The Rise of the Crypto Currency: The Central Bank Catalyst

Rather then address a specific news event and break down a Macro understanding of it as I usually attempt to do, I want to look at a larger catalyst of the rise of crypto currencies post 2008 financial crisis.

There were many factors that contributed to the Financial Crisis of 2008 and the eventual Chapter 11 bankruptcy of Lehman Brothers on September 15, 2008. The aim of this quick post is not to look at the irrational exuberance which cause the 2008 banking crisis, but rather to take a quick look at the interventions of the ECB, Bank of Japan and the Federal Reserve Bank and the immense consequences of their policy decisions. These central banks reacted to this crisis in such a way which inevitable lead to a large gap in confidence that would end up being filled by the creation of bitcoin and other cryptographic currencies.

The Banks’ Master Plan

We are all familiar with the incredible lengths to which the central bank when to maintain the stability of the Command fiat banking system. From Quantitative Easing (QE) to cheap money policy to asset purchasing policy, the advanced nation’s Central banks coordinate monetary policy to mitigate a deleveraging and deflationary crisis. As measured by the St-Louis Fed the Federal Reserve purchased an estimated total of 1,938,472,000,000.00 of U.S Treasury Securities from March 11th 2009 to April 25th 2018. The European Central Bank (ECB) followed suit with its own Asset purchase programmes as well as the Japanese Central Bank with its massive ETF purchase plan. The sheer level of anti-free market activity by these central planners would have be laughed of as crazy by economists pre-2008, but we had now entered desperate times for the centralized baking system, and these desperate measures did nothing but kick the can down the road.

Thou Shall Not Collude

The collusive fabrication of money by these various central banks has had the effect of creating massive wealth inequalities. The inflation of financial asset prices has the effect of shutting out many market participants in the lower to middle income demographics who require these assets and their appreciation to offset the general cost of living increases and shrinking wages. These market participants without such assets have resorted to acquiring more debt to maintain the same standard of living. With the ever-increasing debt burden it is very hard for these individuals to participate in the upside to QE mainly asset appreciation. This is effectively a bailout for those market participants with sufficient capital to meet a minimum criterium of investment. Furthermore, the banks have simply been holding onto these assets due to their value of appreciation, and not redistributing them into the broader Main St. economy thus stimulating wage and consumption appreciation. Actions speak louder than word, and even if a central bank disguise its intent with clever words and creative economic constructs the average currency consumer has felt a negative material impact due to its central planning experiment.

To conclude, the failure of these Central banks to fairly manage their quasi free markets of money is the main reason why consumers thirst for alternative cryptographic currencies. This created facade of a stable environment in conjunction with the massive manipulation of currency markets via these immense pools of capitals has delegitimized the fiat money system. Consumer are truly desperate for accountability and fairness in their economic interactions, and this is one of the major catalyst for the birth and growth of these alternative crypto currencies.