Banking and Bitcoin: The Relationship No One Talks About
With a worldwide recession biting at our heels, bankers are boosting bitcoin. The global economy is in an uproar. With a recession just around the corner, and seemingly all countries scrambling to get their finances in order before it hits hardest, fiat is doing some crazy things. How are countries hoping to boost returns when the world economy has crashed? That, as they say, is the $1 million dollar question. Many countries are just planning on printing money. Which seems as ridiculous as it is irresponsible, but it’s a practice that has been happening for decades. This wanton dump of unbacked bills into economies has its benefits but also shares perilous downfalls. Since 1971, the US dollar has had little, if anything to do with actual gold. In the dawn of currency, paper notes were often a receipt for an amount of gold that you had to your name. Each note is 100% “backed” by a tangible amount of gold or other precious commodities. This hasn’t been the case for just about any fiat currency on earth (save Lebanon and Mongolia, but that’s another article) in centuries. So what exactly backs fiat currency value these days? Well, the exact same thing that backs bitcoin- trust. The Only Difference Between Fiat and Bitcoin in a Nutshell For all intents and purposes of tender, bitcoin and fiat really aren’t that different. They’re both widely usable currencies, they both represent some type of value that is assigned to them by public desire. The letters and numbers that cram together to produce a bitcoin wallet key are no less valuable than the paper and ink that create fiat currency. Neither one is actually backed by gold. But the one real difference between the two, the thing that gives bitcoin the economical edge? Bitcoin is finite. Yes. The biggest difference between fiat and bitcoin is that you can’t just arbitrarily produce bitcoin. While the digital currency was originally designed to be fully decentralized, there are a few reasons that aren’t really the case these days. Thanks to bitmixers, trading platforms like well known, and wallet solutions, more and more businesses have popped in to “help” regulate the flow of bitcoin. While some are definitely worth the price paid, they all pitch in and provide middle-men where there ought not to be any. What’s Happening With Fiat When fiat currencies are arbitrarily produced (and they are, often), overseeing agencies can then start to control things like inflation and goods pricing. By arbitrarily producing fiat currency, global markets and fiat valuations drop. Watering down the value of any given currency. However, with a reduction in the cost of goods and travel, exportation and tourism become highly valued within the market. Resulting in a reducing in fiat value, but a boost in the economy. So much so, that some economists suggested that Greece return to the Drachma, print new money and spur an economic turnaround from the chaos that still lingers after the crash of 2008. While Greece has definitely not gone back to the Drachma, currencies around the world are faltering. With one seasoned institutional investor going as far to tweet that current financial solutions used by the Fed and ECB are beginning to look like “a race amongst central bankers to devalue their currencies ASAP.” Undoubtedly, the trust that has kept Fiat afloat for generations is certainly faltering. Which serves to only boost the embrace of bitcoin. How This Drives Bitcoin As trust in Fiat currency and centralized banking begins to crumble, more people begin to look towards more stable currencies- like bitcoin. What makes bitcoin so incredibly stable in this way, is that there is not only a finite amount of bitcoin in the known universe, but that amount is released at predictable and predetermined times and rates. Making it next to impossible to artificially inflate. In fact, the associated algorithm of release, known as halvening, makes it clear to see how much is available and guess- based on market interest, how much will be available. Which means that the savvy bitcoin investors can indeed get their hands on the coveted coin just before it is sought after most. And while it’s still available. The hitch in the plan is that outside governments are now doing their utmost to regulate a currency that was designed to be unregulatable. Well, at least by governments. The US seeks to make taxing crypto more straightforward, hoping to encourage individuals to self-surrender necessary taxes on the funds. However, the country also cautions that should crypto holders hope to dodge the tax, there will be exceedingly stiff penalties to face. Which makes it a bit difficult for both governments and crypto holders alike. As it’s moderately difficult to tie bitcoin holdings with names, and perhaps even harder for holders to nail down appropriate valuation. A devaluation of fiat, in both trust and monetary power, alongside governmental sanctions and taxation, both drive and reduce the overall demand for bitcoin and other cryptocurrencies. Which provides for the massive oscillations that any crypto savvy investor sees. But, rest assured, if you watch the central banks closely and pay special attention to governmental anxiety, it doesn’t take a crystal ball to guess at the next crypto surge.