Is Bitcoin still meaningful? Before 2008, the US dollar was unequivocally the world’s reserve currency. However, the situation has transformed dramatically since the decentralized currency, Bitcoin, was introduced in early 2009.
In response to the need to combat inflation, Bitcoin has a limit of 21 million coins that can ever be mined. This makes it the second-smallest coin ever in the crypto market, trailing only Yearn.finance, a decentralized token launched in 2020.
In stark contrast, there is no conceivable limit on the US dollar, and over the past three years, the world’s economic power has been compelled to print more money out of thin air. Consequently, many investors have turned to the deflationary Bitcoin as a hedge against rising inflation.
However, circumstances are shifting rapidly, and the dollar appears to be making a comeback.
Dollar Stronger Than Ever
The US dollar is used to resolve the vast majority of international transactions. Several countries have tried to replace the US dollar, but none have matched its economic strength. According to a recent report by Schwab, the US economy, which supports the dollar, will grow faster in 2022 than it did in 2019. This compares to 8.3% growth in the Eurozone and 3.6% growth in Japan during the same period.
The dollar has been able to withstand what many have called a global economic collapse due to a strong economy, Federal Reserve rate hikes, and safe-haven purchases. The US dollar is fundamentally stronger than it has ever been. What are the immediate consequences of a strong dollar for the global economy, particularly for emerging-market countries?
A strong dollar would likely help to contain domestic inflation by lowering the cost of imported goods. As a result, occupants of the United States would have more purchasing power. However, the global impact is higher inflation.
Several commodities, including gold and other precious metals, are traded in exchange for dollars. If the dollar were stronger, it would be more expensive to purchase in local currency. Furthermore, struggling economies with massive debt profiles may be unable to meet the predetermined obligation because they must find additional local currencies to service their debts. This would result in hyperinflation returning to these economies.
A strong dollar would be detrimental to the US economy in the long run. How? Because the dollar is stronger, more trading partners will buy fewer US goods, resulting in a trade deficit.
Then, how does Bitcoin fit into this narrative?
BTC/USD Is the Gold Standard
Bitcoin was designed to be used by individuals to settle debts, not as a financial instrument. However, the best crypto to trade experienced a resurgence in the last decade.
Currently, Bitcoin is the most valuable cryptocurrency in terms of market capitalization, accounting for roughly 40% of the emerging industry. Although other national currencies can be exchanged, the US dollar is the most widely recognized. The BTC/USD pair is the most actively traded pair on the cryptocurrency market and is widely considered the gold standard.
Most Bitcoin trading platforms allow customers to buy cryptocurrency and sell it in US dollars, making the US Dollars more appealing to investors. A strong dollar would effectively render Bitcoin ineffective, as investors would no longer require it for its most important function – as an inflation hedge.
This could have a negative impact on Bitcoin’s value because investment inflows could slow. Bitcoin is a form of anti-government resistance, but its deflationary tendencies attract investors more than anything else.
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