Recently Bitcoin has been going up after the Fed announced a 75 bps interest rate hike in July. Some people said the crypto market (alongside the stock market) went up because the bearish pressure had been “priced in”. Not sure if we will go back down, but it’s probably time for me to analyze what are the odds that Bitcoin can truly replace fiat currencies in the future.
You see, when you hear about a new cryptocurrency, one of the first things people usually ask is, “Will this coin succeed in replacing traditional currencies such as USD or Euro?” The answer to this question depends on many factors, but there are some general indicators we can look at when making our predictions. If the narrative is true, then maybe Bitcoin could even become the global currency. Here are three more questions to consider.
Is it possible for Bitcoin to replace USD?
The short answer is yes… and no! It all comes down to how fast Bitcoin grows its value against other cryptocurrencies as well as fiat. So far, most crypto enthusiasts have been extremely optimistic with their estimates since Bitcoin has grown by over 1 million times compared to 2011-12.
And despite recent bearish momentum, Bitcoin has slightly recovered since mid-June. Are we back to the bull market yet? Well, I don’t know.
That said, I wouldn’t count your chickens just yet because while Bitcoin figures may seem impressive, they don’t take inflation into account. Bitcoin suffers from severe deflation due to the mining process, where coins are continuously created faster than ever.
As such, it makes sense to keep investing now so you won’t miss out later. Also, remember that Bitcoin doesn’t pay any interest rates and thus cannot borrow money from banks and institutions.
Therefore, unlike gold, Bitcoin lacks tangible assets, which gives it an edge over other commodities. On top of that, Bitcoin isn’t backed by anything physical either – meaning investors should treat Bitcoin differently than stocks, bonds, etc. So, what do you think?
There’s this article I read the other day, where it explains the outlook and summary on centralized network vs decentralized. I think it is a good read and explanation on Bitcoin and the blockchain basics.
How To Get Bitcoin?
Since Bitcoin does not offer direct purchase options like buying shares, ETFs, Stocks, Bonds, etc., here are two ways you can acquire them. You can use exchanges or online wallet services.
Exchanges allow you to trade Bitcoins right away without needing to go through private key management processes. However, using exchanges also means giving up “privacy,” which defeats the purpose of owning digital cash. Online wallets provide ease of access but require users to handle their own keys. In addition, fees tend to be high as well since these platforms need to cover operating costs.
But still, the safest way to invest in crypto is to use a non-custodial crypto wallet. The idea here is that you withdraw your crypto to your own crypto wallet after you purchase them via crypto exchange.
What are the odds Bitcoin will become the world reserve currency?
It is hard to predict the future, especially when talking about something as volatile as Bitcoin. But let us assume that Bitcoin becomes the new dominant alternative payment method and eventually replaces the dollar.
Here are some interesting narratives regarding Bitcoin’s chance to become the world reserve currency. Although Bitcoin is currently facing issues with scaling, it remains the most popular cryptocurrency in the world.
Also, major corporations and financial institutions are starting to invest heavily in blockchain technology. With that being said, what are the chances that Bitcoin will become a universal currency? Well, the probability is still quite low because many central governments don’t want to give up their power to control the currencies.
Since it took over 50 years for previous technologies to mature, it probably won’t happen overnight for Bitcoin to become much more mainstream than today. And based on historical patterns, Bitcoin’s price rise has always followed exponential growth curves. Hence, if history repeats itself, Bitcoin’s price increase will continue following similar trends.
What Are The Potentials Of Fiat Currencies vs. Bitcoin
One thing is clear: Bitcoin is still very immature. While early adopters enjoy huge benefits, others suffer greatly. Some of the disadvantages include lack of support from government agencies, limited supply, volatility, scams, frauds, etc.
These problems give fiat currencies much more advantages than Bitcoin, which makes them better alternatives for everyday purchases. For instance, Bitcoin is susceptible to theft via hacking attacks, phishing attacks, etc. – whereas banks and other organizations are more protected and regulated.
Plus, fiat currencies are backed by central authorities who can suspend operations anytime. Lastly, although Bitcoin was designed to operate autonomously, its decentralized nature brings more risks and issues. Bitcoin’s biggest problem boils down to scalability, security, stability, and governance.
To solve these issues, developers must spend time researching existing solutions rather than reinventing the wheel again and again. Otherwise, Bitcoin will end up becoming obsolete again within 3-4 generations.
As mentioned earlier, Bitcoin’s success hinges entirely on its ability to grow its value against other cryptos and fiat. We’ll know whether it succeeds once people start utilizing it as often as fiat currencies. At least, this article provides food for thought. Check also my other article when it comes to crypto – the tech of cryptocurrencies