Tuesday, November 29, 2022

I. Kaminska: "Central bankers are to blame for the crypto collapse"

Of course they are. They created the excess liquidity and, as an observer, known to me only as anon. put it:

"SPACs and crypto are where excess liquidity goes to die."

From UnHerd, November 29:

Cheap money is the key to understanding Sam Bankman-Fried's downfall

The unravelling of Sam Bankman-Fried’s trading empire FTX this past month has exposed the shortfalls of crypto as the supposed solution to the excesses, conflicts and trust issues of core finance. With the impending collapse of crypto lender Blockfi it appears crypto may even be equally prone to the sort of contagion the financial sector experienced in 2008. 

What has prevented the crisis from spiralling into a fully systemic episode for the global economy — at least so far — is crypto’s still largely contained nature and much smaller size, relative to that of the traditional financial system.

Yet those keen to assert that the debacle is evidence of core finance’s clear superiority to crypto underplay the role of central banks themselves in stoking and propagating the rise of the crypto market.

The point of quantitative easing, after all, was always to lubricate the market and create the conditions for excessive risk-taking. By design....


In addition to QE the was a lot of qualitative easing as well, directly attributable to the related phenomena of low hurdle rates for every harebrained idea that could be pitched and the reach for yield in a ZIRPy world.

NFT's anyone?