The momentum behind the rise of cryptocurrencies is being fueled by populist aspirations to decentralize finance in the name of democracy—in radical defiance of central bank polices that are perceived as favoring big investors, big business, and big government. Even as the Fed appears to be signaling its willingness to comply with a progressive agenda that would enlist our nation’s central bank in efforts to focus on climate change or systematic racism, there is growing skepticism that the solution to such problems is to be found in Fed purchases of Treasury debt and government-backed mortgage securities.
The entire essay is useful as a compendium of gobbledygook. For a more reasoned interpretation of cryptocurrency popularity, see Charles Engel’s paper, “Lessons for Cryptocurrencies from Foreign Exchange Markets”:
We have maintained that cryptocurrencies do have a fundamental value, arising principally from their ability to potentially provide greater privacy and anonymity compared to the conventional banking system. But that feature is difficult to value, which makes cryptocurrency exchange rates volatile and subject to bubbles. In addition, that very feature makes these assets desirable for the conduct of illegal activities, which is likely to invite increasing surveillance and regulation. In turn, those controls will work to reduce the value of cryptocurrencies, not only for use in illicit transactions, but for legitimate users as well.
In other words, cryptocurrencies might be gaining value exactly for reasons opposite of what Dr. Shelton highlights. From Laboure, “The Shadow Economy: From Cash to
Crypto ,” Deutsche Bank, July 21, 2020 (not online):
Cryptocurrencies are already widely used in the shadow economy (second only to cash). They make up one of the largest unregulated markets in the world. A study reported that approximately one-quarter of bitcoin users are involved in an illegal activity. Approximately $76 billion of illegal activity per year involves bitcoin, or 46 percent of all bitcoin transactions. This amount is close to the scale of the US and European markets for illegal drugs. Much of this illegal activity involves trading within darknet marketplaces. Another study reported that 44 percent of all bitcoin transactions were illegal. There is strong demand for legal uses of cryptocurrencies, but along with those good uses, criminal conduct is facilitated. In other words, it is all blended, and therefore problematic.
More on cryptocurrencies, from Eswar Prasad.