After a year of record gains for the crypto industry, recent forces have sent itinto a tailspin. Bitcoin, for example, reached dazzling heights of more than $120,000 in October — before crashing back down to around $88,000 today, about 12 percent down from where it was a year ago.
While that might be bad news for crypto bros or Robinhood day traders, one economist argues that the decline is actually good news for the rest of us.
Co-director of the Center for Economic and Policy Research Dean Baker argued in his blog Beat The Press this week that as the major cryptocurrencies fall, purchasing power for the rest of us goes up. In his analysis, he compares crypto to counterfeit currency — fake money that allows shady gangs to buy up all kinds of scarce goods, like houses and sports tickets.
When they buy up those goods with funny money, they help drive prices up, making them less affordable for those of us who don’t play the game.
“If some supersleuth detective figured out a way to recognize the counterfeit bills, they could then remove trillions of dollars of fake money from circulation,” Baker explains. “This would benefit the general public by reducing demand in the economy and reversing the run-up in the price of housing and Superbowl tickets. It is the same story with plunging crypto prices.”
From this reading, crypto — which infamously has no real value — allows people to suck up “large chunks” of the economy with a currency that’s built on thin air. When their share of fake money shrinks, it eases pressure on the rest of us. “To put it simply: there’s more for everyone else,” Baker explains.
We’re not talking small, intangible changes, either. By Baker’s count, the major cryptocurrencies like Bitcoin and Etherium have shed over $1.2 trillion in market cap, or “enough to send every household in the United States a check for $10,000.”
In his thinking, everybody who doesn’t own it should be cheering for crypto’s ongoing downfall to continue.
“The only possible impact of lower crypto prices on production is that we will make less crypto,” says Baker. “The horror! The horror!”
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