Can Bitcoin Replace the Dollar?


In the financial market, all commodities are marked with prices including bitcoin, securities, Taiwan dollars, Euros, and dollars. This price is like magic, making everyone mistakenly think that all commodities are on the same plane. In fact, these commodities have a hierarchy. The first is the difference between money and credit. Money is different from credit, credit is the promise of future exchange of money, but money can be utilized in real-time. Speaking of bitcoin and other cryptos, visit one of the most trusted and reliable platforms on the market.

The monetary class of the dollar system

Everyone will have the illusion that bitcoin can be used as a currency. However, once the liquidity crisis occurs, the price of bitcoin will shrink sharply, and suddenly the market will realize that the stablecoin backed by the dollar can be a safe investment option compared to bitcoin.

Perhaps bitcoin will gradually move closer to money or deposits. But interestingly, the reason why the currency/deposit class maintains a price is that the government requires central banks and commercial banks to fulfill the promise of a 1:1 exchange. But the price of bitcoin is not endorsed by the government, and there is no fixed price commitment.

Another hard problem of bitcoin is the innate lack of monetary elasticity

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Suppose one day the governments of the world sit down and discuss the bitcoin standard. What will happen?

For some monetarists and Austrian economists, aggregate fixation is the solution to prevent inflation. But this is only to understand money from the “discipline of money”. It is impossible to control the price of bitcoin.

In the current globalized world, the credit expansion in the monetary system will expand and contract. The better the economic development, the higher the expansion and contraction, and the total limit of bitcoin and the increase in supply will be halved yearly to make it a currency with poor elasticity. So, when a crisis occurs, bitcoin cannot increase rapidly to meet the needs of the market.

Bitcoin’s innate aggregate limitations make it easier to be the best asset class when offshore dollar liquidity floods. In fact, many well-known investors have also suggested that a small part of their assets can be allocated to bitcoin.

As an “emerging asset class,” bitcoin has been quite competent over the years and may even become a means of payment outside of fiat currencies. But to be an international reserve currency or fiat currency, bitcoin is not suitable.

From last year’s institutional adoption to the official launch of the bitcoin futures ETF in the United States, bitcoin, as an asset class, is entering the vision of traditional investors. Bitcoin’s innate aggregate limitations make it possible to become a fairly good reserve asset. But because bitcoin is moving into the mainstream, it’s even more important to understand the asset class of bitcoin before investing.

Can bitcoin replace the dollar?

The first is the question of the monetary class. The gold standard was the culmination of the entire monetary system. In 1971, after President Nixon of the United States announced the temporary suspension of the dollar’s exchange for gold, the world became out of the gold standard. And the dollar naturally took over the position of gold.

Since the international settlement currency is the US dollar. It seems understandable that the proportion of US dollar foreign exchange transactions and foreign exchange reserves of various countries remains high.

For example, one of the data shows in the fed’s report shows that in 2015, 50 percent of the world’s total GDP was produced by countries with dollars anchored to their currencies (excluding the United States). This is the fact that many countries have earned trade surpluses. It is impossible to replace the dollar or any other fiat currency with bitcoin because people located in remote places cannot use such digital coins for their daily purchases. So, you must consider it as an asset, not a currency.

In Conclusion

Bitcoin is still at the bottom of the monetary class: commodities. Through the stablecoin, the bridge using the dollar system has made a complete series with cryptocurrencies. It can even be said that cryptocurrencies have been adopted by the US dollar system.

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