Economist Says Bitcoin Isn’t Too Big to Fail — Warns BTC Can Only Establish Itself if Governments Allow It

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Mohamed El-Erian, chief economist at Allianz, says bitcoin is not too big to fail and governments can intervene. Although he believes cryptocurrencies will grow in popularity, the economist believes they require a lot from governments, adding that this asset can only grow if governments allow it.

economist warns of government intervention, bitcoin not too big to go bankrupt

Mohamed El-Erian said Tuesday in an interview with CNN that bitcoin is not too big to fail, and that its failure could disrupt the global monetary system because of the liquidity paradigm.

Mr. El-Erian, an Egyptian-American businessman, is president of Queens College, Cambridge University. He is also chief economist of Allianz, the parent company of PIMCO, one of the world’s largest investment managers, where he was CEO and Co-Chief Investment Officer.

He explained that there are three types of investors in cryptocurrencies. The first type are those who use bitcoin to reduce risk by considering the cryptocurrency as the least bad investment. The economist explained that government bond prices were kept artificially high by the Fed’s low interest rates, making them less attractive to investors who wanted to reduce their risk and diversify their portfolios. Investors usually turn to gold, but with that metal also struggling, they are turning to bitcoin despite its volatility, he noted.

The second type includes speculators, and the third type of investors are those who truly believe that a currency breakout will occur. The economist added that investors expect the popularity of crypto assets to increase in the private sector and governments will not interfere. While El-Erian also believes that demand for cryptocurrencies will increase, he is not sure that the government will not get involved. Allianz’s chief economic advisor warned:

I tend to tell people: Be very careful. It is an asset that wants to take root, but it can only do so if governments allow it. And it takes a lot away from governments.

As for whether bitcoin is too big to go bankrupt, he said: From a limited perspective, it’s not too big to fail. From a broader perspective, this would be a new challenge to the liquidity paradigm.

He made it clear that while there is a lot of liquidity in the system, some sectors still encourage excessive and irresponsible risk-taking. El-Erian noted that the collapse of Archegos Capital last week sent several shares plummeting and resulted in billions in losses for investment banks. In addition, the chaos in the financial markets surrounding Gamestop and other stocks sold short in January drove up their prices and put pressure on short sellers.

Do you think Bitcoin is too big to fail? Let us know your comments in the section below.

Photo credit: Shutterstock, Pixabay, Wiki Commons

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