One of the biggest financial stories of 2017 has been the stunning rise of the cryptocurrency market. Although there’s one possible explanation for the move that few seem to have noticed.
Certainly the people who take the time to research and learn about the cryptos are realizing some of the ways in which they can change the world. Bitcoin is providing a currency infrastructure to replace the dying dollar, and some of the alt-coins are creating more honest and transparent infrastructure in other industries.
Yet while that certainly accounts for part of the move, there’s another factor that could be equally, if not more influential in driving the rise in price.
Specifically, it’s seeming more and more likely that a large portion of the move is actually a result of dollar hyperinflation.
Which for many might seem hard to imagine. Yet in the context of all that’s been going on, there’s certainly a case to be made.
That the dollar is in trouble is hardly a surprise. Years of debt financing and money printing have created a situation where a dollar decline is not only possible, but inevitable. And while many still see that as something that might happen one day in the future, it’s becoming more appropriate to wonder if the day of reckoning has finally arrived.
Let’s assume for a moment that the dollar has begun to hyper-inflate. How would you actually know?
Typically one might expect to see gold and silver trade higher. Yet as has been documented on Arcadia Economics and many other sites, gold and silver have been suppressed in price by banks that have been selling paper gold and silver that they don’t have to deliver.
In the equity markets, hyperinflation could either result in a crash, or in wildly soaring prices. The crash has not occurred yet, although should the Federal Reserve ever do any real normalization of interest rates it’s hard to envision that the stock market would be able to handle that.
On the other hand, absent a crash, in a truly hyper-inflationary environment stock markets can soar to levels that bely the underlying fundamentals. Certainly U.S. equity markets that have tripled since 2009 lows based primarily on cheap money and artificial interest rates would fit into that category. And again, absent these factors, the stock market would plummet.
So in a sense, many of the typical indicators of dollar dysfunction are being prevented from functioning properly. Which is where Bitcoin comes in.
It’s one of the few markets that the banks can’t manipulate by selling something they don’t own. As a result, money has flowed out of the traditional system and into cryptos. And the rate of price increase would certainly be evidence of rapid deterioration of the dollar if one accepts that the world is looking at Bitcoin as an alternative currency.
So perhaps it is the case that the end of the dollar reign that many have forecast for decades has finally arrived. Were we not in an environment where governments around the globe were in chaos, with debt financing greater than ever, then this explanation would not fit.
Yet when you factor in the political and monetary developments that become more shocking by the day, the possibility that crypto pricing is reflecting the beginning stages of the end of the dollar is seeming more and more likely.
November 21, 2017