Cryptocurrency May Have Forced the Fed to Move

Loose money has been a thing for most of the 21st century and the FTX situation was predictable once the Federal Reserve started raising interest rates SO aggressively. The Federal Reserve had created asset bubbles all across the economy. As interest rates shrank to historic lows, there became fewer places for people to get returns.

Don’t Fight the Fed and TINA had been tried and true investing principles for a long time. This led to the dollar being worth less and less. There were other consequences too. It made investing in tech companies more attractive. It expanded the wealth of the tech titans enormously.

Technology companies and cryptocurrencies were a match made in heaven. They started putting more and more of their weakening dollars into this competing ecosystem. This competing financial vision broke the trillion-dollar mark in early 2021. There was no way the old guard could ignore the cryptocurrency whales any longer. It was happening.

And…then it wasn’t and that has a lot to do with the Federal Reserve hiking interest rates and deflating many asset bubbles, not just the cryptocurrency one. The stock market is way down, unemployment is set to spike uncomfortably, and the housing market is cratering. Yet despite this, the Fed continues to hike.

Any economist will tell you it takes time for these policy moves to take effect. You should make moves and then wait and see. This continuous rise of rates the Fed has engaged in may have a bit more to do with the competing ecosystem that cryptocurrencies represent than anyone would like to admit. They need to quash this rebellion hard.

Cryptocurrencies are not going to go away because of FTX. Binance was sniffing around, but . suddenly, Binance moved on. The floor was gone for Sam Bankman-Fried. He and FTX were in freefall.

Everything fell apart. Bankman-Fried may have fled the country. There is a criminal investigation in the Bahamas, too Surely, no one in their right mind would have any interest in all this crypto at FTX.

Yet now we hear Kevin O’Leary admit he was “warned off” of FTX by the US government. Hmm?

They really have it out for this cryptocurrency stuff, don’t they? Well of course they do. Anyone who ever told you the US government was just going to roll over and allow cryptocurrency to take over the financial world was a liar and/or a fool.

The question is whether the Federal Reserve can truly sustain this hiking cycle. There is a lot of debt on the books in the United States. Both private debt and public debt are at levels that make them vulnerable to these interest rate hikes. A guy like Kevin O’Leary can afford to gamble on whether the US government can really sustain this push to higher rates.

The collapse of an exchange like FTX should not be that much of a surprise. In the heavily regulated world of Wall Street, we have had fiascos aplenty. A few names come to mind, such as Enron, Worldcom, and Bernie Madoff.

The adoption of cryptocurrency into the mainstream is not going to be easy. There is going to be some real pain. The path will be zigzag, if it gets there at all. The status quo is not going to go away without a fight.