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In a piece for news medium Forbes Magazine, Clem Chambers, the chief executive of investment and stock trading platform ADVFN, expressed his belief that a lack of sufficient liquidity will eventually drive the adoption of cryptocurrencies.
Chambers put several crises in perspective in his piece, beginning by comparing the global cash flow crisis that was experienced last week to the global economic crisis that was experienced a couple of years ago. The difference, he pointed out, is that while the 2007 economic crisis came as a result of faults and errors that no one saw coming, that of last week was more of a systemic characteristic.
Case and point; the Federal Reserve was able to organize a bailout, which ensures that the system was able to return to normal in little to no time. Chambers went on to show the nuances of quantitative tightening and easing, the latter of which he pointed out has become more of a commonplace, despite being thought of as unorthodox a little over a decade ago.
“Back in 2006 and before, banks could have a 3% capital base and be free to lend, lend, lend. The crash changed all that; now if banks have a capital base of anything much under 10% it raises eyebrows,” Chambers wrote.
As he expressed, this means that banks can’t lend as much money; a phenomenon which creates way less liquidity through the fractional reserve banking system.
While the change in capital amount is thought to keep banks safe, it means that the conventional money generation system has been rendered ineffective. Regulations have affected the ability of the banking system to be a liquidity engine like it used to be
Thankfully, the Federal Reserve was able to anticipate the stop of quantitative tightening, and interest rates have dropped. However, Chambers notes that easing might restart soon, thus creating equities rally. He said:
The equities rally might be great for investors, but it could also be detrimental to the economy. As Chambers notes, while it brings in more control, it provides less flexibility.
Bitcoin: the solution to liquidity shortages
Thus, we have the place of Bitcoin and other altcoins. As Chambers notes, an ideal word wit enough capital would not need cryptos. However, given the dwindling place that precious metals have in today’s world, it is more important to turn to crypto.
What do cryptos have that precious metals don’t? An ability to operate outside the banking system.
Chambers adds the usual benefits of Bitcoin; speed, divisibility, and cost-efficiency. However, the investor points out that crypto can be created by market demand, in the same way as fractional reserve banking does.
Concluding, he says, “Happily a lack of sufficient money to feed the new economic reality with extremely flexible supply but inflexible demand will drive crypto adoption, and Bitcoin and its sisters will continue to fill that vacuum like a bonanza of new gold.”