The Unexpected Silver Lining in Crypto's Decline
After a year of record gains for the cryptocurrency industry, recent market forces have sent it into a tailspin. Bitcoin, for example, reached dazzling heights of more than $120,000 in October — before crashing back down to around $88,000 today, about 12 percent down from where it was a year ago.
While that might be bad news for crypto enthusiasts or day traders, one prominent economist argues that this decline is actually good news for the rest of us.
Illustration by Tag Hartman-Simkins / Futurism. Source: Getty Images
Economist Dean Baker's Counterintuitive Analysis
Co-director of the Center for Economic and Policy Research Dean Baker argued in his blog Beat The Press this week that as major cryptocurrencies fall, purchasing power for the rest of us goes up. In his analysis, he compares crypto to counterfeit currency — fake money that allows certain groups to buy up all kinds of scarce goods, like houses and sports tickets.
When they buy up those goods with what Baker calls "funny money," they help drive prices up, making them less affordable for those who don't participate in the crypto market.
The Counterfeit Money Analogy
"If some supersleuth detective figured out a way to recognize the counterfeit bills, they could then remove trillions of dollars of fake money from circulation," Baker explains. "This would benefit the general public by reducing demand in the economy and reversing the run-up in the price of housing and Superbowl tickets. It is the same story with plunging crypto prices."
From this perspective, cryptocurrency — which Baker notes has no real value — allows people to absorb "large chunks" of the economy with a currency that's built on thin air. When their share of this perceived fake money shrinks, it eases pressure on everyone else. "To put it simply: there's more for everyone else," Baker explains.
The Staggering Scale of the Shift
We're not talking about small, intangible changes either. By Baker's count, major cryptocurrencies like Bitcoin and Ethereum have shed over $1.2 trillion in market capitalization, or "enough to send every household in the United States a check for $10,000."
In his view, everybody who doesn't own cryptocurrency should be cheering for crypto's ongoing downfall to continue.
The Minimal Real-World Impact
"The only possible impact of lower crypto prices on production is that we will make less crypto," says Baker. "The horror! The horror!"
This perspective challenges conventional thinking about market declines, suggesting that what appears to be bad news for some might actually represent economic redistribution that benefits the broader population.
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