Last Sunday, the price of bitcoin touched an all-time price high at $58,354 per unit and surpassed a $1 trillion market capitalization. Bitcoin’s value has dipped since then, but the decentralized crypto asset’s market still captures a large $900 billion valuation. On February 26, the director of the Economic and Social Research Council (ESRC) warned that bitcoin’s growing value and success may lead to a technocratic dystopian society that rivals “the kings and emperors that ruled over empires in centuries past.”
Almost seven years ago back in 2014, Daniel Krawisz wrote about and created the term “hyperbitcoinization,” in order to describe how fiat currencies will rapidly lose value and Bitcoin supplants them. Krawisz explained what demonetization is and one specific type that is often talked about these days called hyperinflation.
Essentially, in economics, the term hyperinflation stands for the inflation rate of a currency accelerating at an extremely rapid rate. The value of the currency quickly erodes and the price of goods and services rise significantly, lowering an individual’s purchasing power.
Krawisz explained at the time that there are essential differences between hyperinflation and hyperbitcoinization, as his editorial states:
Hyperbitcoinization is a voluntary transition from an inferior currency to a superior one, and its adoption is a series of individual acts of entrepreneurship rather than a single monopolist that games the system.
Hyperbitcoinization theories have also led a number of people to believe that fiat currencies will erode to nothingness, and crypto assets like BTC will forge ahead. Some have even taken the dream to extreme levels, whereas they divide people into classes and call people who don’t own crypto “nocoiners,” the exact opposite of a “bitcoiner.”
Bitcoin up means citadel sooner.
Bitcoin down means citadel bigger.
— jimbo the consensualist 🃏 (@jimbocoin) February 25, 2021
Others believe bitcoiners have jokingly said, they will be so rich that they will be able to construct massive citadels and become the “upper echelons of society.” Meanwhile, there’s definitely a large number of bitcoiners who think the ‘citadel’ and ‘nocoiner’ visions are ultra cringe-worthy, as many individuals remain humble while BTC’s value increases their economic freedom.
Carcassonne Citadel, France 📍 pic.twitter.com/WTo7D9rW9t
— Bitcoin Citadels (@BitcoinCitadel_) March 1, 2021
One individual, the director of the Economic and Social Research Council (ESRC), Jon Danielsson, seems to think hyperbitcoinization could be bad news and even reveal an “Emperor has no clothes” situation.
Danielsson’s recent opinion piece says as “bitcoin continues its ascendance, the less fiat will be worth,” which in his opinion will be a “perverse consequence.” He thinks that the coexistence between BTC and fiat currencies creates an “unstable equilibrium.”
“If bitcoin becomes successful, then we will want to use it more and more,” Danielsson writes. “That makes it even more successful so that we disregard fiat even more. In the end, fiat will be fully displaced, as the success of bitcoin becomes a self-fulfilling prophecy.”
Interestingly, on January 17, 2009, Bitcoin’s inventor Satoshi Nakamoto spoke about the crypto asset’s ability to become a self-fulfilling prophecy.
“It might make sense just to get some in case it catches on,” Nakamoto wrote more than a decade ago. “If enough people think the same way, that becomes a self-fulfilling prophecy. Once it gets bootstrapped, there are so many applications if you could effortlessly pay a few cents to a website as easily as dropping coins in a vending machine,” Bitcoin’s inventor said.
But Danielsson’s report criticizes that only a “small minority” will see their wealth grow, while “those whose material well-being depends on fiat will suffer the worst.”
“The current owners of bitcoin will become the wealthiest people in the world, rivalling the kings and emperors that ruled over empires in centuries past,” Danielsson explains. “They literally will own all the money. They can buy anything they want. There aren’t that many of them. Compared to the multitudes that own assets today via all the pension funds and mutual funds and the rest, it is a tiny group of people.”
Danielsson’s report also notes that if bitcoin were to be the currency of choice in our daily lives, it “must also become a unit of account,” the economist stressed. Bitcoin’s current volatility stops this from happening in Danielsson’s opinion, and he further asks “who wants high volatility in the purchasing power of their salary or savings?”
Moreover, this contradiction might be the reasoning as to why the crypto asset cannot become successful, the economist highlights. Concluding, Danielsson attempts to close the casket on bitcoin, like so many economists before him, with one last nail by saying:
Fortunately, the more successful bitcoin becomes, the more visible the perverse consequences and the internal contradictions become, so that bitcoin and other cryptocurrencies will be discarded long before we get to that point. At which time, the price of bitcoin will head to zero.
The ESRC director also ends by saying that “Bitcoin is a bubble” and it makes sense to him that individuals and groups may “ride the bubble as long as possible.” Danielsson warns, however, “just get out in time” and that people should watch out for a “little boy yelling ‘the Emperor has no clothes.’”
Unfortunately for Danielsson, bitcoin’s popularity and value grow relentlessly, despite all the unfavorable opinions of a few economists over the last decade. Danielsson is merely a statistic on the long list of economists who have written BTC obituaries over the years. Moreover, BTC’s growth and velocity continue to displace fiat and the monetary supply, whether Danielsson likes it or not.
“Bitcoin’s monetary velocity is now higher than USD M1,” explained the onchain analyst and BTC researcher Willy Woo on March 1. “M1 is the USD held in short-term accounts for buying stuff; none of it is moving. BTC’s making a joke out of it. BTC is moving more than the money we have for spending. Nevermind BTC is for long-term investment,” Woo added on Monday.
What do you think about the ESRC director Jon Danielsson’s opinion about the shift of global wealth flowing into bitcoin? Let us know what you think about this subject in the comments section below.
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