Keynesian Economics and Bitcoin: Crypto's Future as a Global Financial System

Keynesian Economists Weigh In On Bitcoin’s Future

Bitcoin is in a pseudo-winter. The markets have been rife with a heavy bear sentiment, and the effects on the overall morale of the community are clear. Even some of the more optimistic commentators have sunk into the oblivion following the massive crash and subsequent shockwave crashes, which happened in both Bitcoin and the alternative markets which comprise much of the overall cryptocurrency trade volume.

The prevalence of problems on the market has caused many to look to outside sources in order to evaluate and re-evaluate the outlook for cryptocurrencies, including Bitcoin. In particular, some participants in the Bitcoin market have looked to Keynesian economics in order to begin to understand how the cryptocurrency market functions. Further, the belief is that Keynesian economics might provide some valuable insight into the ways that the market might be able to make an important recovery.

Keynesian economics are one of the most lasting economic theories, and they emphasize consumer demand as a potential metric for gauging the success of any given financial system. Consequently, the use of Keynesian economic theory to further explore Bitcoin could be a valuable tool in the search for long-term pretends, as well as important predictions.

Keynesian Economics Explained

The economic theory is named after John Maynard Keynes. Keynes was an economist from Great Britain who was best known for his prediction that the clauses included in the Versailles would help to spark World War II. The success of this prediction led to the adoption of Keynesian economic theory into the economic policies of hundreds of jurisdictions and economic bubbles all around the world.

The main tenant of the Keynesian economics is that a governmental organization can have a positive effect on an economy, especially when it begins to slow down or take a hit. According to Keynesian economists, it is the overall market participation and spending that contributes to the success of an economic sector. Additionally, Keynes himself believed that a government should intervene in its economy as much as possible to boost success.

Keynes And Bitcoin

Unsurprisingly, Bitcoin does not fare well for most Keynesian economists. The strict and limited 21 million supply of tokens for the cryptocurrency means that it would never effectively function as a currency. Increased governmental regulations would be problematic for the currency, because there isn’t much they can do with the limited amount of money in circulation.

While the government can increase or constrict the amount of fiat money in circulation to affect the overall market participation and economy, no such possibility exists for Bitcoin. There will always be exactly 21 million coins in circulation, which means that the government is unable to use the creation of more currency in order to artificially influence its worth.

The inevitable deflation of value in Bitcoin is one of the main issues that Keynesian economists have with the cryptocurrency, or with any cryptos which currently saturate the market. Unlike governments now, Bitcoin seems to be stuck in a perpetual gold standard—a standard which cannot persist.

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