One of the most common notions in the cryptocurrency space is that Bitcoin [BTC], the largest cryptocurrency by market cap, would be the one cryptocurrency which would benefit the most during the next financial crisis. This is mainly because normal citizens would lose faith in large financial institutions and place their faith in something that is completely under their control, without the need of a third party.
Bitcoin was touted as the coin that would liberate people of the shackles of the centralized systems and Erik Voorhees, the CEO of Shapeshift, a leading cryptocurrency exchange platform, spoke about this on his social media handle.
Recently, Narayana Kocherlakota, the Former President of the Minneapolis Federal Reserve, published an article titled ‘The Fed Needs to Fight the Next Recession Now’ on Bloomberg. Here, Kocherlakota stated that the “Fed would have arguably less firepower than in any previous recession”, taking into consideration its ability to increase growth was by decreasing interest rates.
The Former President explained that during the dot-com bubble burst in the 2000s, the Fed had to decrease their interest rate by over 5 percent in order to ensure that the unemployment rate stayed below 6 percent. However, the cut of over 5 percent during the housing bubble did not have the same effect, with the unemployment level rising in double digits, he stated. He further added,
“Now, it looks like the neutral interest rate over the next few years – the central bank’s starting point when the next downturn comes – could be as low as 2.5 percent. So unless it takes rates into negative territory, which seems unlikely, its response can be only about half as large as in the last two recessions.”
Further, Kocherlakota asserted that this was not the only option the Feds could opt for and added that there were other options such as buying bonds and mortgage-backed securities in order to “push down longer-term interest rates”. However, he stated that “many economists [including me] remain unconvinced that these actions had, or will have, much effect”.
To this, Erik Voorhees said on Twitter,
“There has never been a global recession since Bitcoin was created. Next time it happens, there is an escape hatch.”
Adrian Bye, a Twitter user, said,
“When you learn what happened with massive numbers of banks closing their doors during the great depression, and financial transactions freezing entirely.. it shows how critical crypto is.”
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Priya is a full-time member of the reporting team at AMBCrypto. She is a finance major with one year of writing experience. She has not held any value in Bitcoin or other currencies.