Call it “Financial Darwinism”
“Bitcoin Surges Above $5,200 on Hopes of Renewed China Trade.”
—The Wall Street Journal (10/12/2017).
No, I’m not rooting for Bitcoin to skyrocket to the heavens because I have a position in it.
God forbid!
Rather, it’s because I see Bitcoin serving a useful economic purpose.
Two, in fact:
One. Lightning rod. There will always be pent-up animal spirits looking for a market to wreak havoc with.
Fifteen years ago, it was housing.
In the late 90’s, it was start-up Internet (“dot.com”) stocks.
Before that, it was the “Nifty Fifty,” gold, emerging markets, gold again, and so on, all the way back to Dutch tulips.
Good!
As long as there’s no contagion — always a big “if” — I see classic bubbles like Bitcoin as the perfect way to separate the latest batch of idiots from their money . . . and leave other, more important markets alone.
Two. Financial sponge
Face it, the reason we’re in this mess — a bubble in virtually all financial assets, with hyper-bubbles in new esoterica like crypto-currencies — 
is because the Federal Reserve sought to blunt the fallout from The Crash of 2008 by unleashing an unprecedented wave of liquidity.
Now, with markets slowly recovering, the Fed (and other central banks) need to wring that excess liquidity out of the system.
That takes a lot of political will — and the ability to tune out the inevitable cacophony of protests from Wall Street and other big financial players who stand to suffer.
Serial Bubbles
Once upon a time, former Fed Chair Paul Volcker (“Tall Paul”) had the independence and fortitude to do that.
Unfortunately, Ben Bernanke didn’t, Janet Yellen doesn’t, and whomever is likely to succeed her likely won’t, either.
So, while cruel, the inflation and inevitable bursting of serial financial bubbles serves as a crude proxy for Fed tightening.
Given all the excess trillions still sloshing around in the post-Crash global economy, the Bitcoin bubble could grow (much) larger yet . . .
