What impact could potentially fraudulent stablecoins have on our cryptocurrency investments?
Let’s assume Tether’s management is like the Federal Reserve’s FOMC influencing monetary policy, increasing the money supply (M2).
Exhibit one is a chart of US M2 money supply since 2008.
Notice that since 2018 M2 in the US has grown 25% more than their nominal GDP.
But this phenomenal growth in the Fed’s money creation boom, since February 2020 resulted in M2 money supply skyrocketing by 26%, which is the largest one-year jump since 1943.
Thelargest increase in money creation (M2), since WWII hasn’t translated into an economic boom because money velocity (M1), the rate at which money changes hands, has collapsed, according to trusted data sourceFred Economic Data.
We believe that the Fed could be frantically putting out fires everywhere in the system, by increasing M2 to finance the buying of distressed debt through its quantitative easing QE program. We are witnessing the greatest transformation of the economy in a century combined with massive deleveraging, which is playing out simultaneously. Put simply, the Fed is weeding out bad debt.
Keeping within the theme of stablecoins, the booming M2 money supply also spurred on a secular bull market in stocks
Let’s assume Tether is created out of thin air with the owners using fraudulently the money to buy luxury villas, superyachts, and whatever. So, while the motive of the Fed’s FOMC is to maintain stability and solvency of the system by increasing M2, Tether’s management could be driven by hedonism. Nevertheless, the mechanics of Tether increasing its supply would be identical to the Fed increasing M2, which is it would also aid and abet a cryptocurrency boom in asset prices.