Bitcoin as a global standard would be an ‘absolute economic disaster’ – global blockchain leader of Ernst & Young

(Kitco News) Ernst & Young’s global blockchain leader, Paul Brody, said that if Bitcoin were to become a global monetary standard, it would be an “absolute economic disaster.”

The world’s largest cryptocurrency is considered a deflationary asset in the digital space by default. What this means in the crypto world is that its supply is limited – set at 21 million coins to be minted so far – and as investors buy and hold Bitcoin, supply decreases and prices increase.

“Deflationary systems like Bitcoin are bad for the economy. I don’t think people take enough time and attention to discuss why. If Bitcoin ever became a global standard, it would be an absolute economic disaster,” Brody told Kitco News. a recent interview. “And there are mountains of evidence.”

Deflationary assets are particularly dire as global monetary standards during economic slowdowns. Noting that the gold standard failed for some reason, Brody added that one of the clearest examples in the past was gold.

“There is evidence from before WWII that deflationary systems like gold during economic slowdowns brought disaster. That’s because in a deflationary model. If you believe your currency will be worth more tomorrow than it is today, your incentive is to save. And that leads to a collapse in demand, which leads to a collapse in demand. triggers further downturns in the economy, which makes people even more paranoid,” Brody explained.

This would be what Brody calls the “death spiral” for the global economy. “Before WWII, nearly every major industrial country was abandoning the gold standard. Evidence suggests that the sooner you abandon the gold standard, the faster your economy will recover,” he said.

Many proponents of Bitcoin refer to the cryptocurrency as gold 2.0, and Brody finds this analogy fair. “Bitcoin is digital gold. If you wanted to take the features people love about gold and recreate it in a digital system, you would make Bitcoin. And in many ways Bitcoin is better gold than gold. The only downside is you can’ don’t bury it in your backyard,” he said. But back to the gold standard, that’s fine. nothing will happen.”

According to Brody, with Bitcoin’s popularity growing over the past decade and many advocates calling it a solution to the current global monetary policy system, it is worth being cautious about arguments for adopting a Bitcoin standard.

“If the economy it’s working in is growing faster than the money supply, the system is basically deflationary. If the Fed is growing the money supply by 1% a year, we basically have a deflationary system. It’s true that the number of dollars in the system is going up a little bit, but the economy is growing even faster, which means that the available goods and services follow them.” It will cause a deflationary cycle in which the dollar will grow faster than the number of dollars going in, and therefore, the price of goods and services is actually going down,” Brody explained.

How persistent is the current inflation problem?

Fears of inflation and worries about whether the Federal Reserve will be able to contain it with aggressive rate hikes have triggered massive volatility in broader markets. But Brody disputes this narrative.

“During the pandemic, we went through a major restructuring of the global economy. Overnight, we went from a global economy focused mainly on services to one focused on goods. In that one-year period, we restructured the entire global economy from doing things to buy things,” said Brody. “Now, we turn around and do the opposite.”

The world has experienced multiple major restructurings of the entire global supply chain. And this time, he added, it came with a large amount of government incentives.

The idea that the global economy could come out of this on a soft landing and without inflation is unrealistic. But at the same time, Brody noted that the idea that the world will face a stagflation similar to the 1970s is not given.

“I’m still in what I call temporary team. After WWII, we had a similar global restructuring. We went from making lots of guns and telling people ‘don’t spend and buy war bonds’ to ‘war is over, let’s party’. And the world “The US, in particular, has gone through a pretty brutal battle with inflation. It lasted for almost three years and peaked at 18%. This was not the beginning of a long-term recession. It was a major restructuring of the entire global economy.”

Brody sees signs that inflation may have peaked above 8% in the US this year. “The post-WWII inflation cycle was about three years. We’ve left one year behind in the inflation cycle. There is good evidence that the cycle may have peaked around 8% and will gradually decrease,” he said.

Brody added that a slight recession is likely, but unemployment is likely to remain extraordinarily low.

Will Ethereum take the lead?

However, despite Bitcoin being the world’s largest cryptocurrency, there are some red flags regarding its future.

“The main red flag is basically blockchains are tech ecosystems, not just digital assets. And the big red flag around Bitcoin is that tech ecosystems live and die with the number of developers building on products and services. And Brody said, “A lot of that doesn’t happen with Bitcoin.” said.

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

Overall, Brody doesn’t see a multi-chain future and predicts Ethereum is the most likely ecosystem to take over everything.

“Network effects mean that the largest ecosystem tends to gain over time. Ethereum is the largest ecosystem,” he said. “If you’re trying to start a business, you want to build and distribute your business into the ecosystem with the most cash, the most liquidity, and the most investors.”

Brody likens Ethereum to the internet and points out that the world doesn’t have 20 different network standards. “If you go back 30 years, the internet protocol was for connecting different networks. Today there are no different networks. It’s just the internet,” he said.

Disclaimer: The views expressed in this article are those of the author and may not necessarily reflect those of the author. Kitco Metal A.S. The author has made every effort to ensure the accuracy of the information provided; but neither Kitco Metals Inc. nor can the author guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation for any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article assumes no liability for loss and/or damage resulting from the use of this publication.

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