Canada Patents Point to Crypto Exchange Launch
The largest bank in Canada by market capitalization, Royal Bank of Canada (RBC), is reportedly opening a cryptocurrency exchange. Patents have been discovered that reveal some of the technology the RB...
Read More
Altcoins 02/12/19 15:16 by Brenda Ngari
In Dire Straits: Heavy Losses Point To Slow Altcoin Market Catastrophe
During the spectacular bull run of 2017, crypto investors that missed the bitcoin train got in altcoins with the hope that their early investments can gift them huge profits. Unfortunately, the bubbl...
Read More
Crypto 26/11/20 12:09 by Guest Author
Questionable Algorithms Cast Doubt Over Blockchain Analytics Firms
As the blockchain sector continues to break new boundaries and create innovative solutions, more and more analytics firms are cropping up to help analyze crucial data. Being able to review swathes of...
Read More
Bitcoin 07/04/21 23:17 by Reynaldo Marquez
Why JP Morgan’s CEO calls Bitcoin regulation a “serious issue”
In his annual letter to his shareholders, J.P. Morgan Chairman and CEO Jamie Dimon addressed the status of regulations towards Bitcoin and cryptocurrencies in the United States. At the beginning of th...
Read More