As the resident bitcoin skeptic at CCN.com, today I’ll be looking at the myth that bitcoin will one day replace all fiat currencies.
The Bull Fiat Currency Case for Bitcoin
The bullish argument goes as follows: governments are increasing their borrowings to unprecedented and unsustainable levels. The debt burden will eventually cause governments to collapse, even the United States, and even under President Trump!
When that happens, there is no more “full faith and credit” of the government to back the respective currencies.
The Bear Fiat Currency Bitcoin Case
While it is certainly possible that these insane levels of debt may eventually crater individual sovereign nations, along with their currencies, bitcoin and other cryptocurrencies will be of no value in those circumstances.
That’s because, at the moment that the local currency is considered worthless, no bitcoin seller will sell his bitcoin in exchange for a worthless currency.
Bears will now shout, “Venezuelans are selling their increasingly worthless Bolívars for bitcoin, and have been for some time.”
That’s because the Bolivar is still a viable currency, despite the ongoing hyperinflation. A bitcoin seller can still transfer the currency into another form of currency. The market is still liquid for Bolivars, although not for much longer.
Worse, holding bitcoin in a country that is no longer in civil control will not be of any value to the buyer/owner.
If a fiat currency totally collapses, the resulting civil unrest may very well take out the power grid. Those people who have cryptocurrencies may not even be able to access them.
If Fiat Currency Collapses, Only Tangible Goods Will Matter
More to the point, people living in these countries will only be in need of the basics for survival: food, water, shelter, guns, and ammo.
Offering to pay for these necessities in the form of bitcoin is not going to do the seller any good, because bitcoin will not be of any tangible value in these moments of need.
Does the seller think he will be able to convert bitcoin into US dollars, walk over to the local bank, and withdraw US dollars? That’s not going to happen, because the banks will already be holding nothing but worthless local currency…if they aren’t on fire.
Even worse, bitcoin is insanely volatile.
Anyone that does manage to change their local currency into bitcoin may find that the value of the bitcoin they just purchased declines by a substantial amount in a matter of minutes.
We’ve already seen this happen multiple times, it’s going to continue to happen, and that’s because of the very thing that the coin both love to crow about: the limited number of available bitcoins. In a limited market with high demand, there will always be volatility that is far above average.
The Final Irony of Bitcoin Value
There’s also the question of how one actually measures the value of a bitcoin. In an ironic scenario worthy of O. Henry, how is the value of bitcoin expressed around the world? In terms of the local fiat currency!
For as much as they grow about the replacement of fiat currency, pickling bulls value their cryptocurrencies in terms of that very same fiat currency.
If fiat currency is worthless, what is a bitcoin actually worth? It’s worth whatever someone is willing to barter or trade for.
Again, in periods of civil unrest, the things that are actually traded are tangible objects.
If I’m going to sell you a gun, how many bitcoins are you going to pay me for it, when a bitcoin doesn’t do me any good in terms of surviving?
The fiat currency replacement argument does not work. Bitcoin is, frankly, for suckers in the long term. The best you can do is trade like a whale.