Bitcoin launched in early 2009, during the height of the global financial crisis. For years, it was a tiny asset that only a handful of people understood and owned.
A little more than 10 years later, it is a global phenomenon. Most countries now have cryptocurrency exchanges, and bitcoin has the highest trade volume by a large margin.
But bitcoin has never really been around for a global slowdown before. So now the big question is this: What will happen to bitcoin during the next financial crisis?
To make some intelligent guesses, we need to figure out how the U.S. government and Federal Reserve are likely to react to the next major financial crisis.
I expect their reaction to be relatively straightforward. The Federal Reserve is going to print gobs of money. I believe this money will pay for our huge budget deficits going forward, and eventually also the $100 trillion-plus of unfunded liabilities (benefits we have promised in the future, but have no way to pay for with current taxes).
I don’t believe it’s possible to tax our way out of this mess. And 40% cuts to government spending don’t seem to be on the table.
So really, the only option that’s left is printing money. This has already begun. The Fed is buying $60 billion worth of Treasury bills per month. This is basically the Fed printing money to pay for U.S. deficit spending. And now that we’ve started printing money to pay bills, it’s going to be extremely hard to stop.
I believe this will eventually spur major, sustained inflation. I know it may seem like there’s low inflation now (even though it’s a lot higher than official numbers suggest), but this simply cannot last forever. The Fed needs inflation to help start wiping away all of this debt.
This is the primary reason I own bitcoin. Governments have shown, time and time again, that they cannot be trusted with the power to produce fiat currencies.
I believe during the next global financial crisis, bitcoin will blossom into a truly global and independent store of value. This is already happening in places where inflation is raging, like Venezuela and Argentina. Bitcoin has become an important part of the economy in these countries.
Most of the world still expects mild inflation (or none) today. But I believe this view will be shattered over the coming years. So it’s a great time to own hard assets such as gold, silver, real estate and, yes, bitcoin.