Bitcoin (a Deflationary Asset) is Creating Inflation?

TL;DR

• There’s a fear that BTC profits will make everyone feel wealthier → encourage unsustainable spending → and push inflation higher.

Full Story

There’s a theory that Bitcoin’s latest price rally could add to US inflation…

All thanks to this snazzy lil’ phenomenon called the ‘wealth effect.’

The general basis is relatively simple:

People make more money → they spend more money → demand for goods stays high → so businesses keep their prices high.

In such a case, if people are making more and spending more (instead of making less, and spending more) — the Federal Reserve might consider the economy to be healthy, and do nothing to curb the rising prices.

Now, here’s where Bitcoin comes in: 

Bitcoin (and crypto in general) has done super well, super fast this year — and a ton of everyday people own crypto (like our neighbor, Dave).

Problem being: the Daves of the world essentially feel like they’re earning money out of thin air, allowing them to go purchase things they weren’t previously able to.

(Think: houses, luxury goods, or even just indulging in more groceries…)

In the process, tricking themselves (and the wider economy) into thinking prices are at a healthy point.

…when really this new found wealth, and the expenditure that comes with it, isn’t sustainable.

(Crypto bull runs only happen once every four years).

Will this actually play out, and have enough of an effect for everyone to feel it?

No idea — we’re not economists.

But we are painful optimists, so we’ll guess ‘no’ for now.