Cryptocurrencies have been heralded as a gamechanger. Decentralised currencies that operate within a market rather than being controlled by central banks. They are seen as rebellious and a means to bring ‘power to the people’ because no one can control the currencies. But, why exactly is that a good thing?
Many cryptocurrencies have developed cult followings; such is the unyielding faith people have in the crypto market. But this blind support has nothing to do with their game-changing impact as they take power away from central banks. The cult following has everything to do with the fact crypto fanatics either have or believe they will make lots of money from crypto.
Dogecoin’s founder recently described the crypto market as a ‘get rich quick cult’.
Crypto acting as a wealth creator misses the point of a currency, entirely. The function of a currency is as a unit of exchange, not something that people make money out of on a highly volatile market.
Supporters of crypto have little care for any potential positive social impact of cryptocurrencies. All they care about is that crypto becomes more influential, so the price increases, and with it, their profit increases. At the heart of all of this is individual self-interest.
The problem with the crypto market is the problem with any other unregulated market. The individuals or companies in the market are driven to make money. They aren’t interested in the social benefits (or harm) created by the market.
So, tell me again, what exactly is the good thing about decentralised currencies?
Neoliberal ideology is at the heart of the argument in favour of decentralised, unregulated cryptocurrencies. Free markets can solve social problems through prices. And markets function best when they are free to regulate themselves; any kind of intervention or regulation distorts prices, leading to inefficient outcomes.
The neoliberal dreamland
Driving this argument is the idea that has become folklore that government is incompetent.
For neoliberals, the government is a meddling force that should let business look after itself. Any kind of regulation or intervention is bad for the market because it distorts prices and impacts the smooth operations of a market system.
As Milton Friedman put it in the 1970’s ‘the business of business is business’.
The issue with this argument is that if governments didn’t intervene, it would be a disaster for society. Businesses have the businesses interest at heart; the less regulated a market is, the higher the chances that they will maximise profits at the expense of society.
Government regulation acts as a safety net to protect society and make sure that markets are serving their purpose in providing for the needs of society, rather than allowing companies to profit at the expense of society.
Yet, the myth has become embedded in so many people’s minds that somehow the government is some evil, malicious force that works against people. This belief has been driven into people by businesses and powerful individuals who benefit from free markets.
They work hard to tarnish the government’s reputation because they want complete freedom from government control. More freedom means more potential to make profits.
The danger with cryptocurrencies is that they are a symbol of the neoliberal argument. They’re celebrated as being somehow rebellious because they work against government control. But all they’re doing is creating currencies owned by private companies (and individuals), who, just to cement this point, don’t have the benefits of society at heart.
Cryptocurrencies are edging us one step closer to a neoliberal dreamland where money is completely detached from the government in a deregulated market designed around private interests, not social ones.
If cryptocurrencies become more influential, which seems ever more likely, they could undermine traditional fiat currencies. If they do, it will place enormous power into the hands of private companies whose motives are their own self-interests.
The myth of self-regulating markets
What makes the myth that government is an incompetent institution so worrying, is that the self-regulating market has never been self-regulating. As Dani Rodrik puts it in The Globalization Paradox:
“Markets require other social institutions to support them. They rely on courts and legal arrangements to enforce property rights and on regulators to rein in abuse and fix market failures…they need the political buy-in that redistributive taxation, safety nets, and social insurance programs help generate. In other words, markets do not create, regulate, stabilize, or sustain themselves. The history of capitalism has been a process of learning and relearning this lesson.”
The idea markets can’t regulate themselves was learnt in the most brutal of fashions when the stock market crashed in 1929, leading to the Great Depression. The same thing happened in the financial crash in 2008. What saved the economy from collapse each time was that governments stepped in to prop up the economy.
The painful lesson that markets can’t regulate themselves is either continually forgotten or more likely ignored by proponents of the free market when it suits their agenda. The issue is that when markets crash due to a lack of regulation, it is a society that suffers, and it is governments that must step in to pick up the pieces.
Regulation acts as a buffer against the aggressive nature of market systems driven by greed, self-interest and the profit motive. A lack of regulation in the crypto market should be a matter of concern, not of jubilation.
A get rich quick scheme
Everyone seems to have forgotten that the function of an economy is to provide for the needs of society. Today people behave as if markets are a get rich quick scheme, or that’s the way it is within crypto anyway. But if the market serves no social function, then it is an aberration, a mechanism merely designed to make people rich.
The concern is that so many people are buying into crypto to make money, but as they do, crypto becomes far more powerful. In a few years, some cryptocurrencies could become extremely influential, and the people that own them will have incredible power because they will be owned by private interests.
That is only, of course, if governments don’t work together to regulate the crypto market. And regulation is exactly what is needed because if cryptocurrencies do not serve a social purpose, then their value is quite literally to create profit for a few wealthy individuals who can afford to invest.
You imagine when governments do intervene (hopefully, that time will not come too late), the ardent supporters of crypto will form a conspiracy about how the government is suppressing these freedom fighting deregulated currencies. The reality is the exact opposite.
Too big to fail
Governments are there to protect people against the abuses of individualistic speculators who only have their interests at heart.
It is because elements in government also believe in the neoliberal mantra that business knows best that we have the situation we find ourselves in at present, where markets are unregulated and free to maximise profits.
And if the market does crash, the powerful businesses are too big to fail, so the government has to step in to protect them from going under. If they don’t, the economy would crumble.
Large companies know this, so they have a win-win situation. They can behave speculatively and reap the rewards of doing so when it goes well. When it goes badly, they know the government will bail them out. The loser in this game is the poor; it always is.
Time and time again, we fail to learn the lesson of giving a market too much freedom because people stand to lose profits if governments intervene. If governments don’t start regulating the crypto market, then the experiment that is taking place at present could have catastrophic consequences.