I wonder to what extent cryptocurrency has contributed to the current inflation crisis. Like. We have this whole secondary economy where every day millions of extremely-low-confidence dollars are being converted into a deceptively-high-confidence commodity currency which is either hoarded without being spent or gets converted into more commodity currency. That's a nightmare scenario. That does really bad stuff to economies.
A quick search indicates to me that over the past few years, several economic studies have shown that crypto has no real effect on inflation, in the context of studying whether crypto reserves can be used as a hedge against inflation.
I suspect that if there's a (merely) economic problem caused by crypto, it has to do with its status as a vehicle for wealth transfer from poor to rich by way of repeated rug-pulling, but that seems entirely divorced from inflation per se.
So the studies asking "could we use crypto to mitigate inflation" as in by turning us dollars into goblin money are we removing dollars from circulation. and they've have concluded that it doesn't because those dollars are still out there? and most people involved are just screwed when their goblin money evaporates and they've given away all their dollars to some disreputable wight?
I mean yeah that seems like important data to have, dunno that it indicates no role in having created the crisis though.
No, if I understand those studies correctly, the ones that indicate that crypto can't be used as a hedge against inflation simply find that when money is put into crypto as an investment, it does not generate a significant return on that investment above decrease in value due to inflation. This doesn't lead deductively to the conclusion that crypto doesn't play some causal role in inflation, I guess, but I was thinking that if we could blame crypto in some regard for the inflation crisis, some justifying evidence for that might be found in some correlation between the value of crypto holdings and the value of the dollar. But if they both change value at roughly the same rate, in roughly the same direction, with inflation, then that reduces my confidence in the claim that crypto is exerting an effect on inflation any more than the existence of the US dollar is, relative to the US economy. Of course, crypto could still affect rates of inflation somehow. As natalieironside suggests, economic actors might be evaluating crypto as a good investment and then investing and reinvesting into cryptocurrencies (to keep their value out of government-backed currencies) at a scale that spirals into the value of that (or those) government currency falling. But that still seems unlikely to be the case to me if cryptocurrencies that non-insiders would want to invest in (i.e. the ones that are more stable) are affected by inflation just like traditional currency. Especially since some of those more stable cryptos do, iirc, maintain that stability through some mechanism that responds to the value of the dollar? Again, though, I'm not a crypto or economic expert. I'm just curious about the possibilities of economic damage caused by crypto.
I was thinking more in terms of good money in competition with bad money. My suspicion is that dumping your assets into crypto has a similar economic effect to exchanging all your dollar bills for gold coins and burying them.
I would rather buy gold coins and bury them than buy any crypto. The internet is increasingly transient. People’s strange desire for a specific yellow metal has persisted for millennia.
Gimme the coins. They’ll be worth more in the long-term than digital numerals that exist on a delicate, breakable server somewhere.
There's also the nontrivial effect that in the US, crypto (as an industry and as wealthy grifters) is being used to heavily influence elections. That certainly has a nontrivial but hard-to-quantify economic impact.
(Not least because the candidates who are anti-crypto are also typically in favor of broader progressive economic reform.)
