Since arriving on the scene in 2009 with the creation of Bitcoin (BTC -1.24%), the cryptocurrency market has exploded from just one asset to thousands. And in that time, the number of supporters has grown as well. What was once believed to be a highly speculative asset class has transformed in just over a decade to the point that even high-profile billionaires such as Elon Musk and famous investors like Paul Tudor Jones believe crypto's future might just be getting started.
In a Twitter Space event on Dec. 3, Musk held an open forum to discuss all new things related to his purchase of Twitter, the direction he hopes to steer the social media platform, and other topics like cryptocurrency.
An age-old battle: Crypto vs. fiat
One question arose from a participant which asked Musk to share his thoughts on the current standing of Bitcoin, Twitter, the Lightning Network, and what was described as the "freedom to transact." In his response Musk didn't specifically mention any cryptocurrency but discussed the asset class as a whole and how crypto could evolve as a viable alternative to the existing monetary system that is, in his opinion, increasing surveillance of payments.
As Musk put it, "If you have control over the monetary system you can stop someone from doing just about anything," he said. With crypto, that control becomes extremely limited and arguably impossible.
He believes, crypto's role in the future could serve as a means of ensuring that the entire monetary system doesn't become corrupt with more government oversight. Essentially, Musk thinks that crypto provides competition to the fiat system, a term that refers to government-issued currencies such as the U.S. dollar. Although Musk didn't endorse any specific cryptocurrency, he believes that if the fiat system becomes overly restrictive then crypto could continue to rise in popularity. As he put it, "the worse the fiat system becomes the more crypto will grow."
The 2020s and monetary experimentation repercussions
You might be thinking, how could the fiat system get worse? Well, renowned investor and billionaire hedge fund manager Paul Tudor Jones thinks he might know.
Jones believes that the last couple of decades have been dominated by experimental economic expansion and this could produce unforeseen repercussions in the 2020s that could increase crypto adoption.
During the Great Recession and the height of the COVID-19 pandemic, the Federal Reserve utilized a process known as quantitative easing (QE) to spur economic growth. Historically, the government used interest rates to either ramp up the economy or put the brakes on. But in these more recent spells of economic uncertainty the Fed adopted QE as its strategy of choice.
QE injects money into circulation through direct purchases by the central bank of government-backed securities, such as bonds. This approach was used when, with interest rates near zero, the government needed to further stimulate the economy. These injections of liquidity into the economy, under the sponsorship of the Fed, then allow banks to lend more and on easier terms, thus generating more borrowing and economic growth. However, this is a relatively new method of monetary policy. And it has now been utilized by the Fed twice in just the past two decades.
The depth and extent of the effects from this policy are not fully known or understood. Look no further than the assertion by Fed officials that rising inflation in early 2021 was "transitory," though it has persisted and is now near a four-decade high.
In an interview on CNBC in October, Jones said he believes the remainder of the 2020s will be dominated by these repercussions, including higher interest rates and slow growth. As these consequences become evident, he thinks that more people will come to find crypto assets, and specifically his personal favorite, Bitcoin, more desirable because they aren't manipulated like fiat currencies.
Investing might not always be easy, but it should be simple. Investors should prioritize investing in assets that are positioned to increase in value in the future and ones that they plan on holding for at least five years. At times it can be a challenge to find these assets, but billionaires such as Musk and Jones have more knowledge and experience than most investors. If these two are correct, then crypto is in a position to appreciate in the future. With prices down as they are today, it could be the perfect opportunity to set your portfolio up for future success.