Economist Argues Bitcoin Collapse Is Good For Ordinary People
While the recent sharp decline in cryptocurrency prices has caused distress for day traders and digital asset investors, some financial experts believe this downturn offers a silver lining for the average consumer. Dean Baker, the co-director of the Center for Economic and Policy Research, recently argued that the implosion of major tokens like Bitcoin is actually beneficial for society at large. In a recent post on his blog ‘Beat The Press’, Baker suggested that as the value of these digital assets evaporates, the purchasing power of regular citizens could see a tangible improvement. He posits that the wealth generated by the crypto market functions similarly to counterfeit currency in the broader economy.
Baker uses a compelling analogy involving fake money to illustrate why high crypto prices can be detrimental to those who do not hold the assets. He asks readers to imagine a scenario where a criminal organization prints trillions of dollars in counterfeit bills and uses them to purchase scarce, tangible goods. If these groups buy up housing, sports tickets, or high-end services, they drive up the costs for everyone else who is using legitimate currency. In this model, the existence of the “funny money” creates artificial inflation for specific goods that regular people want to buy.
According to Baker, cryptocurrencies operate on a similar principle because they allow holders to command “large chunks” of the real economy using value created out of thin air. When the market capitalization of these assets plummets, it is equivalent to a detective discovering and destroying a massive stash of counterfeit bills. The removal of this artificial wealth reduces the aggregate demand for real-world items, which in turn helps to stabilize or lower prices. Baker argues that when the “fake money” shrinks, it eases the economic pressure on those who never participated in the crypto game to begin with.
The scale of this recent market correction is massive, with major cryptocurrencies reportedly shedding over $1.2 trillion in total market capitalization. To put this figure into perspective, Baker calculates that the lost paper wealth is roughly equivalent to sending a check for $10,000 to every household in the United States. While this wealth was not real in terms of productive output, its existence allowed crypto holders to bid up the price of assets and services. Now that this perceived wealth has vanished, there is less competition for goods, effectively leaving more resources available for everyone else.
Critics often argue that a market crash destroys value, but Baker insists that nothing of intrinsic worth is actually being lost in this specific sector. He notes that the only negative impact of lower prices for digital tokens is that society will simply produce fewer of them in the future. Since the assets themselves do not serve a fundamental productive purpose like housing or food, their disappearance does not harm the real economy’s ability to function. Ultimately, Baker believes that anyone who does not hold these assets should be cheering for the decline to continue.
We would love to hear your perspective on whether the crypto market correction is a net positive or negative for the economy in the comments.
