Since his arrival on stage in 2009 with the creation of Bitcoin (BTC 0.60%), the cryptocurrency market has grown from a single asset to thousands. And during this time, the number of supporters has also increased. What was once believed to be a highly speculative asset class has transformed in just over a decade to the point that even top billionaires like Elon Musk and celebrity investors like Paul Tudor Jones believe the he future of crypto is just beginning.
At a Twitter Space event on Dec. 3, Musk hosted an open forum to discuss all the new stuff related to his purchase of Twitter, where he hopes to steer the social media platform, and more. topics such as cryptocurrency.
An Age-Old Battle: Crypto vs. Fiat
A question was posed by a participant who asked Musk to share his thoughts on the current state of bitcoin, Twitter, the Lightning Network, and what was described as “freedom to transact.” In his response, Musk did not mention any cryptocurrencies specifically, but discussed the asset class as a whole and how crypto could evolve as a viable alternative to the existing monetary system which, in his view. notice, increases monitoring of payments.
As Musk said, “If you control the monetary system, you can stop someone from doing just about anything,” he said. With cryptography, this control becomes extremely limited and arguably impossible.
He believes the future role of crypto could serve as a way to ensure that the entire monetary system does not become corrupt with increased government oversight. Essentially, Musk thinks crypto competes with fiat, a term that refers to government-issued currencies such as the US dollar. Although Musk has not endorsed any specific cryptocurrency, he believes that if the fiat system becomes too restrictive, the crypto could keep going up in popularity. As he put it, “the worse the fiat system gets, the more crypto will grow.”
The 2020s and the repercussions of monetary experiments
You may be thinking, how could the fiat system get worse? Well, renowned investor and billionaire hedge fund manager Paul Tudor Jones thinks he might know.
Jones believes that the past two decades have been dominated by experimental economic expansion and that this could produce unforeseen repercussions in the 2020s that could increase crypto adoption.
During the Great Recession and at the height of the COVID-19 pandemic, the Federal Reserve used a process known as quantitative easing (QE) to stimulate economic growth. Historically, the government has used interest rates to either stimulate the economy or put the brakes on. But in these more recent times of economic uncertainty, the Fed has embraced QE as the strategy of choice.
QE pumps money into circulation through direct central bank purchases of government-backed securities, such as bonds. This approach was used when, with interest rates close to zero, the government needed to stimulate the economy further. These injections of cash into the economy, sponsored by the Fed, then allow banks to lend more and on easier terms, thus generating more borrowing and economic growth. However, this is a relatively new method of monetary policy. And it has now been used by the Fed twice in the past two decades alone.
The depth and breadth of the effects of this policy are not fully known or understood. Look no further than Fed officials’ assertion that the rise in inflation at the start of 2021 was “transient”, although it has persisted and is now near a four-decade high.
In an interview on CNBC in October, Jones said he thinks the rest of the 2020s will be dominated by these repercussions, including higher interest rates and slow growth. As these consequences become apparent, he believes more people will come to find crypto assets, and in particular his personal favorite Bitcoin, more desirable because they are not manipulated like fiat currencies.
Investing may not always be easy, but it should be simple. Investors should prioritize investing in assets that are positioned to increase in value in the future and those that they expect to hold for at least five years. Sometimes it can be difficult to find these assets, but billionaires like Musk and Jones have more knowledge and experience than most investors. If these two are correct, then the crypto is in a position to appreciate in the future. With prices low as they are today, this could be the perfect opportunity to prepare your portfolio for future success.