In an interview with CNN this week, renowned economist Mohamed El-Erian gave his views on how Bitcoin and Cryptocurrencies could disrupt the global monetary system.
In the CNN interview, El-Erian followed up on an earlier statement where he said that companies such as Tesla were only adding Bitcoin to their balance sheets because they didn’t know how else to mitigate their risk.
He said that low rates would normally cause government bonds to be the investor “safe asset” and this is how they would diversify away from equity. But, the artificially high price of government bonds had caused investors to look elsewhere.
Given the issues with gold at the moment he remarked that investors were bizarrely going into Bitcoin. Bizarre because of the high volatility that comes with the number one cryptocurrency.
“A lot more people have gone into bitcoins as their risk mitigator, which sounds absurd because bitcoins are incredibly volatile, but this is a situation where it is, in the eyes of some investors, the least bad asset to use”
When asked if he thought this was an appropriate choice for investors, given the lack of alternatives, he said that if you believed that private sector investment into crypto would continue then yes, it was a good investment. However, you also needed to weigh up whether governments would interfere, and that this was still an uncertainty in his view.
“Be really careful, this is an asset that wants to establish itself, but can only establish itself if governments allow it to, and it takes a lot away from governments. It takes away what is called ‘Seigniorage’ - the ability to provide currency, and benefit from that.”
Asked about the massive M2 monetary supply growth being used as a justification for investors to buy cryptocurrencies, El-Erian said that there were 3 types of crypto investors; defensive, speculative and those who “truly believe we are debasing currencies”.
He pointed to the Fed continuing to grow the money supply even though the US economy now had “tailwinds”, and that people were wondering why the Fed “shouldn’t be taking its foot slowly off the accelerator”.
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