Still, the question remains, suggesting that other forces are working as well. One of them is likely to be a cryptocurrency.
It is widely accepted that the availability or shortage of money affects the economy by changing the desires and spending capacity of businesses and consumers. As a result, the Fed has printed trillions of dollars to strengthen the US economy in the wake of the 2008 financial crisis and during a pandemic. That’s also why the Fed is trying to tighten the money supply to cool spending and inflation. It is reasonable to assume that the most widely owned cryptocurrencies, such as Bitcoin and Ethereum, can easily be converted to dollars and have similar implications for the economy.
There was little danger of it because of many of their short beings. Approximately 10 years after Bitcoin’s debut, in mid-2020, cryptocurrencies had a global market value of only $ 250 billion, according to crypto data provider CoinMarketCap. This is only a fraction of the $ 18 trillion in circulation at the time, measured with so-called M2 money. supply. However, the cryptocurrency footprint expanded significantly in the months that followed, reaching a market value of nearly $ 3 trillion in late 2021.
What happened to the economy at the same time is: Inflation, measured by the CPI, rose 9.4% from June 2020 to the end of 2021, the highest in a comparable period since the early 1980s. The S & P / Case-Shiller US Home Price Index surged 29%, much higher than the comparable period leading up to the start of the 1987 index, including the surge in the housing bubble in the mid-2000s. Job vacancies have more than doubled from 5.5 million to nearly 11.5 million. This is by far the largest surge on an absolute or percentage basis since the data series began in 2000.
Next came the crypto bust. Since late 2021, cryptocurrencies have abandoned their $ 2 trillion market value, reducing their global market capitalization by two-thirds to about $ 1 trillion. Economic figures have been reported more than a month late, but there are signs that inflation, housing and employment markets may also be chilling. Inflation expectations are declining, as are the prices of some CPI components, especially gasoline. House price increases appear to be slowing, and in some places prices may actually be falling. Job vacancies have fallen 1.7% by May this year, with some employers saying it’s easier to find workers.
I do not suggest that cryptocurrencies are solely or largely responsible for these broader economic trends. In particular, it is difficult to determine how much of the world’s crypto profits and subsequent losses can be attributed to Americans. But they are factors and probably big ones. A Redfin survey conducted near the crypto peak in December 2021 found that 11.6% of first-time homebuyers said that at least part of their down payment was due to crypto profits. It rose from 8.8% in 2020 to 4.6% in 2019, tracking a sharp rise in cryptography during that period.
Cryptographic profits also seem to contribute to the labor shortage. In a survey conducted by consumer data provider Civic Science last October, 11% of respondents said that the acquisition of cryptocurrencies allowed them and their acquaintances to quit their jobs. That number is 44% for respondents under $ 25,000 per year and shocking 75% for respondents with incomes between $ 25,000 and $ 50,000, including retail, health, social assistance, travel and leisure. The shortage is the most serious job salary level. ..
One of the reasons central bankers inject money into the economy during a recession is that people feel richer as more dollars slosh. This, of course, looks like a surge in cryptocurrencies. More than half of the respondents in the Civic Science survey say that investing in cryptocurrencies has increased personal wealth. The highest percentage was a cohort of $ 25,000 to $ 50,000, with more than 60% saying that crypto made them richer.
If cryptocurrencies continue to fall or fall, respondents to the new survey will point out lower crypto prices as a reason to return to work, cut spending, or postpone home purchases. .. This is another sign that cryptocurrencies may be driving the economy in ways that are important to economists and the Fed.
One of the early recurring warnings about cryptocurrencies is that they can ultimately disrupt central banks’ efforts to stabilize the job market and inflation. That day is probably already here. Details from other writers in Bloomberg’s opinion:
• The need for a global stablecoin standard: Cunliffe & Alder
• Thanks to Crypto for the timely meltdown: Editorial
• Fair value of Bitcoin tied to gold and technology stocks: Aaron Brown
This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.
Nir Kaissar is a market-covering Bloomberg Opinion columnist. He is the founder of Unison Advisors, an asset management company.
More stories like this are available at Bloomberg.com/opinion