Renowned hedge fund manager Stanley Druckenmiller has said that crypto may become an important part of an economic “Renaissance” as people start to distrust the central banks.
According to the billionaire, people are starting to adopt crypto due to the current situation in the global economy, where central banks increase interest rates to control inflation. The U.S. Federal Reserve's current benchmark is over three percent. In June, the CPI was 9.1 percent but went down to 8.3 percent in August.
“I could see cryptocurrency having a big role in a Renaissance because people just aren’t going to trust the central banks,” Druckenmiller said.
Although Druckenmiller admitted that he did not invest in cryptocurrency due to the current financial situation, he was adamant that digital assets would see a long-term rise if central banks continued to take controversial actions. He drew an example from the Bank of England, which conducted a yield curve control starting September 28, momentarily purchasing long-dated government bonds. The move brings more money to the economy, potentially leading to higher inflation.
Central bank stimulus during disorderly markets can be a bit like stirring crystal meth into your morning coffee when you’re behind at work — helpful in the short term but deuce difficult to stop.— Ash Bennington (@AshBennington) September 28, 2022
Regarding Fed’s “radical” monetary policy, Druckenmiller said he was “frustrated” by the government for making risky moves. He explained that the Fed’s action had blown up the asset bubble in the country because the Fed used to ignore asset inflation as it was “not part of their mandate.” He implied the move would be followed by economic collapse.
Nevertheless, Druckenmiller applauded the Fed for taking action to manage inflation but said that the committee might not be able to prevent a recession due to the tight policy in the near future. He said he was skeptical about whether the Fed will maintain its current campaign.
“Let’s see what happens if we get a hard landing,” Druckenmiller said. “You have to slay the dragon. And the chair is right. You’re probably going to have some pain.”
Fed monetary policy
Earlier this month, the Fed decided to increase the interest rates by 75 basis points based on August data that showed a higher-than-projected inflation rate. Fed chief Jerome Powell also said the possibility of more aggressive rate hikes was high.
The Fed’s action caused a boost in the U.S. dollar and a wave of responses from other currencies. The euro and pound sterling depreciated significantly, with the sterling seeing its record low in history against the U.S. dollar.
The Japanese yen and Chinese yuan also continued their plunge against the greenback, forcing the respective governments to take action. Last week, the Japanese government sold its dollar assets to boost the yen's value. Meanwhile, the Chinese government reportedly planned to bring back an old currency fixing method it had used in 2017 to support the yuan.
The interest rate hikes also affected the traditional stock market, with major indices seeing significant downfalls at the beginning of this week. The crypto industry also suffered from the rise of the U.S. dollar.
Arthur Hayes of BitMEX said that the volatility of fiat—particularly the dollar—would lead to increased adoption of cryptocurrency and gold. He said in July that the possibility of the U.S. government printing more money was high if other currencies continued to weaken. Gold and cryptocurrency are considered inflation hedge assets due to their scarcity, unlike fiat.