What Do Stimulus Checks Have to do With Crypto Winter?

known as Bob, the answer is basically everything. As he wrote in a recent column, and I quote, when historians look back on the spectacular rise and collapse of the cryptocurrency market, they will conclude that it couldn't have happened without the pandemic, and they'd be right. Is this a controversial opinion? People were sitting on a lot of cash and not I think anything to do so A lot of this money had to go somewhere, and I believe that, you know, crypto was a natural outlet for more. Bob

joins us. Now, Bob, welcome to the podcast. Thank you for owning me an absolute pleasure. I couldn't resist quoting your column in which you sort of attributed at least one of the causes for the current collapse in the

crypto market too easy money? Can you say more about that? Yeah, when all this went down, um, starting earlier this month in November, I wanted to put the crash in the crypto markets and the bankruptcy of f t X into a bit of a long term context, And to me, it was as plain as day that the the rise of cryptol and the speculative excesses that we've seen were a direct result of more than a dozen years of easy money policies. And you know, more than a dozen years.

That's sort of going back to what my friends and e con like to talk about in terms of quantitative easing, which whenever I asked them to define it, they kind of runaway. So I'm going to ask you to just explain exactly what that is. Sure, I guess you just

for a little bit of a preamble. You know, coming out of the financial crisis of two thousand and eight and two thousand nine, when the financial system um basically seized up, the Federal Reserve and other central banks essentially started printing money that they can inject directly into the financial shole system so that the plumbing of the financial system kept running. I mean, we were very close to you walking up to your local A T M and not having any money spit out of it. That's how

severe that episode was. And the way the central banks do this is, you know, they basically create money and by bonds and of our financial assets, and that that money that they used to purchase those assets go right into the financial system. And to use the phrase from your column you wrote, you know, the financial system was overwhelmed with cash in a remarkably short period of time.

Citing that data point that you've just shared, draw a picture for me of how we get from you know, central banks trying to bail out the financial system in a crisis, to crypto prices going higher and then lower. Yeah. I think that at the beginning of the pandemic UM, when economies around the world were locked down, that's when

UM things really picked up. Central banks UM increased their level of quantitative easing, and governments were forced to do some level of fiscal stimulus, whether it's through the loans that the government gave businesses to see them through the tough times, or whether it was the extra unemployment benefits UM that the governments were giving laid off workers and

sometimes you know, even direct payments. We went the global money supply of the US, China, Eurozone, Japan and eight other major developed economies searched by twenty one point five trillion dollars over one as governments and central banks trying to say their economies and that the money supply went to hundred two trillion, It just wants to have just to put that in context. That one trillion of cash and that was created over those two years was more

than the previous seven years combined. It was just a tremendous amount of money going into the financial system in a very short period of time. So you've got a fair amount of discretionary income, right, You know, people are able to meet their basic needs. Also, they couldn't really go outside and do stuff, so they were looking for needs that you know, we were looking for needs that we could meet from lockdown. Your your premise is that

at least some of that additional discretionary income flowed into cryptocurrencies. Yeah, it wasn't just discretionary income. I mean, just look at it another way. Just using the United States as a specific example, A columnists look at something called excess savings, which is basically just money that you have in your

savings account UM. Usually that stands out around one to five trained lars, and it's been pretty steady, you know, over the last ten years leading into but because of all these programs, that number that excess savings that people have in their checking accounts shot up to four point five trillion dollars from one point to so people were sitting on a lot of cash and not having anything to do, not not being able to do anything with it. So what they did is it was like, well, let's

invest this money. They're not going to go into bonds because bonds are paying nothing at the time, right, you know, just consider that we had eighteen trillion dollars of bonds that actually paid negative fields, right, maybe that you're paying governments to allars your money. Stock prices UM stock values were at record highs, So a lot of this money had to go somewhere, and I believe that, you know,

crypto was a natural outlet. And I think you can see that in some of the data about the crypto industry. Right we went from less than three thousand crypto currencies in two thousand nineteen two over ten that's an amazing amount of growth. Well as We've reported both my as my colleagues of reports, and we've mentioned in this podcast most of those tokens are what we would call like zombie coins, right like, they don't they don't super trade,

they're not particularly liquid. Their market value is in the tens of dollars of the hundreds of dollars in some cases. Um, but I'm interested in this because you know, I can't remember affectiated on this on the show. So if it's

the first time, welcome to everybody. I've long had a theory that there is an impulse shared by certain kinds of speculators in crypto, which is similar to the energy we store around like meme stocks that we see in online betting in sports betting, where it's a combination of I have some excess savings. As you say, there, this is fun, risk is fun. These returns seem interesting. There's a community around this, you know, whether it's a message board or a Reddit group or like an athlete telling

you should buy bitcoin. So do you think that the move into crypto was going to happen kind of anyway because it was an asset class that was attracting attention or was there anything about one that induced more people

than you might expect in that direction. In my column, I think it was pretty clearness sense that I didn't think that we would have seen all the excesses that we did in the crypto market over and by the way, and another financial assets as well, right, whether it be the stock market which had a tremendous run, whether it be in housing right, which had a tremendous run, prices rising um much more than they have been historically, and crypto was just part of that, right, And so you know,

what happened in the crypto market didn't happen in isolation. It was also happening in conjunction with what we were seeing in other financial assets. So I think that you know, if the pandemic didn't come along, if the central banks didn't ramp up their easy money policies, you know, if the governments did not um start pumping twis dollars into the economy through physical stimulus, we probably wouldn't have seen what we saw in the crypto market over twenty We'll

be right back with more from Bloomberg's Bob Burgess. Now one of your charts, because we love a chart for Bloomberg. One of the charts in your column pointed out the fact that as interest rates started rising, crypto prices started fulling. So there's kind of a clear correlation there. But what for you is the causation. Was it that people were like, oh, bonds suddenly seem more attractive. Is there really an investor who's like, choices are between bitcoin and bonds or was

something else going on here? Yeah? I think it's a sort of a combination of of all that. You know, it's in markets, it's always impossible to you know, boil it down to one sort of comment denominator. But a big thing I think is just, you know, the the

issue of alternatives, right. I mean, you know, there was this acronym um that was invented called tina t I n A. There is no alternative to stocks, right, and that's why we saw the big, you know, surge in the stock market because people didn't want to buy bonds. Is the contre paying nothing? You know, you can go to your bank and you can look at your past book savings account and you're getting just a couple of basis points and the same thing on certificates of deposit.

They were paying nothing, And where else were you going to put your money right, and but now that's starting to turn a bent, Right, there are alternatives. You just look at the lowly treasury bills, right, you can give your money to the government for three months and get

a four percent um rate of return on that. That's pretty attractive, you know, um, And you know, I think that's drawing a lot of money, um, you know out of the crypto market and out of the stock market and some of these other places where we see it existence. Given that premise, do you think, in the unlikely event that interest rates are going to like fall dramatically anytime soon, that where we are with crypto is like where it's likely to sort of persist. You know that that's a

good question. I I have. I have no idea what happened in the crypto market. I mean, if you look at the history you know of the crypto market going back to two thousand, you know, six and seven, you know there's a history of tremendous booms and busts, and you know you can't rule that out happening again. But I think would also, you know, come down to if interest rates do start to decline, why are they declining? Right?

I mean, are they declining because we've beaten inflation, or we declining because the economy is just in such horrible shape that we're in a deep procession. You know, if it's the ladder is the case, then I think people are going to hunker down and not going to be looking at um making sort of uh, looking at speculative assets to put their money. They'll look to save it. Well, Bob, thank you so much for taking this time to during the podcast today. I really appreciate it. Thank you for

having me. You can find more of his work on the work terminal and on Bloomberg dot com, and if you feel so moved, you can check out our twice weekly newsletter, which is called Bloomberg Crypto. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Send us your comments, questions or suggestions for the show

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