Opinion: A Bitcoin crash could call into question the liquidity-focused investment paradigm

At first glance, a hypothetical Bitcoin crash should not negatively affect financial markets; however, it would pose a challenge to the paradigm under which investors focus solely on liquidity. This was stated by Mohamed El-Erian, the chief economist at Allianz Asset Management, in an interview with CNN.

#Bitcoin: «From a narrow perspective, it’s not too big to fail. From a broader perspective, that would be another challenge for the liquidity paradigm.»@elerianm talks using $BTC to mitigate risk, investors viewing it as the «least bad asset» and market distortion. pic.twitter.com/2Mn3vorL62

— Julia Chatterley (@jchatterleyCNN) April 5, 2021

El-Erian reminded that this year there have already been three extremely dangerous incidents: the GameStop stock pump, the associated naked short selling by hedge funds, and the collapse of the Archegos fund.

The economist also named three types of Bitcoin investors:

• those who temporarily hedge assets against inflation;
• speculators;
• proponents of the theory of the perpetual devaluation of fiat.

El-Erian stressed that stimulus by means of additional issuance is justified in a crisis. He said that at present there is no such crisis, which makes quantitative easing a dubious measure for many commentators and market participants.

In March 2021, Bitcoin reached an all-time high at $61,800 and closed the best first quarter in eight years.

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