The world does not realize how badly it needs cryptocurrency. Basically, future global growth is going to depend upon crypto's ability to provide the economy with enough capital to ensure innovation and development at the level required to sustained an ascending growth line.
For the last few decades, in spite of China's astronomical growth rates, the overall trend is toward lower growth. This does not make sense in a highly technological era where we see automation adding a great deal to our economic output.
Here is a chart from the World Bank depicting the growth rates of the global economy. Notice how the trend, in chartists terms, is toward lower highs.
This chart only goes through 2019 and we know there was a big drop off in 2020 due to the COVID lockdowns.
Here is a chart of the US economic growth rates that is updated:
Even with all the stimulus that the US Government has undertaken, the growth rate is now back into the range it was before. This recovery is not turning into an expansion.
The problem is that there is not enough money out there. This might sound counterintuitive considering the actions the Fed and other Central Banks were taking. However, when it comes to the US Dollar, the reserve currency, there is not enough in the US economy and certainly too little in the global.
This is where cryptocurrency enters the picture.
Before getting to that, some might be wondering where all the money went to. What about all the easing that the Fed (and other Central Banks) did?
It can best be answered by this detail found in The Economist.
A central bank buying a bond for cash sounds like a simple swap of asset for asset. In fact it often swells the banking system. When the Fed buys assets in the secondary market, say from a pension fund, it cannot pay the fund with the electronic money it creates, because only banks can hold these so-called “reserves”. Instead, the fund gets a newly created deposit at its bank, and the bank gets the newly created reserve at the Fed.
In other words the "money" that is being created is locked in the banking system. The only way for it to enter the economy is for the banks to lend at a furious pace. Since most industrial and commercial lending has been tightening the last year, we can see how this is arising.
So the Central Bank can only create a Reserve Asset, which is a cash equivalent but not cash. Hence why all of this gets locked up in the banking system.
What does the growth of these Reserve Assets look like? As you can guess, it is a moonshot.
Notice how this did not really exist 15 years ago. However, the amount of money being held by banks at the Fed is skyrocketing. This is effectively locking the money into the banking system, swelling the balance sheets of the banks, since the Reserve Assets cannot be used other than for transactions with other member banks.
Therefore, we have plenty of liquidity in the banking system yet not enough in the economy. The abysmal growth rates show that.
There is another factor that is outside the scope of this article which is the fact that more of the pie is going to servicing debt, which is an unproductive use of money.
We are seeing an entirely new financial system being constructed. Part of the potential power of Decentralized Finance (DeFi) is the fact that all which is described here is averted.
The present problem is all that the Central Bank does goes through the banking system. Hence, to have growth, debt is required. Banks need to loan out money to people looking to innovate and develop. Of course, the way lending standards are established means that few get funded. Even when we consider the Venture Capital world, there is only a small percentage of the project out there that receive any money.
Thus, unless you are in a position like Jeff Bezos where family members can cough up $250K in seed capital, you are out of luck. Millions find themselves in this situation. Over time, this takes a massive impact on the entire economy.
When we look at all the "stimulus" over the past 12 years, where did most of it end up? The answer is the banking and financial system took the lion's share of it. Very little actually made it out into the economies themselves (this is also why the wealth divide is increasing). An overly financialized system only became more so.
The power of cryptocurrency is in the directness of its operation. If we step back, we can see how the banking and financial sector can be looked upon as a giant intermediary. Viewed through this lens, it is easy to see how they are able hinder the entire process simply by being in the middle of the flow of capital. Hence, little money actually makes it to the areas that can generate growth resulting in the numbers on the charts above.
It is evident the present situation is not going to change. We are only going to see more debt that takes away from the productive aspect of the global economy as well as the banking and financial system accumulating more of the entirety. Therefore, the case is being made that the decline in economic output will only decline (meaning this "boom" is short-lived).
Cryptocurrency bypasses the entire banking system. Here we see the community given the ability to create currency as it sees fit. Over the next couple years, we will start to see DeFi infrastructure expand to the point whereby people can start funding legitimate projects via a new model. Think of it as crowdfunding but on steroids. People will be able enter DeFi "pools" to fund different projects that have real world applications. This will open up the gates to an entirely new set of entrepreneurs and innovators.
This is a system that requires no approval. The only question is whether people are willing to fund it with their cryptocurrency. If enough individuals believe in the idea and are willing to put up the money, it is good to go. Failure to do that means that the project will need more work to get funded.
The only way to get long-term sustained economic growth is to get enough money into the hands of the economy, i.e spread throughout the population. This is not happening with the present system nor does it look like it every will. Instead, we need a new financial system that goes direct and get the resources where they need to be.
Cryptocurrency accomplishes this. When the infrastructure is built out, we will see an entirely new model which provides funding without the need for banks or even the financial system. Hence we are witnessing the beginning stages of making them mostly obsolete.
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