I realize that most people are not shorting cryptocurrencies, even though it has been a smart move over the past few months. However, the general public has still benefited greatly from the sharp decline in crypto prices since their October highs.
To be fair, that total may not be in the “trillions”, it’s probably just over a trillion. But in the era of Donald Trump, trillions of dollars would be far more accurate than most information coming out of the president’s mouth.
Cryptocurrency and counterfeit currency
Before we crunch the numbers, it’s worth telling the basic story. Imagine if a group of extremely talented counterfeiters were able to produce $100 bills that were indistinguishable from those printed by the Treasury Department. Suppose they print and put tens of billions of these bills into circulation.
Gangs can buy all sorts of things with counterfeit money, potentially causing general inflation, but they are almost certain to drive up the prices of scarce goods, such as homes and tickets to famous concerts or major sporting events such as the Super Bowl or World Cup.
If super detectives could figure out how to spot counterfeit money, they could remove trillions of dollars from circulation. That would reduce economic demand, reverse the soaring prices of housing and Super Bowl tickets, and benefit the general public.
The same goes for the sudden drop in virtual currency prices. Although cryptocurrencies have no inherent value, people with large amounts of wealth in cryptocurrencies can claim a larger share of what the economy produces. If the value of cryptocurrencies plummets, you won’t be able to pay top dollar for a house or Super Bowl tickets. Simply put, there’s a lot more to others.
This is why those who don’t have a lot of money invested in cryptocurrencies should celebrate the sharp decline in things like Bitcoin and Ethereum. This is different from stocks, where prices affect a company’s ability to produce useful products, such as cars or computers. The only impact on production of a fall in crypto prices is that less crypto is produced. Fear! Fear!
run the numbers
We don’t know what exactly happened in early October, but for some reason the world seems to have become less friendly towards cryptocurrencies. Bitcoin hit an all-time high of $124,800 on October 4th. Since then, the price has fallen sharply, and as of the close of trading on December 17th, it was $85,900. Other major cryptocurrencies experienced similar declines.
From early October to December 17th, the time of writing this article, major cryptocurrencies have lost more than $1.2 trillion in total market capitalization. That’s enough to send a $10,000 check to every household in the United States. In other words, it’s real money.
Since we don’t have a crystal ball, we don’t know if this is just a temporary low from which these currencies will rebound or if it is a step towards reaching their fundamental value (zero). In any case, as things stand, there is far less money available for crypto friends to use their own money to drive up prices on housing, resort hotels, and everything else. That’s a good story.
