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Taylor C. Noakes
Independent journalist
Fearing the crypto bubble mostly depends on whether you’ve drank the proverbial Kool-Aid: crypto needs people to believe in it for it to work. Whether the bursting of the imaginary currency bubble affects those who were smart enough to avoid this get-rich-quick-scheme remains to be seen.
If previous cases of widespread unregulated investor speculation are any indication, though the profits are private and benefit a few, the losses will be great and absorbed by the public at large.
Eswar Prasad, the Tolani senior professor of International Trade Policy at Cornell University, has stated that Bitcoin investors “seem to be relying on the greater fool theory” wherein all that’s needed for investors to profit is to find someone else willing to buy a given asset at a greater price.
Journalist and digital currency analyst David Gerard is less courteous, arguing that the only people who will make money on cryptocurrencies are those who are “better sharks than all the sharks who built the shark tank.”
The current mania surrounding digital currencies (and the even more absurd world of nonfungible tokens — NFTs) is a perfect fit for this particular stage of terminal capitalism. Declining living standards, out-of-control housing costs, and global instability brought about by the triple threat of the pandemic, the climate catastrophe, and the unravelling of the American Empire have, perhaps understandably, led to declining levels of faith in both government and financial institutions.
It should come as no surprise that Bitcoin was not only launched during the Great Recession, but actually includes a line of code referring to the Jan. 3, 2009 headline of The London Times: “Chancellor on brink of second bailout for banks.”
The possibility of a currency and economic system that could continue to operate normally and unaffected by the poor choices of speculators (or their enablers in government) is certainly alluring, but a crucial flaw of cryptocurrencies is that their values are driven by speculation.
Conservative party leadership candidate Pierre Poilievre wants to use cryptocurrencies as a means of decentralizing the Canadian economy and reducing the influence of central bankers, unironically arguing that the road to a stronger national economy is paved in deregulation and currency speculation.
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It very clearly isn’t: nearly every major economic catastrophe of the neo-liberal age — including the Great Recession — has been caused by deregulation and speculation. If economic stability is the goal, we would be much better off appointing a Marxist economist to run the Bank of Canada than going all-in on resource-intensive imagination money whose value can disappear entirely with a forgotten password.
Crypto boosters like Poilievre would like you to believe that digital currencies are no different than any other fiat currency (and for good reason too — their investments are dependent on maintaining the illusion), but whereas the value of the Canadian dollar might not be backed by gold or silver, it is backed by the economic, political and societal stability of the nation, as well as its use by 38 million Canadians who make about 30 million daily transactions with it.
Unlike cryptocurrencies, the Canadian dollar has never lost 10 per cent of its value in a day, or 30 per cent of its value in four months. Unlike Dogecoin, the Loonie’s value isn’t linked to what some Silicon Valley billionaire said on social media.
Getting a straight answer as to whether the cryptocurrency bubble will burst is difficult for two reasons. First, those speculating on its growth are disincentivized from critically analyzing their investments. Second, the failure of business journalists to notice potentially debilitating trends and fads (such as the subprime mortgage crisis) is so well known it is now a matter of academic study.
The problem is now much greater than mainstream media’s lack of aggressive investigation, but rather of its own ideologically driven support for that which deserves scrutiny. It is small comfort that the public reaction to the National Post’s limited edition “Invisible Hand Society” NFT auction was apparently so negative the paper cancelled the auction and scrubbed any mention of it from the internet.
Though the likely collapse of crypto is indeed a concern, it isn’t the collapse itself that is most concerning, but of the likelihood that the generalized economic disruption will be absorbed by the public who, once again, will have to subsidize the losses of those who gambled on get rich quick schemes.
Taylor C. Noakes is an independent journalist and public historian from Montreal.