In this article, we dive deep into the ideas of the Great Reset and the sub-narrative of a “Bitcoin reset”. We offer a brief history of money and an overview of existing financial affairs. Plus, we consider the repercussions of COVID-19 stimulus packages. Also, we look at existing information surrounding the nature and possibilities of a global financial reset. Finally, we evaluate the likelihood of Bitcoin playing a role in the upcoming Great Reset initiative.
The Great Reset will introduce aspects of blockchain in the financial sector on a global scale. To learn more about the basics of this cutting-edge technology, start with our Blockchain and Bitcoin Fundamentals course. Discover a welcoming community of like-minded students at Moralis Academy today!
Exploring the Great Reset
The concept of a “Great Reset” is the product of the World Economic Forum (WEF) recognizing the threat of an increasing and unredeemable amount of global debt. According to the WEF, the world needs a “Great Reset” to “build entirely new foundations for our economic and social systems” following the crisis of the COVID-19 pandemic. However, some economists believe such a reset has been on the cards since the 2008 financial crash. Others believe it is an inevitable upcoming event since the loss of the gold standard in 1971.
The World Economic Forum (WEF) website states the agenda of the Great Reset comprises three parts. First, the aim is to reform government infrastructure to improve communications for regulatory, tax, and fiscal policies. Also, current compliances surrounding intellectual property (IP), competition, and trade will be reviewed. Second, all investments within the Great Reset agenda must follow a shared global value, including sustainability and equality. This includes the development of eco-friendly urban infrastructure and expediting the creation of analytical tools for businesses to improve their existing environmental, social, and governance (ESG) metrics. Finally, the third element is fully embracing the technological innovations emerging within the “fourth industrial revolution” (4IR). Further, the initiative will employ 4IR technologies (e.g., blockchain, internet of things (IoT), cloud computing, cognitive computing, and artificial intelligence [AI]) to address global health and social concerns.
The first announcement of a Great Reset was via the World Economic Forum (WEF) website in 2020. However, there is little public information about the details of the plan. Many initially dismissed the Great Reset as a conspiracy theory as news spread about the announcement. Nevertheless, as global economic concerns continue to mount, the narrative of a “Great Reset” is becoming increasingly favorable to many.
During Davos 2022, leaders in the IMF (International Monetary Fund) warned of the “R” (recession) word approaching within the next year. In addition, this coincides with the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) prediction model. Unlike any other prediction model, DSGE combines the gross domestic product (GDP), gross domestic income (GDI), and personal consumption expenditures (PCE – the percentage change in consumer prices) data. Also, the model includes inflation data, actual hours worked, real wages, investments, the 10-year expectation inflation survey, and 10-year treasury bonds data, all collated back from the 1960s. As such, the New York FED’s DSGE model has historically proven the most successful for generating accurate economic predictions. Each quarter, the model updates with new macroeconomic information.
The June 2022 analysis shows adjustments since the March 2022 prediction. Specifically, the DSGE model now suggests the probability of a “hard landing” (rapid economic slowdown) is around 80%. It suggests July 28th as the date for a confirmed recession. A recession occurs when two consecutive financial quarters experience negative GDP growth back-to-back. DSGE’s model adjustment has changed from positive growth of 0.9% to a negative 0.6% decline in GDP by the end of 2022. In addition, the model forecasts that 2023 will see an estimated 0.5% decline in GDP.
Around the world, governments, central banks, and pioneering leaders are preparing for a financial storm ahead. In turn, novel opportunities are arising, with global leaders desperately seeking ways to minimize the financial devastation to its citizens. Economists such as Mike Maloney have been calling for a correction in the stock market for over a decade to recalibrate the free market. Unfortunately, without such healthy corrections, the world now faces a total restructuring of the financial paradigm.
A Brief History of Money
To truly understand the dilemma of our economic circumstances, you ideally need to understand the difference between money and currency. Before “money”, people would barter for a direct goods-to-goods exchange. However, as this often meant one party received an unfair deal, a form of medium of exchange came about to offer fairer deals to all involved. Initially, currencies included seashells, fur, salt, and then precious metals, namely, gold. Since gold is a fungible, durable, and portable commodity with a limited supply, gold became the favored medium within a transaction.
Fast forward several hundred years to traveling businessmen carrying lots of gold on long-haul trips. A place in London offered a solution to this inconvenience by offering to hold onto the businessmen’s gold throughout their travels. Businessmen would receive a paper receipt upon depositing their gold on arrival. Then, they could redeem this receipt for their gold (minus a small holding fee) before departing. The convenience of receipts meant businessmen began trading deals with the gold-backed paper rather than the physical asset itself. This is the basic principle most countries followed regarding the value of their currency. As such, banks would hold onto gold and give citizens paper receipts to be used to purchase goods or services.
Over time, more paper receipts than were redeemable for gold began to appear. In 1971, US President Nixon notoriously removed the US dollar from the gold standard after America became unable to pay back the gold it borrowed from other countries. From this moment, nothing other than governmental trust secures the value of paper currency. Also, we entered a new realm of economics as the supply and demand of a monetary system became less relevant.
After 1971, any debt ceiling supported by underlying assets was lifted, essentially allowing governments to continuously print new currency into circulation. In recent years, when faced with a recalibration reflecting the free-market value of goods and assets (i.e., the 2000 “dot-com” bubble or the 2008 subprime mortgage crash), central banks have stepped in to print more money to artificially stimulate the economy. In reality, this inflow of capital props up the price of stock while simultaneously reducing the purchasing power of existing currencies by expanding the supply. This impacts people already struggling to make ends meet as the amount they can purchase with their money now decreases.
Economists favoring the laws of a free-market capitalist economy were anticipating a market correction akin to the Great Depression in the 1920s and 1930s before 2020. However, we have entered unchartered territories following the exponential increase in the global money supply with the COVID-19 pandemic. The excess currency printed into existence raises inflation rates at a near-uncontrollable rate. Moreover, central banks are unable to raise interest rates high enough to counteract inflation. As such, the World Bank, WEF, and IMF are collaborating on a new system to navigate the insurmountable economic hurdles.
For an in-depth guide to the history of money and the current financial infrastructure, see our Bitcoin Monetary Revolution course! At Moralis Academy, students learn about fractional reserve banking, monetary system fundamentals, and how blockchain will revolutionize the legacy financial paradigm. Kickstart your blockchain education with the world-leading Web3 education suite, Moralis Academy!
The Great Reset
Although there appear to be no details surrounding the Great Reset, leaders from the WEF and IMF have publicly discussed the use of CBDCs. CBDCs, or “central bank digital currencies”, incorporate elements of blockchain technology. Specifically, CBDCs create a secure cryptographic monetary network that is fully transparent and immutable. Nevertheless, the introduction of CBDCs means citizens giving full insights into daily transactional data and social interactions to central bank authorities. CBDCs will eliminate the need for local commercial banks, with central banks gaining direct consumer influence. Also, CBDCs will eliminate any private transactions (typically with cash), providing full transparency of transactional data.
In a Real Vision interview on the subject in 2020, macroeconomist and investment strategist Raoul Pal stated that CBDCs facilitate a rise in “behavioral economics and incentive systems”. For example, in times of economic austerity, a central bank could set an expiry date on your money. As such, this could lead to citizens being psychologically influenced into spending cash, discouraging people from saving. Furthermore, central banks could directly control interest rates subject to consumer or business profiles. Pal explains a future where governments can use big data to identify demographics that could positively influence the economy the most. For example, banks could raise interest rates for students to encourage saving. Conversely, banks could reduce interest rates to encourage spending within the baby boomer generation.
Some speculators suggest CBDCs are laying the foundations for introducing a universal basic income (UBI). Further, they believe governments will force citizens to use CBDCs through various stimulus packages. This could be for unemployment, business, student loan support, disaster relief, or furlough schemes.
Why a Great “Bitcoin Reset”?
The fear of authoritative control surrounding the use of CBDCs has prompted an alternative narrative of a “Bitcoin reset”. With no known source of the narrative, the idea of a Bitcoin reset has emerged from the crypto community. Bitcoin (BTC) is often likened to digital gold for its similar properties of fungibility, portability, divisibility, and an agreed-upon medium of exchange. However, alongside being a deflationary asset, BTC is borderless and permissionless with no central authority. Instead, transactions are mathematically verified by computers. Also, there is a maximum supply of 21 million coins to enter circulation hardcoded into the protocol. Because of this, no governing party can inflate the supply or manipulate the network.
The rising narrative of a Bitcoin reset may potentially be sparked by the recent release of a crypto documentary. In June 2022, a documentary called “The Great Reset and The Rise of Bitcoin” outlined the potential role of Bitcoin in the changing financial landscape. Also, it proposes a future where Bitcoin (BTC) is the global reserve currency. The documentary explains the economic repercussions of excessive money printing throughout the pandemic. Further, it reflects on historical economic turmoil and collapses of fiat currencies. The documentary explains the unlikelihood of the newly-printed pandemic currency moving into trusts, bonds, or government-trusted fiat currency. Instead, it suggests that “Bitcoin is a black hole that will suck in all the excess money”.
Concerns around a Bitcoin Reset
Bitcoin (BTC) is a favorable alternative to CBDCs for its cryptographic anonymity, decentralization, and sound money principles. However, there are many lingering concerns about the number one cryptocurrency taking the role as the global reserve currency. Primarily, there are fears around the price volatility of the asset, potentially rendering it an unreliable, unstable store of wealth. Fears are supported by the fact that Bitcoin fell below its all-time-high in the most recent bear market, an unprecedented move for the asset.
Also, the notoriously accurate Bitcoin stock-to-flow prediction model has recently fallen short. However, the stock-to-flow model predicts the future price of finite resources by factoring in two variables. These are the amount of an asset available (stock) and the rate of the production of an asset into circulation (flow). Originally used in calculations for legacy commodities, the model was applied retrospectively to Bitcoin (BTC). Further, the stock-to-flow prediction does not factor in wider socio-economic circumstances.
Accordingly, with warfare presence not seen since World War II, coupled with crumbling supply chains and soaring inflation amidst the aftermath of a pandemic, it appears plausible the markets are down. For tips on making the best during Bitcoin’s winter season, save our “How to Invest During a Crypto Bear Market” article for later. Or, for a comprehensive guide to navigating the market fluctuations, see our “Understanding Crypto Crashes” article.
There are concerns that the Bitcoin network is too slow to ever be capable of global adoption. However, layer-2 solutions, such as Lightning Network, operate on the Bitcoin blockchain and offer users near-instant, near-free transaction settlements. This is unheard of in the traditional financial industry. Finally, arguably the biggest hurdle for Bitcoin is achieving a global consensus surrounding the asset’s regulatory compliances.
Exploring the Great Bitcoin Reset – Summary
The Great Reset is an initiative orchestrated by the World Economic Forum (WEF) in operations with the International Monetary Fund (IMF) and the World Bank. In short, following an excessive printing of money over the years, the global money supply is highly imbalanced. With each new dollar created as debt, asset prices of the rich increase. In addition, the purchasing power of the poor decreases. With over 40% of the US dollars in circulation printed within twelve months, the world is facing a wave of inflation. Furthermore, due to such high debt, central banks cannot raise interest rates high enough to counteract the rising inflation. As a result, the world leaders have declared we need a “Great Reset” of our global monetary system.
While there are few public details about the Great Reset, we do know the WEF plans to introduce central bank digital currencies (CBDCs). Although CBDCs include aspects of blockchain, they will require citizens to give up their privacy. Also, CBDCs allow central banks to directly and immediately adjust tax rates according to a consumer or business profile. As a sub-narrative of the Great Reset, the idea of a great Bitcoin reset has emerged. As the largest peer-to-peer network with an ethos of decentralization, autonomy, and anonymity, Bitcoin boasts many advantages over CBDCs. However, the technology is still young. Thus, we need to see technological and regulatory developments before the leading cryptocurrency stands a chance of becoming the world reserve currency.
To learn about other leading blockchain projects, browse our free blogs at Moralis and Moralis Academy! For example, why not see our “Rust & Solana” or our “Solana vs NEAR” articles next? No matter your age, experience, or expertise, Moralis is the best place to learn all things Web3!