The Rise Of Bitcoin & Modern Monetary Theory
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The price and value of Bitcoin will rise as Bitcoin’s future looks bright following the record highs and surge of 2020 which can be explained by the unanticipated pressure the Coronavirus pandemic shock has exerted on the Fiat Currency based Monetary system which is now reliant on Modern Monetary Theory.
The rise in the price and value of Bitcoin in this environment can be explained by the negative effects of the application of Modern Monetary Theory as a way of addressing the Crisis which has resulted in record Bailouts and money printing by the Federal Reserve with 25% of all US Dollars currently in circulation since the introduction of the US Dollar having been printed in 2020 alone.
Nevertheless, against all conventional wisdom and previous experience from Countries like Venezuela and Zimbabwe, the application of Modern Monetary Theory has not seen the US Dollar tank or produced Hyperinflation whilst in the background the price and value of Bitcoin has continued to rise.
Modern Monetary Theory has seen the Markets propped up by a new regime of Negative Interest Rates which for now seem to have faciliated large amounts of Debt Creation and Acquisition without causing Hyperinflation whilst the price and value of Bitcoin continues to increase as the Financial Markets’ Negative Interest Rates environment simultaneously places a Zero to Negative financial value on Time because the value of Cash is decreasing and not increasing with time due to Negative Interest Rates.
This ‘miracle’ has been attributed to Modern Monetary Theory (MMT) which sees inflation as the only relevant constraint on the money supply. Thus deflation can be achieved through Negative Interest Rates regardless of how much money is actually printed.
This is the premise upon which the entire Monetary System currently rests as the world goes through the uncharted waters of Negative Interest Rates courtesy of Modern Monetary Theory which has been criticised as an artificial means of propping up the Global Economy through cheap money.
This cheap money has fueled speculative Stock Markets which are currently in a Bubble phase because of the oversupply of cheap money due to Negative Interest Rates under Modern Monetary Theory.
It is this fundmantal aspect of Modern Monetary Theory which has paved the way for the rise in the price and value of Bitcoin.
In this context, Bitcoin poses a challenge to Modern Monetary Theory and may be the only way to restore rationality to markets.
In order to understand why the rise in the price and value of Bitcoin will occur because of Modern Monetary Theory, its important to revisit the reasons why Bitcoin is a good store of value in the first place.
Why Bitcoin Will Rise As A Good Store Of Value
The price and value of Bitcoin will rise because Bitcon is a good store of value for the following reasons:
- Bitcoin is durable;
- Bitcoin is Portable;
- Bitcoin is Fungible meaning one Bitcoin is interchangeable with another of equal value;
- Bitcoin is Verifiable on the Blockchain;
- Bitcoin is Divisible;
- Bitcoin is Scarce because its supply will be limited to 21 Million Bitcoins which will not be increased because scarcity is built into the Bitcoin Protocol;
- Bitcoin is Censorship-resistant because it allows anonymous transactions: a new quality which has become increasingly important in our modern Digital Surveillance Society.
It is all these features combined with the element of absolute scarcity that the price and value of Bitcoin will rise in a world that applies Modern Monetary Theory.
The Rise In Bitcoin Price & Value Due To Modern Monetary Theory
Taken to its logical conclusion, Modern Monetary Theory contends that as long as inflation is under control, then scarcity is irrelevant and money printing can go on indefinitely.
However this flies in the face of our understanding and experience of Economics so far which has based the enduring value of Gold on its physical scarcity.
The rise in Bitcoin’s price and value derives from its Digital Scarcity, and it is on this basis that Bitcoin is more in line with rational economics than Modern Monetary Theory in which scarcity is not an important element of the value of Fiat Currency.
The Rise In the Value Bitcoin Explained
It is precisely because the rise in the price and value of Bitcoin is based on its adherence to the fundamental principle of scaricty in the Digital Age that Professional Investment Fund Managers like Michael Saylor bought 425 Million Dollars worth of Bitcoin in 2020 as a way of preserving the purchasing power of their Cash because Bitcoin will return a higher yield than Cash for Investors in an environment of Negative Interest Rates in the medium to long term.
The volatility in the Bitcoin Price as the value of Bitcoin rises is because Bitcoin is going through what has been described as a natural Market Price Discovery Stage which will be characterised by periods of Volatility until the market settles on a price.
Nevertheless, its clear that the sentiment for the rise in the value of Bitcoin in the medium to long term is Positive precisely because Bitcoin conforms more with our understanding of the concepts of scarcity and value than the current Fiat Currency System based on Modern Monetary Theory where value is maintained not by scarcity but rather by the manipulation of Interest Rates into Negative territory.
The rise in the price and value of Bitcoin due to the application of Modern Monetary Theory has also seen the shift to Bitcoin amongst Professional Investors and Financial Institutions like Morgan Stanley and Black Rock as they acquire Bitcoin firstly as a means of hedging the risks posed by holding Fiat Currency, and then as a long term store of value as Bitcoin continues rise in price and value to outperform the return on cash and inflated Stocks fuelled by a Fiat Currency Bubble on the Stock Market.
In addition, the rise in the price value of Bitcoin due to the application of Modern Monetary Theory may see States like Iran, Lebanon and Venezuela be the first to decide to use Bitcoin as an Official Reserve Currency to replace the US Dollar so their Economies are not limited by the restrictions imposed on them when they use the US Dollar as their Reserve Currency.
Once State actors are involved in using Bitcoin, then Bitcoin’s value will increase exponentially.
Its for these reasons that the value of Bitcoin has risen because it poses a real solution to the negative effects of Modern Monetary Theory.
Over the Medium to long term we are likely to see Bitcoin increase in price and value as the demand increases for the scarce and limited Digital Cryptocurrency in an environment of Negative Interest Rates as a consequence of Modern Monetary Theory.
Ultimately once the rise in the price and value of Bitcoin has stabilised and Modern Monetary Theory eliminated or curtailed, it is likely that Bitcoin will be used as a long term store of wealth or value like Gold rather than as a means of conducting day to day transactions.
Further Reference: The Bullish case for Bitcoin