Blog: Bitcoin Creates a New Type of Moral Hazard
A national "reserve" of an unregulated asset seems unlikely.
Last week the President-elect said he was nominating Paul Atkins as Chair of the Securities and Exchange Commission. While Atkins is well qualified to head the SEC, he has been an advocate of a "hands off" approach to regulating cryptocurrency. The rationale is that crypto is not a security, so it does not fall under the purview of the SEC. Combined with the President-elect's campaign promise to make the US "the crypto capital of the planet," as well as establish a US "strategic reserve" of bitcoin (1 million bitcoin purchased over 5 years), bitcoin and other crypto have taken off since the election.
The media and many analysts have said that election results have contributed to increased optimism on the future of bitcoin. But it may also be more than that. The President-elect's words and actions may also be contributing to the idea that bitcoin is a sure thing. It can't lose because the new administration is committed to making bitcoin a success. Further support comes from Pennsylvania which has actually approved its own bitcoin strategic reserve of up to $970 million of tax payer money.
This is leading to a new type of moral hazard.
Moral Hazard
In economics a moral hazard is created when the risk of loss has been moved from the risk taker to another party.