New report outlines failings of Federal Reserve bailouts

Villaverde and Ng believe these moves miss the mark. "Buying the debt of big, politically-connected companies (that would be insolvent if not for endless bailouts) does not create new jobs…Nor does it generate the billions in earnings lost to pandemic lockdowns," they wrote in the report.

The analysts see an opening for cryptocurrencies, expecting that the government's bailout approach will push more people toward digital currencies. Unlike the dollar, Bitcoin operates without a central authority setting monetary policy. Changing the supply or rules of a cryptocurrency requires agreement across its network. When someone tries to impose changes unilaterally, the community often resists.

Bitcoin Cash put this dynamic to the test when proponents of the network proposed a 12.5% tax on mining, called the infrastructure funding plan. Major crypto companies backed the proposal, but the wider community, including miners, opposed it. Concerns about centralized control and the risk of a hostile takeover spread through the community. The pushback killed the plan.

Decisions in the U.S. monetary system work differently. The member banks that sit on the Federal Reserve's board make calls without needing community consent. Villaverde and Ng argue this creates moral hazard. "If they did it (the bailouts) once, they can surely do it again. That leaves cryptocurrencies as the only honest alternative to the morally bankrupt monetary system we have today," the analysts wrote.