BTC is considered to be the new favorite of investors in the financial markets across the globe. It increased in values rapidly from $5,000 in March last year to an all-time high of $40,000 earlier this year. Market analysts and the more optimistic participants in the market believe that this rally will go on for a long term, carrying the BTC price to even $100,000 level or beyond it. However, despite all these positives, BTC has still not reached the level of fiat or become equivalent to the dollar as yet.
The faith and trust of people in the government fiat currencies has been falling down in recent years, and as a result, people such as investors and traders have been very keen in investing in crypto and other unconventional financial assets. Due to this decrease in demand and decreased reliability of fiat among people, central banks across the world, and The Federal Reserve in the United States have greatly reduced interest rates and have been generating enormous quantities of fiat money to finance coronavirus relief programs and in an attempt to provide financial relief and support to the suffering economies.
After an increased adoption from several renowned institutions and companies over the recent years, BTC and other digital currencies have gained a status as reliable and respectable investment assets. Bitcoin and other cryptocurrencies are now seen as a respectable investment class, and financial institutions are adding Bitcoin to their portfolios. Following this increased popularity and acceptance, market experts and enthusiasts have even started claiming that not only will the value of BTC surpass the $100,000 mark but also that bitcoin will become as valuable as gold, and even replace fiat such as dollar. Visit this website if you want to learn about automated crypto trading.
However, it should be noted that all of this won’t happen anytime soon. However popular bitcoin has become, it is still not equivalent to money.
Importance of Regular Money
Money is utilized by masses to purchase products and services. Dollar, for example, is used to buy products such as cars, or a racket or any other product in a straightforward direct transaction. Thus, dollars can be used to buy or sell literally everything!
We know that money has a relatively stable value. Although an increasing number of people are now willing to invest and trade in virtual currencies like bitcoin, crypto will continue to be skeptical in the eyes of general investors and traders until the value of crypto becomes stable for a relatively longer period of time.
In an economy, contracts are a very significant part of it, as they are utilized in a wide range of activities, such as purchasing a property with a mortgage, buying insurance or leasing a vehicle, and many other activities. The question is, do you think a sensible investor or spender would get involved in a contract which would base on a crypto such as bitcoin? This can be demonstrated by an example that had a person purchased a mortgage at the beginning of last year for $125,000, they would owe the bank around a million dollars today!
Why does Bitcoin stay behind money?
There is a huge amount of volatility associated with bitcoin as well.
The limited total supply of bitcoin is also one major issue associated with bitcoin. This fixed amount of $21 million cannot be altered – increased or decreased. Since the demand of masses varies with time, diminishing or usually growing, a subsequent decrease or increase in the production of money is required to cater that demand of the economy.
When the economy of the United States transformed from a basic agricultural economy to the leading industrial economy of the world, there was also a subsequent increase in the supply of dollars, almost equal to 160 times greater.
Cryptocurrencies which can be used commercially will appear as the mistakes of the Federal Reserve by generating surplus money out of thin air to provide finance to the huge Covid-19 relief programs of Washington. However, this cannot be BTC, owing to its limited total supply of 21 million coins.
It is noteworthy that the supply of Swiss francs is huge as it is considered to be reliable by investors and markets all around the world. The purchasing power of Swiss franc has been conserved better than all the other fiat currencies in the world, for the last whole century.
In order for virtual currencies to reach the level of normal fiat currency or become equivalent to it or surpass it, it is required by them to become as convenient and simple as the money, and their value should be either fixed or relative to the commodity gold or to a popular currency such as Swiss franc, which would allow them to also be utilized for contracts. We believe that until both these identified conditions do not meet, virtual currencies won’t become as popular or usable as the dollar or any other fiat produced by any country’s government.