Bitcoin
As Bitcoin moves past fiat, what’s next for global finance?
As the value of Bitcoin surpasses major currencies by 99.5%, could this be the beginning of a new era in which digital currencies challenge traditional financial systems?
The global economy has faced severe challenges in recent years, including runaway inflation and a slowdown in growth rates since the post-pandemic era.
At the US., recent reports indicate slower than expected GDP growth of 1.6% in the first quarter, missing forecasts of 2.5% growth and falling well below the 3.4% recorded in the fourth quarter.
Simultaneously, the core PCE (personal consumption expenditures) price index – a key indicator of inflation for the Federal Reserve – declined. resurrected at 3.7% per year in the first quarter, exceeding expectations set at 3.4%.
In this context, Bitcoin (Bitcoin) has seen wild swings in recent weeks, trading around $62,000 on April 29.
With its decentralized nature, BTC has received both praise and criticism regarding its potential as a store of value. Proponents argue that Bitcoin offers a hedge against inflation and economic uncertainty, while critics point to price volatility and regulatory concerns as prominent risks.
Given this context, let’s explore Bitcoin’s performance against major global currencies since its inception to determine whether it has truly served as a reliable store of value.
The declining purchasing power of the US dollar relative to Bitcoin
The US dollar, historically considered the backbone of the global economy, has suffered a notable decline in its purchasing power relative to Bitcoin since the latter’s inception.
Once commanding considerable value, the dollar now equates to a modest 0.000016 BTC as of April 29, indicating a 99.5% drop in value relative to Bitcoin.
USD to BTC Lifetime Chart | Source: Google News
This disparity becomes even more evident when considering Bitcoin’s impressive appreciation of almost 800% against the dollar in just the last five years.
Traditionally, the dollar’s strength has been rooted in its role as the world’s main reserve currency. since the Bretton Woods Agreement in 1944.
The dominance of the USD in global oil transactions and the reliable support of the American economy further strengthened its position. However, these strengths are offset by inherent weaknesses arising from its fiat currency status.
Unlike Bitcoin, which has a limited supply that guarantees scarcity and, theoretically, retention of value, the US dollar is susceptible to inflation and devaluation due to overproduction – a challenge that has historically plagued fiat currencies.
Recent trends in US economic policy have further highlighted these vulnerabilities.
High inflation and ascending The national debt has raised concerns about potential currency crises, where rising consumer prices could force the Federal Reserve to dramatically raise interest rates.
Such scenarios could endanger the stability of the dollar, as higher interest rates would amplify the government’s debt servicing costs, potentially undermining confidence among foreign creditors.
In contrast, Bitcoin’s design inherently avoids such pitfalls. Its decentralized nature and fixed supply limit offer an alternative to traditional monetary systems where the risk of government-induced inflation is great.
BTC versus other reserve currencies
To accurately assess Bitcoin’s role as a store of value, it is crucial to analyze its performance against major global currencies, including Special Drawing Rights (DES).
Established by the International Monetary Fund (IMF) in 1969, the SDR functions as an international reserve asset, representing a potential claim on the freely usable currencies of IMF members.
Initially linked to gold and the US dollar, the SDR evolved in 1973 into a composite of five major currencies: the US dollar, the euro, the Chinese renminbi, the Japanese yen and the British pound sterling. Its main function is to serve as a unit of account for the IMF and other global entities.
Now, let’s explore how the major global currencies fared against Bitcoin.
The euro, a key player in the global economy after the US dollar, has seen a notable decline in value relative to Bitcoin. On April 29, the euro was valued at approximately 0.000017 BTC, indicating a 99.49% devaluation since Bitcoin’s inception.
Likewise, the British Pound has depreciated by around 99.57% against Bitcoin, amounting to around 0.000020 BTC per GBP.
Despite China’s strict regulations on the use of crypto, the Yuan has devalued 99.55% against Bitcoin, now valued at 0.000021 BTC.
Meanwhile, the Japanese yen suffered a devaluation of more than 99.6% against BTC, recently reaching a 34-year low amid Japan’s continued struggles with hyperinflation and low interest rates compared to the US. On April 29, Google Finance shows that one Japanese yen is equal to zero BTC.
An even more drastic situation unfolds with the Argentine peso, which almost lost value compared to Bitcoin by more than 99.99%.
This sharp decline is in line with Argentina’s battle against an inflation rate of 211.4% in 2023, reaching a 34-year high.
Could BTC become the next store of value?
To assess Bitcoin’s potential as a reliable store of value, we must consider historical examples of how reserve currencies have evolved and the factors that have driven their adoption.
Reserve currencies have gained prominence due to economic stability, geopolitical power and institutional trust.
The British pound, the British pound and, later, the US dollar rose to prominence during periods of economic dominance and geopolitical influence.
For example, in 1920, the pound sterling accounted for for 57% of global trade settlement (less than 5% by 2020). Similarly, after World War II, the US dollar became the main reserve currency (59% in 2020), supported by the strength of the American economy and the Bretton Woods Agreement.
However, these currencies have faced challenges such as inflationary pressures and geopolitical changes, leading to transitions in global reserve currencies over time.
Bitcoin encounters obstacles in these areas. Despite its notable growth, with an annualized average turn back exceeding 671%, its volatile price swings raise concerns about its stability as a reliable store of value.
While Bitcoin’s decentralized nature offers resilience against government interference, it also presents regulatory, security, and adoption challenges.
Concerns about security breaches and illicit activities further undermine confidence in crypto among mainstream investors.
Consequently, only time will reveal whether Bitcoin can address these concerns and gain widespread trust as a store of value.