In 1971 the 37th US President, Richard Nixon, announced a series of major economic measures to tackle inflation and support US economic growth – one of the most consequential, a policy that ultimately unpegged the US dollar from the price of gold.
President Nixon’s measures resulted in the price of gold exploding in the following years and the widespread effects of President Nixon’s economic measures became colloquially known as the ‘Nixon Shock’.
Now one cryptocurrency expert believes the current volatile economic climate may result in a similar global macroeconomic event unfolding in the coming years and this time it will be the Bitcoin price doing what the gold price did during the Nixon Shock.
Raz Gerber is predicting an event he describes as the ‘Nakamoto Shock’ – a major Bitcoin price move resulting from global economic turmoil and the increasing scarcity of Bitcoin.
Economic meltdown in the near future inevitable
Speaking on CNBC’s Crypto Trader program on Friday, as the Dow Jones tumbled around 600 points, Gerber said a crashing end will come to the current decade-long secular bull market.
“We’ve had ten years of economic expansion, that is the longest that we’ve ever had,” he said.
“We have 250 trillion dollars of debt around the world and I believe the central banks are running out of options in their toolbox and eventually we are going to see this meltdown, I’m not sure exactly when.
“So this could have only two options in my mind, either we default on the debt, which means we also wipe out the assets, or we do it through inflation and the basis of the fiat currencies.
“There will be a wealth transfer over the next ten years which we haven’t seen for a very long time and I can’t see another way out.”
Geber believes quantitative easing (a term used to describe the creation of new money by a central bank) measures undertaken by the US Federal Reserve in 2009 will ultimately become the cause of meltdown and a catalyst for the Nakamoto Shock.
“The Federal Reserve printed in 95 days the same amount of money they printed in 95 years before that.
“So from the foundation of the Federal Reserve in 1913 unit 2009, the balance sheet was below one trillion dollars and in the next 95 days it doubled and actually we are now at around four trillion dollars.”
He says the Federal Reserve’s balance sheet will hit between eight and ten trillion dollars within the next ten years as baby boomers retire and more funds are required to buy their assets.
The BLOCK is ticking…
1971 – Nixon Shock
2021 – Nakamoto Shock pic.twitter.com/AkVowB2ttB
— Raz Gerber (@raz_gerber) August 14, 2019
The Bitcoin hedge and the Nakamoto Shock
Gerber told Crypto Trader host, Ran Neuner, that he views Bitcoin as a hedge against economic collapse, rather than a speculative asset.
“I’m not a financial advisor but I can share with you since 2015 I’ve been talking with friends and family telling them that Bitcoin could be a hedge.
“It is going to parity with gold in terms of inflation within the next year or so.
“So in May 2020, we are going to have the halving and the inflation of Bitcoin is going to parity with gold, which is roughly 1.7 percent.
“Four years later we are going to have the most scarce of the scarcest asset we’ve ever had as human beings since gold and it’s going to 0.9 – 0.8 percent of inflation.
But based on the Nixon Shock, the Nakamoto Shock won’t result in a sudden Bitcoin price move according to Gerber.
“If you check the price of the gold, it didn’t peak right immediately after the Nixon Shock, it took a while until it started to pick up and basically only eight years later it did like 16x on the US dollar,” he said.
“So it was $40 at the summer of ’71 and it’s $1500 today, so do the math, there was a devaluation of more than 95 percent of the US dollar versus gold.
“I believe that Nakamoto Shock could be coming in the next couple of years, so it will take probably another two years until we will see the shock… So we will have an asset that is becoming more scarce as we move on the timeline, basically every ten minutes and if that happens this Nakamoto Shock could be equivalent to the Nixon Shock 50 years later.
“It’s not going to happen overnight… We need to look at it as something for the long term, like six, ten years plus.
“At least to friends and family I tell them like hedge yourself, you have to be exposed to this assets class, it’s irresponsible not to hold something and just wait and see.”