Whilst I watch the recent crypto meltdown with glee, I’m afraid that some of the blame on the irrational exuberance of
investors speculators bidding up shitcoin prices have been somewhat misplaced.
Some narratives blame excess liquidity, – in some parts stemming from stimulus cheques handed out during the pandemic – enticing pundits to swarm into dodge coins in hopes of easy riches as providing opportunity for ponzi operators to come up with shifty schemes to dupe everyone.
Whilst I can agree with the idea that charlatans do prey on excessive greed and dreams of easy wealth, I’m a little less sold on the idea that policy which was aimed at keeping people afloat during a time of crisis is to be blamed.
Despite shitcoin ‘market caps’ ballooning to eye watering levels, I really don’t think that it was a function of crazy levels of demand and mass conversion to crypto as a means of transaction. It really was a case of modern day gold rush, passing on wishy washy assets to the next great fool. In some ways I think that prices got to where they are because a small portion of speculators (relative to the entire population) rushed in to ‘assets’ with low liquidity.
Here I define liquidity as how much actual float was traded. As an example, if I hold 100 shares of something and only allow say, 10 of those shares to be actively traded on the secondary market, whilst at the same time hyping up the actual value of the shares, so long as enough suckers believe me, volume traded could very quickly expand, exponentially increasing the price of those shares – a case of artificial scarcity.
Anyways, what I’m getting at is that, the price of crypto got to where it is/was is mainly because a small group were fighting over a small supply of stuff’ traded on exchanges. This folly shouldn’t simply be used as a reason to paint stimulus policies in a bad light.
I continue to believe that the majority of recipients who received aid during times of crisis used it to keep themselves afloat, else, if the crypto frenzy did catch everyone, then we’d be looking towards a new savings crisis in the near term as people’s savings get wiped out.
The narrative that cash transfers fuel irrationality is dangerous in a sense that if we’re faced with a calamity in the future, we could have policymakers saying “hey, giving cash to people direct is terrible, because remember what happened to crypto and/or inflation (I’m still firmly in the camp that stimulus is not to blame for runaway inflation)?”
Direct assistance to people during times of emergency is effective and I think in most parts saved us from having the crisis blowing up into something entirely worse.