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Bitcoin is Hedge Against Fiat Currencies

In the last year, the report was released about the Bitcoin which is a “safe haven asset” gained a popular sentiment in the market. Unfortunately, the role did not make success in 2020. In the starting days of this month, Bitcoin experienced a fall down of half of its value within a week due to the coronavirus pandemic. Traditional markets are also witnessing a heavy fall due to the same situation.  

It reports that Bitcoin was not supposed to be recognized as a safe haven against any generic form of economic turmoil. Bitcoin was crafted as a hedge against a specific kind of crisis: the potential collapse of the fiat current system.

During the crisis, no matter it’s a war or a spread of virus, governments have turned to high levels of inflation in order to pay during the emergency spending projects that would be unfeasible. This results in the side effect of diluting the supply of money and inducing the value of people’s saving. Demand and supply theory notifies that price will result to the declination if supply scales up and remain constant as earlier.

The member of the U.S. Congress has made a proposal that the Treasury mint two $1 trillion coins will be sold to the Federal Reserve. Moreover, the Federal Reserve has released “QE infinity” and also urged them to create an unlimited amount of cash in response to the coronavirus crisis.

Bitcoin is immune to this particular problem as there is no central actor who can target to create maximum cash and devalue existing coins.

The main decision lies where Bitcoin has always been on the levels of government spending and been out of control. This leads to devaluing the U.S. dollar and other fiat currencies.

Though Tetras Capital’s Brendan Bernstein covered the growth of socialist ideology, deficit spending, and negative interest rates as due to some reasons the supply of U.S. dollars would expand at a rate that devalues the world’s most leading fiat currency.  

Ray Dalio, Billionaire investor shared an opinion that Bitcoin bulls are likely to come true, though it looks like a nightmare at this stage. He is still unsure that the crypto asset would turn out to be the safe haven choice.