Anthony Pompliano: There Is A 5% Chance Of Failure Of The Fiat Experiment
The novel coronavirus created an economic slowdown that had a massive impact on financial and stock markets throughout the world. Some of the global indexes such as the S&P 500, DJI, FTSE 100, and so forth, charted notable losses in a manner that hasn’t been seen for decades.
Naturally, this also caused a serious negative impact on the cryptocurrency market. Bitcoin lost 40% of its value in a day while the entire market saw about $150 billion of its capitalization gone.
With this in mind, Anthony ‘Pomp’ Pompliano, attempts to provide some possible solutions to the current crisis, all things considered.
Bitcoin Is Not Immune
First things first, Pompliano, who is a well-known cryptocurrency commentator, as well as a co-founder and partner at Morgan Creek Capital, explains the reasons for the current market meltdown.
“Most investors are aware that the COVID-19 issue has created an economic slowdown, which in turn is causing fear, uncertainty, and panic in the markets. This is presenting itself in the form of a liquidity crisis.
In a modern-day liquidity crisis, investors will sell any asset that has a liquid market so that they can gain access to US dollars. This is why you are seeing every asset sell-off. You see it in equities, gold, Treasuries, Bitcoin, etc.
No asset is immune.”
Indeed, Bitcoin did drop substantially, recording a 40% crash in 24 hours, which brought its price down to $3,600 on BitMEX.
Different Perspective
According to Pomp, there is another way to look at all this – as if the dollar is strengthening against every other asset. In other words, US dollars become more valuable as it takes less of them to buy the same assets.
“When this happens, the prices of those assets go down and “this is what we are seeing in the market today.”
Here Comes The Solution
For the current situation to be remedied, Pompliano believes the dollar has to be weakened at some point, and “this is the only way to stop the bleeding.” For this to happen, the Feds “will have to flood the market with trillions of US dollars.” He believes that it would take at least $5 trillion.
Pompliano explains that the current environment is a deflationary one as the dollar is getting more valuable. However, once they make this move, it will move to an inflationary environment.
This, in turn, comes with two possible scenarios: explosion in the prices of assets and potential failure of fiat systems.
In light of the first outcome, what would happen is assets will get more expensive as it would take more US dollars to buy them. He thinks that inflation hedges, such as gold and Bitcoin, are likely to rise the most.
The Risks
The most significant risk in this scenario is the failure of the fiat currency experiment. “While probably less than a 5% chance it happens today, it is definitely a non-zero possibility.”
He explains that this experiment is most vulnerable to failure when the economy gets addicted to monetary stimulus. This stimulus is just a “long term devaluation of the currency,” and it can’t last forever. Pomp believes that “the US economy is a stimulus addict today.”
The expert concluded that a lot of people are hurting right now, and even more will get hurt if “we don’t respond with stimulus quickly & decisively.”
It’s worth noting that the US is seemingly taking steps to provide economic stimulus. A couple of days ago, the Trump administration announced that they want to mail out checks of up to $1,000 to American adults, pumping hundreds of billions of dollars into the economy.
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