Bitcoin as a global standard would be an “absolute economic disaster” – Ernst & Young’s global blockchain pioneer

(Kitco News) If Bitcoin becomes the global monetary standard, Paul Brody, global blockchain leader at Ernst & Young, said it would be an “absolute economic catastrophe.”



The world’s largest cryptocurrency is hypothetically seen as a deflationary asset in the digital space. What this means in the cryptocurrency world is that the supply of it — limited to 21 million tokens that have never been minted — and as investors buy and hold Bitcoin, the supply drops and prices go up.

“Deflationary systems like bitcoin are bad for the economy. I don’t think people are spending enough time and attention discussing why. If bitcoin becomes a global standard, it will be an absolute economic disaster,” Brody told Kitco News in a recent interview. “There are mountains of evidence.”

Deflationary assets are particularly terrible like global monetary standards during periods of economic downturn. One of the clearest examples from the past, Brody added, is gold, noting that the gold standard has failed for some reason.

“There is evidence prior to World War II that deflationary regimes like gold are disastrous during economic downturns. The reason is in the deflationary model. If you believe your currency will be more valuable tomorrow than it is today, your incentive is to save and this leads to a collapse in demand, which It in turn leads to a further downturn in the economy, which makes people more panicky.” Brody describes.

This has become what Prodi calls the “death spiral” of the global economy. “With World War II approaching, almost all of the major industrial countries have abandoned the gold standard. The evidence suggests that the faster you leave the gold base, the faster your economy is likely to recover.

Many bitcoin proponents refer to the cryptocurrency as Gold 2.0, and Brody considers the analogy fair. “Bitcoin is digital gold. If you want to have the properties that people love to give gold and recreate them in a digital system, then Bitcoin will. In many ways, Bitcoin is better than gold,” he said. The only downside is that you can’t “bury it in your garden,” he said. “But if we end up on a gold standard, that wouldn’t be a good thing.”

With bitcoin’s growing popularity over the past decade and its many proponents calling it a solution to the current global monetary policy regime, one must be wary of arguments for a bitcoin standard, says Brody.

A system is essentially deflationary if the economy in which it operates is growing faster than the money supply. If the Fed increases the money supply by 1% per year, we have an initial deflationary regime. It is true that the number of dollars in the system is growing a little, but the economy is growing faster, causing a deflationary cycle in which the available goods and services grow faster than the number of dollars they are chasing. Thus, the prices of goods and services will actually go down,” Brody explained.

How long is the current inflation problem?

Fear of inflation and concerns about whether the Federal Reserve will be able to contain it through aggressive rate hikes has allowed for a widespread evacuation in the broader markets. However, Brody disputes this account.

“During the pandemic, we went through a massive reconfiguration of the global economy. Overnight, we went from a global economy that’s vastly improved on services to one that’s improved on goods. Within a year, we’ve reshaped the entire global economy from doing things to buying things,” he said. Brody. “Now we turn around and do the exact opposite.”

The world has witnessed several massive reconfigurations of the entire global supply chain. This time, he added, it was accompanied by a major government incentive.

The idea that the global economy could come out of this with a soft landing and no inflation is unrealistic. At the same time, Brody noted, the idea that the world will go through an inflationary stagnation similar to what happened in the 1970s is not a given.

I’m still in what I would call the transition team. After World War II, we had a similar global reconfiguration. We went from making lots of guns and telling people “not to spend and buy war bonds” to “the war is over, let’s celebrate.” The world, especially the United States, had a very brutal battle with inflation. It lasted nearly three years and peaked at 18%. This was not the beginning of a long-term recession. It was a passing event resulting from a comprehensive reshaping of the entire global economy.

Prodi sees signs that inflation may have peaked at more than 8% in the US this year. This cycle of inflation after World War II lasted about three years. We’ve been in an inflationary cycle for a year. He said there is good evidence to believe that the cycle may have peaked at around 8%, and will slowly decline.

Prodi added that there is potential for a slight dip, but unemployment is likely to remain unusually low.

Ethereum to take the lead?

However, even though Bitcoin is the largest cryptocurrency in the world, there are red flags regarding its future.

“The main red flag is that elementary blockchains are not just digital assets, they are tech ecosystems. The big red flag about Bitcoin is that tech ecosystems live and die because of the number of developers creating the products and services mentioned above. Not a lot of that happens in the world,” Brody said. Bitcoin”.

Most of the development and engineering work takes place in the Ethereum ecosystem. He added that while bitcoin appears to be doing well, there are concerns about its long-term future.

Overall, Brody does not see a multi-chain future, and predicts that Ethereum is the ecosystem most likely to underpin everything.

“Network effects mean that the larger ecosystem tends to win over time. Ethereum is the largest ecosystem,” he said. “If you are trying to start a business, you can ultimately build your business and make it in the ecosystem with the most money, the most cash, and the most investors.” .”

Brody compares Ethereum to the Internet, noting that the world does not have 20 different networking standards. “If you go back 30 years, the Internet protocol will be used to connect different types of networks. Today, there are no different networks. It is just the Internet,” he said.

Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. This is not an application to trade commodities, securities or other financial instruments. Kitco Metals Inc. is not liable. The author of this article assumes no liability for loss and/or damage resulting from the use of this publication.

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