HEATH MUCHENA: Bitcoin’s a lifeboat in stormy seas
Holding the cryptocurrency is a way to deal with rising asset prices
22 January 2025 - 05:00
byHeath Muchena
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In today’s economy you’ve probably noticed that things feel, well, off. Inflation remains a headache, government debt is rocketing, and central banks seem caught between a rock and a hard place. What’s driving this chaos? A phenomenon called fiscal dominance — government deficits are overshadowing monetary policy and private sector activity as the key driver of economic trends.
If you’re wondering what this means for your money and how bitcoin fits into the picture, let’s break it down in plain terms.For decades central banks such as the US Federal Reserve were the stars of the show, controlling inflation and economic growth through interest rates. But in recent years government spending has taken centre stage. Enormous fiscal deficits — funded by borrowing — are now shaping the economy more than anything else.
Here’s the kicker: when governments spend more than they collect in taxes they often turn to central banks to “monetise” the debt. That means more money is pumped into the system, driving up inflation. Central banks then try to fight inflation by raising interest rates, which ironically makes government debt even more expensive. It’s a vicious cycle that keeps inflation alive and well.For everyday folks this means higher costs for everything from groceries to mortgages, eroding the value of your hard-earned money.
If this sounds abstract, consider what happened in the UK’s gilt market in 2022. A controversial fiscal plan triggered a market meltdown, threatening the country’s pension system. The Bank of England had to step in, buying bonds to avoid disaster even though it was trying to fight inflation.This is a textbook example of fiscal dominance: government spending forced the central bank to abandon its plans, undermining its ability to control inflation.
And it’s not just the UK. In the US, debt-to-GDP levels are nearing historic highs, and rising interest rates are adding fuel to the fire. Net interest payments on US debt have ballooned, becoming the government’s second-largest expense after social security. That growing burden keeps inflationary pressures alive, making it harder for central banks to do their job.
CAPPED AND SECURE
Here’s where bitcoin enters the chat. In a world where government debt is spiralling and inflation keeps eating away at savings, bitcoin offers a lifeline. Let’s unpack why. Bitcoin’s supply is capped at 21-million coins — ever. Unlike fiat currencies, governments and central banks can’t “print more” bitcoin. That makes it a reliable store of value when traditional currencies lose their purchasing power.
Bitcoin isn’t tied to any government or central bank. It operates on a decentralised network, meaning no single entity can control or manipulate it. As trust in fiat currencies and government bonds wavers, bitcoin becomes a safe harbour.
Bitcoin’s legitimacy as an asset class continues to grow. Institutional investors are jumping on board, regulators are approving bitcoin ETFs, and even some central banks are exploring holding digital assets. This growing adoption only strengthens bitcoin’s position as a hedge against fiscal and monetary uncertainty.
Here’s another twist: while consumer inflation (the cost of goods and services) gets all the headlines, there’s another type of inflation happening — asset price inflation. When governments flood the economy with money it doesn’t just push up the price of milk and eggs. It also inflates the value of assets like stocks, real estate and, yes, bitcoin. That’s why bitcoin has surged in value since mid-2022, even as consumer inflation has stabilised. For investors, holding bitcoin isn’t just a hedge, it’s a way to ride the wave of rising asset prices.
So, what does all this mean for you? If fiscal dominance is here to stay — and most signs point to that being the case — traditional financial strategies might not cut it. Savings accounts won’t keep up with inflation, and even bonds carry risks as interest rates rise.Bitcoin offers a compelling alternative. It’s not a silver bullet, but as part of a diversified portfolio it can provide protection against the economic uncertainties driven by fiscal dominance. Think of it as your financial lifeboat in a stormy sea.
The world of fiscal dominance may seem complex but its effects are personal. It’s why your groceries cost more, why housing feels out of reach, and why traditional investments don’t stretch as far as they used to. In such an environment bitcoin isn’t just a speculative asset — it’s a hedge, a store of value and a potential safeguard for your financial future.
As the fiscal storm intensifies, don’t wait to act. Whether you’re a seasoned investor or just starting out, bitcoin offers a chance to navigate the challenges ahead with confidence.
• Muchena is founder of Proudly Associated and author of “Artificial Intelligence Applied” and “Tokenized Trillions”.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
HEATH MUCHENA: Bitcoin’s a lifeboat in stormy seas
Holding the cryptocurrency is a way to deal with rising asset prices
In today’s economy you’ve probably noticed that things feel, well, off. Inflation remains a headache, government debt is rocketing, and central banks seem caught between a rock and a hard place. What’s driving this chaos? A phenomenon called fiscal dominance — government deficits are overshadowing monetary policy and private sector activity as the key driver of economic trends.
If you’re wondering what this means for your money and how bitcoin fits into the picture, let’s break it down in plain terms. For decades central banks such as the US Federal Reserve were the stars of the show, controlling inflation and economic growth through interest rates. But in recent years government spending has taken centre stage. Enormous fiscal deficits — funded by borrowing — are now shaping the economy more than anything else.
Here’s the kicker: when governments spend more than they collect in taxes they often turn to central banks to “monetise” the debt. That means more money is pumped into the system, driving up inflation. Central banks then try to fight inflation by raising interest rates, which ironically makes government debt even more expensive. It’s a vicious cycle that keeps inflation alive and well. For everyday folks this means higher costs for everything from groceries to mortgages, eroding the value of your hard-earned money.
If this sounds abstract, consider what happened in the UK’s gilt market in 2022. A controversial fiscal plan triggered a market meltdown, threatening the country’s pension system. The Bank of England had to step in, buying bonds to avoid disaster even though it was trying to fight inflation. This is a textbook example of fiscal dominance: government spending forced the central bank to abandon its plans, undermining its ability to control inflation.
And it’s not just the UK. In the US, debt-to-GDP levels are nearing historic highs, and rising interest rates are adding fuel to the fire. Net interest payments on US debt have ballooned, becoming the government’s second-largest expense after social security. That growing burden keeps inflationary pressures alive, making it harder for central banks to do their job.
CAPPED AND SECURE
Here’s where bitcoin enters the chat. In a world where government debt is spiralling and inflation keeps eating away at savings, bitcoin offers a lifeline. Let’s unpack why. Bitcoin’s supply is capped at 21-million coins — ever. Unlike fiat currencies, governments and central banks can’t “print more” bitcoin. That makes it a reliable store of value when traditional currencies lose their purchasing power.
Bitcoin isn’t tied to any government or central bank. It operates on a decentralised network, meaning no single entity can control or manipulate it. As trust in fiat currencies and government bonds wavers, bitcoin becomes a safe harbour.
Bitcoin’s legitimacy as an asset class continues to grow. Institutional investors are jumping on board, regulators are approving bitcoin ETFs, and even some central banks are exploring holding digital assets. This growing adoption only strengthens bitcoin’s position as a hedge against fiscal and monetary uncertainty.
Here’s another twist: while consumer inflation (the cost of goods and services) gets all the headlines, there’s another type of inflation happening — asset price inflation. When governments flood the economy with money it doesn’t just push up the price of milk and eggs. It also inflates the value of assets like stocks, real estate and, yes, bitcoin. That’s why bitcoin has surged in value since mid-2022, even as consumer inflation has stabilised. For investors, holding bitcoin isn’t just a hedge, it’s a way to ride the wave of rising asset prices.
So, what does all this mean for you? If fiscal dominance is here to stay — and most signs point to that being the case — traditional financial strategies might not cut it. Savings accounts won’t keep up with inflation, and even bonds carry risks as interest rates rise. Bitcoin offers a compelling alternative. It’s not a silver bullet, but as part of a diversified portfolio it can provide protection against the economic uncertainties driven by fiscal dominance. Think of it as your financial lifeboat in a stormy sea.
The world of fiscal dominance may seem complex but its effects are personal. It’s why your groceries cost more, why housing feels out of reach, and why traditional investments don’t stretch as far as they used to. In such an environment bitcoin isn’t just a speculative asset — it’s a hedge, a store of value and a potential safeguard for your financial future.
As the fiscal storm intensifies, don’t wait to act. Whether you’re a seasoned investor or just starting out, bitcoin offers a chance to navigate the challenges ahead with confidence.
• Muchena is founder of Proudly Associated and author of “Artificial Intelligence Applied” and “Tokenized Trillions”.
READ MORE BY HEATH MUCHENA
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