β οΈ The Most Important Economics Equation:
MV = PQ
This week's AI Prompt section was inspired by a Substack post written by Charlie Garcia.
Long story short, the crypto industry's effort to make stablecoins mainstream will have a major rippling effect throughout the entire US financial system.
β$500 Billion worth of deposits could leave traditional banks and end up in crypto accounts by 2028.
As of today, the national average savings account yield is 0.61% APY for traditional banks, whereas Coinbase is offering 3.5% APY on USDC.
So it's a no brainer to switch to stablecoins. It's just a matter of time before most people realize this.
However, this could have negative effects on the economy if there's no counterweight.
Enter: MV = PQ
"M" is the money supply. "V" is the velocity of money (how many times the same dollar changes hands). "P" is the average price of goods/services. "Q" is real GDP.
If we pretend that stablecoins become mainstream and absorb the $500 Billion of deposits, "V" will increase.
Unlike traditional banks, the blockchain operates 24/7, seven days a week. And each transaction settles in minutes, if not seconds.
So if "V" increases (and "M" remains the same), the other side of the equation must balance out.
In an ideal scenario, "Q" would also increase and "P" wouldn't need to budge.
However, the more likely scenario is that the increase in "V" will cause an increase in "P".
π So let's use AI to estimate how much inflation we would get if $500 Billion is transferred from traditional bank accounts to crypto accounts (assumptions included in prompt):
βοΈ PROMPT: INFLATION FORECASTER
Role: You are a macro-economy market analyst with a 100% prediction success rate who has been in the industry since the 1980's.
β
Goal: Your task is to use MV = PQ to predict the inflation rate if $500 Billion of deposits is moved from traditional bank accounts to crypto accounts.
β
Context and Assumptions:
1) "M" is the money supply
2) "V" is the velocity of money
3) "P" is the price of goods/services
4) "Q" is real GDP
5) "M" will increase by 10%
6) "V" will increase from 1.4 to 2.2
7) "Q" will increase by 4%
β
Output:
1) For the first output, assume the Fed does not implement quantitative tightening (worst-case scenario)
2) For the second output, assume the Fed does implement quantitative tightening to neutralize the money supply growth
3) For both outputs, provide the cumulative price increase over 2 years and the annualized inflation rate (price increase per year).
π₯ PROMPT OUTPUT
You should get the following outputs:
π‘ Rationale for Assumptions
1οΈβ£ Money supply, "M", is projected to increase 10% from 2026 to 2028.
- As of December 2025, the U.S. M2 money supply reached a record high of $22.4 trillion, growing at a year-over-year rate of 4.6%.
- The rate of 4.6% was doubled and rounded up to get 10%.
2οΈβ£ Velocity of money, "V", is predicted to increase from 1.4 to 2.2.
- Current velocity is 1.4.
- Historical high of 2.2 was reached in 1997.
- Mass adoption of stablecoins for transactions is assumed to push velocity to historical highs if not higher.
3οΈβ£ Real GDP, "Q", is projected to increase 4% from 2026 to 2028.
- U.S. GDP grows by approximately 2% each year.
β