Why Peter Schiff Is Wrong About Bitcoin And Inflation (Opinion)

The world’s leading cryptocurrency is trading more than 40% higher than its average price on the eve of the November 5 US election.

Analysts agree that this is largely due to campaign promises by Trump and his allies to ensure the federal government is fair to the fledgling Internet industry. But it’s also a repeat of a historical pattern in Bitcoin’s 4-year market supply cycle.

Ark Invest’s Cathie Wood recently doubled her Bitcoin price target for 2030. Last week, she told the CNBC audience that if history continues to repeat itself, BTC will trade at $1 billion by 2030.

The blockchain currency industry says it’s good news for the economy, as well as for the secure layer of the internet they’re building for financial transactions. But not everyone agrees.

Peter Schiff sheds light on Web3’s Macroeconomics

The more resources Americans misallocate #Bitcoin i #crypto-related companies, fewer resources will be available to devote to doing the things we really need. The end result will be a larger trade deficit, a weaker dollar, higher inflation and a lower standard of living.

— Peter Schiff (@PeterSchiff) November 20, 2024

Peter Schiff, founder and chief strategist of the Euro Pacific macro hedge fund, said in a post on Wednesday that money spent on Bitcoin is a “misallocation” that will cause inefficiencies in the economy. Schiff added that larger trade deficits, a weaker dollar and lower GDP are the health of the Bitcoin regime.

In another post on Wednesday, Schiff remarked that ironically, Bitcoin will become a source of inflation, even as buyers use the cryptocurrency as a hedge against dollar inflation.

It’s ironic that so many people bought #Bitcoin to protect against inflation and the weakening of the dollar. Now, if the US government actually buys Bitcoin and diverts even more of our scarce resources into crypto, Bitcoin itself will become the source of further inflation and dollar weakness.

— Peter Schiff (@PeterSchiff) November 19, 2024

How Bitcoin Helps the Fed Do Its Job

Schiff may be bogged down in inflation terminology. It’s a forgivable mistake. Bitcoin’s role in the ecosystem is so new that it is still difficult to understand, even for an able economist like the founder of Euro Pac.

Rising business and consumer costs from low dollar environments is the inflation cryptocurrency users use Bitcoin to protect and grow their wealth. The rise in BTC prices represents the inflation of the dollar and the relative deflation of Bitcoin.

(BTC is inflationary, but much less so than the dollar when the Federal Reserve cuts rates).

So will more investment in Bitcoin really increase the trade deficit with China and inflation of the US dollar while slowing new supplies of goods and services that people use money to buy?

Every dollar sent in Bitcoin instead of overseas to China for imports actually helps balance the trade deficit. Meanwhile, it’s not Bitcoin that’s causing dollar inflation; the Federal Reserve increases the supply of dollars to aim to reduce borrowing costs.

Since the resolution of the 2008 financial crisis, the Fed has feared that the money supply would not keep pace with GDP. The danger of the resulting deflation is a potential spiral of debt devaluation that could plunge the economy into an intractable depression.

Bitcoin actually supports the central bank in this regard by locking in excess savings in a digital economy that incentivizes participants to “hodl,” not spend, their surplus earnings.

If they were to spend the full value of the crypto market capital gain, it could drive up prices, ceterus paribus and make it harder for fixed income households to manage.

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