Published on May 27th, 2018 | by Sunit Nandi0
Global finances, cryptocurrencies and their rendezvous with fiat money
Cryptocurrencies are the Kardashians of the stock market. Everyone knows about them, but only a few really know what the hype is all about. There is no way we can deny the craze surrounding Bitcoin and other alt currencies. So we decided to investigate further into the matter and find out if Bitcoin is really the new fiat money.
How does the global economy view digital currency?
Before the times of Nixon, even the US had a representative money system. Their dollars derived value from real gold. This made it impossible for the federal government to print more money for increasing circulation. Every quantity of money had some precious metal to back it up. This was the simplest money system. This money system often creates the perfect ground for inflation, when the government involved prints too much paper money. Increasing the print and increasing circulation of representative money system has always been the biggest contributors to inflation. When that happens, representative money becomes Fiat Money since the new dollar does not have the same value as the initial dollar, in terms of gold.
The global economy got its first taste of digital currency almost 50 years ago. During the Vietnam War, President Nixon decoupled the dollar system from the US gold reserves to prevent a market spiral. Nixon canceled the direct conversion of US dollars into gold, and this resulted in the famous Nixon Shock of the 1970s. You can think of all fiat currencies as legal tenders with complete central government support of a country. Aside from the US, UK also uses Fiat currency right now. As per some expert economists, the rise of Bitcoin and Ethereum is the modern equivalent of the decoupling step. Nonetheless, the skeptics believe that alt-currencies are short-lived and are devoid of any real value.
How is Bitcoin similar to Fiat money?
In 2016, Bitcoin was the best performing currency across the globe and in 2017, the value of it superseded 1300%. What you can understand from the market trends and market value of Bitcoin, Etherium and other altcoins is that they are highly vulnerable. Their values have always been unpredictable, and their demands have fluctuated as per federal regulations across the world. As compared to the mainstream finances, the low trading volumes of alt currencies had made their price action volatile beyond comparison. However, that was at least a year ago. Now the prices of most altcoins are stable, and their growth rates have slowed down significantly. Ask Timothy Sykes for the latest updates on all popular cryptocurrencies to know more!
Altcoins and cryptocurrencies are very similar to a fiat currency in a number of ways. Gold or any other material asset does not determine the market value of a fiat currency. Fiat decree determines its own value and the issuing government announces its worth. This might sound familiar to you since almost all modern currencies are fiat to prevent them from spiraling when the worth of gold or silver falls in the international trade market. While, this sounds quite convenient, since almost all shops, bars and traders accept this kind of currency, it also means that the government can print more money. Increasing the supply or circulation of money can decrease its net worth.
Why are crypto-currencies experiencing a sudden plunge in value?
Certain countries are banning the use of cryptocurrencies for online transactions. This can lead to a number of people losing faith in Bitcoin and Etherium. When that happens, you might get Runaway Inflation. Hyperinflation depletes the value of the currency. There is always an upper limit to the total number of Bitcoin in the world. Therefore, any agency cannot create new Bitcoin to increase the total sum. Since there is no involvement or interference from governments, you can always be sure that something like the demise of the Bretton Woods Agreement will never happen again. This is a classic difference between fiat money like the US Dollar and cryptocurrencies like Ethereum.
How is the popularity of alt coins still going strong?
Several other altcoins have emerged in the last couple of years including Dogecoin, SpaceBIT, and PayCoin. Not all of them have been equally successful in wooing investors, but many of them have been able to create a cryptocurrency finance system. The presence of multiple cryptocurrencies allows people to buy and sell commodities across national borders without worrying about money exchange rates or inflation. However, it is also the reality that cryptocurrencies do not have any gold or silver backing them up in value. At the end of the day, they are definitely less appealing to traders and investors, who are more used to dealing with non-Fiat currency.
We might keep debating about the legitimacy of Bitcoin and other altcoins, but it is undeniable that they remain profitable investments for many. People have gradually shifted away from investing in real gold or real estate. Small investors have fallen in love with cryptocurrencies, in spite of their volatility, due to the possibility of investing small amounts at a time at low risks. Several small investors have become crypto-millionaires in 2017 as the values surged. Some people do believe that you cannot buy or sell Bitcoin for representative money. Right now, it is possible to sell almost all altcoins for real money, and that provides an emergency exit for many traders as the values start to plummet.
What should you do about cryptocurrency investing?
There is not one expert trader in the world who does not own one or a fraction of an alt currency right now. In spite of all the debates and doubts, Dogecoin, Bitcoin, Etherium, and SpaceBIT remain some of the most popular digital currencies. Not many have been able to avoid the lure of these currencies in the recent years. You can be a crypto skeptic, but all signs point towards the rise of cryptocurrencies once again in the recent future. After all, it does make a lot of sense to own an alternative currency that bears a number of advantages over any national currency. You must remember that not all alt coins are the same. Therefore, engage in a lot of research, follow their market value trends and invest in any form of cryptocurrency after understanding them thoroughly.