When it comes to Bitcoin becoming the world’s reserve currency to replace the dollar, it has a lot going for it. The price of Bitcoin has gone from $192 dollars in October of 2013 to $57,000 today. That’s an insane 29,587% increase in value. A lot of the world’s biggest investors have publicly mentioned their bullishness regarding Bitcoin. Elon Musk started buying it when Tesla bought 1.5 billion dollars and started accepting it as a form of payment. The Caruso Partners RE firm also just began accepting bitcoin as a form of payment. Needless to say, the more institutional investors buy in, the more likely it is that Bitcoin will become a legitimate store of value.
It certainly seems as though Bitcoin is well on its way to replacing gold. Due to its finite supply, the total price of Bitcoin has already gone above a trillion dollars. There is only about 10 trillion dollars worth of gold in the world but are unsure of the actual amount. Given its growth rate, Bitcoin could easily have more global liquidity than gold by 2025, likely sooner. Again, this would enable Bitcoin to replace gold as a better hedge against inflation moving forward.
What I am ultimately saying is, now that rich people, institutions are investing in Bitcoin rather than gold, it might be worth it for you to invest in Bitcoin too. But, there are still some serious concerns that the market needs to iron out. The following are some of the issues people smarter than me have mentioned. Only time will tell whether these problems are legitimate or not.
Problem 1: Volatility
Scott Galloway, a businessman, and investor who I have referenced several times, gave a good overview of Bitcoin in this Youtube video. By the end of the video, he concludes:
“I’m investing in Bitcoin, because I can afford the risk and I don’t want to feel like an idiot if it goes to $100k this year.”
That is not exactly a vote of confidence. He is basically assuming he is going to lose the money but might get lucky. Personally, luck is not a strong enough endorsement. Despite the recent confidence from Tesla and bigger companies, Bitcoin is still too volatile for even the brightest business minds to know exactly what is going to happen. If Scott Galloway is assuming he’s going to lose the money he put into Bitcoin, you should too. Only invest in Bitcoin if you’re willing to completely lose. It is still too early to know if demand for the coin will keep going up.
Problem 2: Government Ban
Governments have a history of banning potential threats to their centralized currency. Historically, gold has been the victim of such legislation. Ray Dalio, when asked about Bitcoin in this interview, pointed out that the United States did this with the Gold Reserve Act of 1934. In this, FDR made it illegal for any American to have or hoard any gold. Dalio then warns Bitcoin may be the next victim. He then gives acurrent example and mentions how India is already considering banning Bitcoin. We are already seeing similar actions to what FDR did back in the 1930s with gold. For that reason, Bitcoin might become banned by the government. In that case, it would be risky to buy.
Problem 3: China and International Security
The last, and potentially largest, problem is that Bitcoin might be the best way for China to gain leverage on the dollar. Peter goes on to say:
From China’s point of view, they don’t like the US having this reserve currency because it gives us a lot of leverage over Iranian oil supply chains and all sorts of things like that…I think the Euro was in part a Chinese weapon against the dollar.
And, uh, even though I’m sort of a pro crypto pro Bitcoin…I do wonder whether, at this point, Bitcoin should also be thought of as a Chinese financial weapon against the US where…it threatens the US dollar and China wants to do things to weaken it. From a geopolitical perspective, the US should be asking some tougher questions about exactly how that works.”
If it becomes clear that China is long Bitcoin and is actively leveraging it to undermine the dollar, Bitcoin might be in trouble. If that becomes the case, Americans might not want to hold Bitcoin because they will be actively taking part in the demise of their domestic currency. That is a very tricky situation and could be another point in favor of the Fed banning Bitcoin. At the same time, it could cause Americans to want even more of it. I am not sure how it will play out. It is simply worth noting that the Chinese might jump at the opportunity to hold Bitcoin if it thinks it will crash the dollar.
It will be very interesting to see what happens over the ensuing months/years with Bitcoin. It clearly has proved its worth as a reliable and decentralized ledger. But, volatility, along with governmental and geopolitical pressure could crash Bitcoin, however. Only time will tell. That said, it still has some MASSIVE upside. You can still win big. Just don’t be surprised if you lose everything instead.
What do you think about Bitcoin? Will it be the world’s reserve currency by 2030? Do you own any?
Thanks for reading until the end!
-pr
