Nicaragua. Russia. Indonesia. What do all of these countries have in common?
When their citizens want to save money, they convert their local currency into dollars.
If you’ve travelled anywhere in the developing world you’ve seen how this works. Go to any major
city and every couple of blocks there’s a currency exchange kiosk. Going into dollars is just part
of their daily routine, like something you do on your way to the grocery store.
People save in dollars, because historically the dollar has been a good store of value.
The United States has, for the most part, been fiscally responsible and
inflation has never really been a problem. But That could be changing now...
If you’ve been watching the news you’ll know that economists, investors and world leaders are all
starting to question whether the dollar is going to remain as a good store of value.
The Federal Reserve has printed trillions of dollars since the 2008 global financial crisis,
and it looks like the money printing is only going to continue in the coming years.
Then there is the problem of debt.
The United States has a debt to GDP ratio of over 130%. That’s a fancy way of saying,
the United States has more debt than it can earn in a year. It would be like a
household that earns $100,000 a year but is $130,000 in debt. It’s unsustainable!
The 130% number is important because after this point, research has shown
that almost without exception, once a country hits 130% debt to GDP,
it ends up defaulting on that debt. This can happen in two ways. One way is a true default,
where a country just says, “hey, we’re not going to pay this debt. Sorry.”
This almost never happens. What usually happens is that a country revs up its printing press in
order to inflate away the debt. This is what the United States did after World War 2,
and that’s what the Federal Reserve seems to want to do again today. Inflate away the currency,
devalue the dollar such that the real value of all of the debt is substantially diminished.
Against this backdrop of heavy inflation, enter, Bitcoin…
Like gold, Bitcoin is hard money. There is no Bitcoin printing press. A certain number of
Bitcoins are produced every year and that’s it. No more, no less. It’s impossible for a politician or
a banker to come in and demand that more BTC get printed. It just doesn’t work that way.
If all of the governments had responsible monetary policies, if they didn’t print too
many Dollars, Euros, Yen, for example, Maybe we wouldn’t need Bitcoin. But Unfortunately,
that’s not the world we live in. In this world, governments are printing their
currencies at a record rate and people who want to protect their savings are buying Bitcoin.
The number one argument against Bitcoin replacing the dollar as
a store of wealth is that Bitcoin is too volatile.
While it’s true that Bitcoin is volatile, it’s important to consider two key points.
1 - On a long enough time frame, most people end up in profit.
For example, every person who bought Bitcoin prior to August 1st, 2017,
their position was always profitable from that date onward! Bitcoin never dipped below $3,000.
While Bitcoin can be highly volatile from quarter to quarter,
if you hold it long enough, Bitcoin can be a great store of value.
2 - Bitcoin’s volatility is decreasing over time. It typically moves in 4 year
market cycles, and during each cycle the price moves are less drastic.
As with any new asset class, Bitcoin is moving toward a point of finding fair market value.
We don’t know where the Bitcoin price will find equilibrium. 1 million dollars seems
like a nice round number, but it could just as easily be $200,000 dollars. We have no idea.
However, we can be fairly confident that at some point the price of Bitcoin is going to
even out. When that happens, the volatility may not be anymore drastic than the stock market’s.
At that point, Bitcoin really will be an excellent store of value.
The transition from the dollar to Bitcoin as the world’s preferred store of value won’t
happen overnight. Bitcoin dethroning the dollar could take a few decades. The good news? We’re
already 11 years into the process! We’re 11 years in and all the signs we have so far are positive.
The Federal Reserve has made it clear that their primary concern is debasing the dollar.
That’s happening at the same time that the Bitcoin protocol is gaining trust,
as digital hard money with an uncompromised maximum supply of just 21 million BTC.
As the dollar inflates, Bitcoin continues on as the world’s best digital store of wealth.
Remember those currency exchange kiosks on the street corners? Well, you’re going
to start seeing a new sign in the window. There will be the dollar sign, a Euro sign,
and flashier than all of them, the orange BTC ticker symbol and the words, “Bitcoin sold here.”
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