The recent phase of inflation is only temporary, but it is superior to recession. Among the most prevalent beliefs and messaging in cryptocurrency communities is that decline is better than growth, and that the more bearish the commodity, the greater. A widespread argument that prices are out of sight and that the economic growth that happened during the coronavirus pandemic is directly to blame is fueling the message to acquire these assets.
Let us begin with the most fundamental mistake that exists throughout different crypto ecosystems: the belief that deflationary systems are superior to inflationary systems. Bitcoin maximalists are the most vulnerable to this, but the Ethereum community may be just as dangerous.
The logic is enticing: if you have crypto and the rate at which new cryptocurrency is generated reaches zero or begins to fall, the value of your cryptocurrency should surge. The basic assumption is that the market for said cryptocurrency stays unchanged or rises. In fact, deflationary communities do not appear to function properly. And there’s plenty of evidence to back that up, especially from the Great Depression, when the sooner a country abandoned the gold standard, the faster its economy recovered.
Recessionary regimes create financial crashes because when people expect the value of their money to rise, they postpone spending it and strive to save it. This results in skyrocketing savings (HODLing!) and plummeting demand.
People hasten to spend a lot of money in high – inflation regimes, Whereas. It is unsurprising that central banks aim for general price stability.
However, it is essential to consider that absolute price stability is an unachievable and impractical goal. Prices must fluctuate as economies evolve over time. Production and innovation have reduced the cost of buying goods, but many services have not profited from the same productivity gains. Teachers are still responsible for roughly the same number of children as they were a century ago, but manufacturing employees may utilise machines to produce a hundred times more goods. It would be absurd for TV and college prices to be the same after all that time.
The second important issue worth debating is the assumption that inflation in Modern countries is a major government failure or that this is out of control. It isn’t either. Inflation and federal reserve work properly as expected. Huge fiscal and monetary stimulus rescued the world from a catastrophic downturn at the outset of the epidemic. Central banks and governments are now taking a step back. Nevertheless, fiscal policy is not accurate; the concept that you can exactly direct the world market through a large drop in services sales, a boom in product sales as people stay at home and buy goods, and then back to a booming services sector is preposterous.
That inflationary outburst was likewise transitory. It was a fair result of changing the entire world’s production and demand strategy. The fact that inflation in the United States appears to have peaked at roughly 8% makes this transient adjustment appear favourable in contrast.
When it comes to constructing our future economy inside a blockchain environment, we must not forget the lessons of the past.
