•The impact of cryptocurrencies on the global economic system is significant, but we have not yet reached a point where we can say that we are entering a new global economic system focused exclusively on cryptocurrencies. However, we may be witnessing the development of a global economic cycle where cryptocurrencies play a more important role. Here's why:
1. Evolution of the role of cryptocurrencies
Cryptocurrencies, led by Bitcoin and Ethereum, have moved from niche or speculative assets to becoming increasingly accepted in traditional financial sectors. Major financial institutions, technology companies and even governments are exploring how to integrate them into their operations, suggesting that we are in a transition phase.
Bitcoin as a store of value: Some companies and investors see Bitcoin as an alternative to traditional assets like gold. This has led to increased institutional adoption, which could be starting a transition to a system where digital assets are a central part of global stores of value.
Ethereum and DeFi: The evolution of decentralized finance (DeFi) has created new opportunities for lending, insurance, and other financial activities without the intermediation of banks. This could radically alter financial services in the future.
2. Tokenization of assets and CBDCs (Central Bank Digital Currencies)
Asset tokenization: The ability to represent real assets (such as real estate or stocks) through tokens on the blockchain opens up new ways to invest, trade, and own value. This has the potential to restructure entire financial markets.
CBDCs: Central banks in many countries (China with the digital yuan, the European Union with the digital euro, among others) are moving forward with the creation of sovereign digital currencies. This could transform how global finances are managed, facilitating faster and more secure transactions. Although CBDCs are not cryptocurrencies in the traditional sense, they are influenced by blockchain technology, and their introduction could mark a structural change in the global economic system.
3. Decentralization of financial systems
A key feature of cryptocurrencies is decentralization, which challenges the control of traditional intermediaries (such as banks and governments) over money. This could lay the groundwork for a new economic paradigm where power is more equitably distributed among individuals and is not so centralized in traditional institutions.
However, this process is in its early stages. Large banks and governments still control most of the global economic systems, but the growing adoption of decentralized systems is marking a trend towards structural change.
4. Globalization of financial access
Cryptocurrencies have proven their ability to offer financial access to people in unbanked regions or in unstable economies. In this sense, they are democratising access to financial services, which could transform the global economy in terms of inclusion.
5. Changes in confidence in traditional currencies
Economic instability, inflation in many developed economies, and monetary policy decisions are eroding trust in traditional currencies, leading more people to seek alternatives in cryptocurrencies. This could be the beginning of a transition towards greater asset diversification and the acceptance of cryptocurrencies as part of the daily economy.
6. Challenges and barriers
Despite the progress, there are also significant obstacles that limit the adoption of cryptocurrencies as the basis of a new global economic system:
Volatility: Cryptocurrencies are still extremely volatile, which prevents them from becoming a stable medium of exchange.
Regulation: Regulatory frameworks in many parts of the world are developing, and in some cases, policies are restrictive, hampering global adoption.
Technological Infrastructure: Blockchain infrastructure is still evolving, and while there have been notable improvements, it still faces issues of scalability, security, and energy sustainability.
Conclusion
While cryptocurrencies and blockchain technology are transforming various aspects of the global economic system, we are not yet in a new economic system completely dominated by them. However, we are in a transition cycle, where cryptocurrencies play an increasingly influential role in finance, investment, and the global digital economy. The possibility that cryptocurrencies, along with initiatives such as CBDCs and asset tokenization, will reshape the global economic system is real, but it will take time and greater mainstream adoption for this change to fully take hold.
•Business cycles are natural fluctuations in the economy that repeat themselves over time, alternating between expansion (boom) and contraction (recession) phases. Understanding them is key to anticipating changes and making informed economic decisions. Below I explain both periods:
1. Boom Phase (Expansion):
In this phase, the economy is growing, employment is increasing and consumption is high. This is reflected in several indicators:
GDP growth: Gross Domestic Product increases, indicating greater production of goods and services.
Low unemployment rate: Companies need more workers to meet growing demand.
Increased consumption and investment: Consumers are more confident and spending more, while businesses invest in expansion.
Price increase: Due to increased demand, it is common for prices (inflation) to rise gradually.
Increase in wages: Since there is more demand for labor, wages tend to rise.
Challenges:
Excessive inflation: If the economy overheats, prices can rise too much, leading to a higher cost of living and reduced purchasing power.
Speculative bubbles: In this phase, confidence may be excessive and there may be an overvaluation of assets, such as in the real estate market or in stocks.
2. Recession Phase (Contraction):
In a recession, the economy cools down, leading to a reduction in economic growth and in some cases to a decline. Some characteristics of this phase are:
GDP decline: Economic output declines, indicating a contraction in activity.
Rising unemployment: Businesses are producing less and, as a result, often lay off workers or freeze new hiring.
Decline in consumption and investment: Individuals and businesses reduce their spending due to economic uncertainty or lower income.
Deflation or controlled inflation: During a recession, prices may decrease (deflation) or rise in a very controlled manner, since demand is low.
Falling or stagnant wages: Due to lower demand for labor, wages may decline or remain stagnant.
Challenges:
High unemployment: Rising unemployment has negative social effects, such as reduced family income.
Asset depreciation: The value of assets such as homes or investments can decrease, generating losses for investors.
Relationship between both phases:
Peak: The boom reaches a maximum point before turning into a recession. This is when resources are at their maximum utilization, and inflationary pressures can be strongest.
Valley: The trough of a recession, before recovery begins, often coincides with high unemployment and low confidence.
Factors influencing the cycle:
Monetary and fiscal policy: Governments and central banks can stimulate or cool the economy through interest rates, government spending and taxes.
Expectations: Consumer and business expectations influence the cycle. If a crisis is anticipated, consumption and investment decline, accelerating the recession.
External factors: Wars, pandemics or supply shocks (such as the oil crisis) can influence the cycle.
How to take advantage of or manage each phase:
In the boom: Invest in growth assets, save during the boom period to prepare for bad times, and take advantage of job opportunities and business growth.
In a recession: Be cautious with spending, look for undervalued assets for future gains, and plan to withstand times of crisis, such as reducing debt or diversifying income.
Understanding cycles
economics allows governments, businesses and individuals to make better strategic and financial decisions.
