ARK Invest CEO Cathie Wood sees deflation in near future, and notes several factors to back her opinion.
Tesla CEO Elon Musk and chief of MicroStrategy Michael Saylor disagree.
The crypto market holds above $2.5 trillion.
YEREVAN (CoinChapter.com) – On Oct 23, Twitter CEO Jack Dorsey voiced his concerns about the looming hyperinflation. The Federal Reserve chairman Jerome Powell agreed the inflation would last longer than the government expected. However, Cathie Wood, the chief executive of the asset management firm ARK Invest, argued that the inflationary “velocity is falling.”
Meanwhile, Bitcoin, a perceived haven against rising consumer prices, rallied above $63,500 Tuesday, pushing other tokens higher in tandem. On the whole, the crypto market cap was above $2.5 trillion.
Cathie Wood’s inflation outlook
Ms. Wood cited the Fed’s decision to start quantitative easing in 2008 during the Global Financial Crisis, noting that inflation did not pick up then. She added that the cash velocity—the rate at which money turns over per year—also dropped, signaling that the market would see deflation instead of inflation in the future.
Despite the bursts in cyclical inflation during the last year, velocity is hovering at low levels. If ARK Invest is correct, the next leg will be down.
said the CEO.
The veteran investor named several factors that could stimulate deflation.
#1 Dropping costs for AI training
Ms. Wood specified that the Artificial Intelligence (AI) technology would penetrate every sector and industry and transform it in 5-10 years. She also noted that the costs for AI training have dropped at a 40-70% annual rate. The CEO called the AI technology a record-breaking deflationary force.
As the costs drop, “velocity and disinflation – if not deflation” follow.
#2 Creative distruction could help deflation
ARK Invest CEO named “creative destruction” as the second possible source of deflation. She commented that the lack of innovation might result in massive sell-offs of obsolete goods, spurring deflation.
Since the tech and telecom bust and the Global Financial Crisis in 2008-2009, many companies have catered to short-term oriented shareholders, who want profits/dividents now. […] They have not invested enough in innovation and probably will be forced to service their debts by selling obsolete goods at discounts: deflation.
specified Ms Wood.
#3 “Cyclical” excess supplies
The investor noted that many businesses were caught “flat-footed” during the pandemic as product consumption took off. Subsequently, they are “double-triple ordering,” trying to catch up with the rising demand. As a result, the companies could face excess supplies once the holiday season passes and the “prices should unwind.”
Tesla CEO Elon Musk and the chief of business intelligence firm MicroStrategy Michael Saylor joined the conversation, expressing concerns.
Mr. Musk replied that the inflationary pressure is “strong,” at least in the short term. The CEO is an avid crypto supporter who added Bitcoin to Tesla’s balance sheets in March 2021 and admitted to owning several cryptocurrencies. The billionaire entrepreneur owns BTC ($62,823), ETH (Ethereum price at $4,219), and DOGE ($0.27).
Michael Saylor also pointed out that Bitcoin is the “most practical solution” for inflation protection over the long term. Moreover, he added that inflation is a “vector,” meaning the Federal Reserve’s “transitory inflation” position does not describe its status.
It is noteworthy that Mr. Saylor’s MicroStrategy owns 114,042 BTC (roughly $5.1 billion) that the company purchased in over a year (first purchase: August 2020).
How will the crypto market react if Cathie Wood’s outlook is correct and the deflation picks up in Q1 2022?
What about crypto?
As a haven asset class against the growing inflation (5.4%, according to the US Beuro of Labor Statistics), the crypto market put on 37% quarter-to-date and amounted to $2.64 trillion in market cap.
The crypto sector adoption is growing. A rising number of companies diversify their portfolios with digital assets. In addition to the latest BTC news, financial giants like MasterCard jump on the bandwagon. The latter announced on Oct 25 that the company partnered with crypto exchange Bakkt to enable crypto services.
Mastercard partners will be able to offer cryptocurrency solutions. These include the ability for consumers to buy, sell and hold digital assets through custodial wallets powered by the Bakkt platform and streamlined issuance of branded crypto debit and credit cards.
Lilit is a Yerevan-based Markets writer, skilled in 3 languages, and interested in writing about the tech world, trading, art, and science. She also has a background in psychology and marketing, which helps deliver the right message to the target audience.