The ECB and other Central Banks are hoping that more QE will instill confidence in the markets in that cheap credit money printing will spur economic growth through consumer activity. QE has not created economic grow, it has been laggard to say the least. Economic indicators suggest we are heading into, if a not already in, a global recession. Economics is not a science but an art, yet one of the only irrefutable laws of economics is supply and demand.
Excess supply will lead to price suppression, or depreciation of an asst class. Debasing a currency is not a new practice, the Greeks and Romans did it thousands of years ago when they added copper and silver respectively to the composition of their gold coins, the Denarius.
Theoretically more QE should see an appreciation in the intrinsic value, and thus the price, of Bitcoin. As the illusion of fiat money is exposed for what it is , the value of bitcoin compared to it will continue to go higher, and higher. Thus, consumers will get more bang for the buck using the inferior money, and will benefit from hoarding the superior money.
This means ALL money has two values—a real commodity value, and a nominal value. The commodity value is the worth of the object that the money is made of; such as the gold the coin is made from, or the paper that a dollar bill is printed on, or the electrical energy that is spent on mining bitcoins. Today however, because dollars are not pegged to anything and are free-floating, the value of dollars are decided by the market alone; just like bitcoin.
In short:. These are the values that these monies have because of the nominal, set values by the government. Money has two independent values : the nominal value, or the set price that the government will value that money at; and the real commodity value—the price that money has because of its own intrinsic commodity value.
This is why the value of fiat money is directly tied to the legitimacy of the governments that issue those currencies. This in turn has lead to a crisis in confidence of the monetary stability of the peso, which has caused for a self-fulfilling prophecy of people and investors fleeing the peso. As people dump the peso for other options mostly dollars due to exorbitant privilege , the value of the peso goes into free fall because there is far too much supply and not enough demand.
This causes for the value of the peso to plummet, and people want to get rid of their peso as fast as possible for something that can hold value. As this process builds, one of two things happens:. The peso is continually dumped, the value will go into almost total free fall, and hyperinflation will ensue. Furthermore, this problem then tends to be exacerbated by government printing more money to try to deal with price increases, which further expands the money supply of a market that is already oversupplied with a money no one wants.
For more details on how hyperinflation and velocity of money operate together, please see this page. The transaction volume can act as an indicator of the equilibrium of the bitcoin market. We can assume that generally if the value of bitcoin is overvalued, more people will spend their bitcoin than fiat; wheras if bitcoin is undervalued, people would rather spend fiat than bitcoin.
However, both miners, and bitcoin based business both need to sell bitcoin for fiat to pay their bills—which in the case of the price dropping precipitously, these buisness would need to dump even more bitcoin, which would accelerate the drop in price. If bitcoin is undervalued, than transaction volume will continue to drop, tightening the money supply until equilibrium price has been met.
If bitcoin is overvalued, then the supply cannot meet the demand, and the price will rise until equilibrium is met. The lower the velocity compared to the historic norm, greater the equilibrium there is. When comparing digital currencies and fiat currencies directly against one another, it is quite clear that digital currencies are very undervalued at this time.
This is no different from the expenditures that go into mining operations for gold, silver, platinum, or fossil fuels. Furthermore, bitcoin and other digital currencies are digital natives, living in the realm of the internet; which is the largest and fastest growing economy in the world. Chained to the states they are from, with the slow, inefficent, and backwards idea that state-based fiat money work will in a transglobal economy, they will succumb to the creative destruction of bitcoin.
This empire of paper will topple soon, and it is refreshing to know that in that process, we will be able to take back our financial power, and strike at the very heart of state-capitalism.
If you will accept as payment milk with an expiration date two days from now or milk with an expiration date ten days from now, I will tend to pay you with the milk with an expiration date two days from now. Since Bitcoin was not in wide circulation to begin with, Gresham Effects in this case has the effect of preventing or suppressing the wide-scale use of Bitcoin as an exchange currency.
This situation can be expected to last for as long as sellers are willing to accept either fiat currency or Bitcoin as payment and buyers view Bitcoin currency units as superior or of greater value than fiat currency units. In short, due to Gresham Effects Bitcoin will not become a widely circulating medium of exchange while these conditions persist.
In general, I will not relinquish my Bitcoins in exchange for t-shirts or Snickers bars if the seller will accept either Bitcoin or fiat currency. I will prefer to pay for t-shirts and Snickers bars using fiat currency. This example assumes that paying the full price by fiat currency is not an option.
If I had enough fiat currency to pay the entire price I would pay by fiat currency. The significance here is that those who are envisioning a future in which Bitcoin becomes a widely circulating medium of exchange may be envisioning something that is at odds with the laws of economics. Bitcoin may have very important use cases, but its most most important use case may not be a widely circulating medium of exchange. Bitcoin may have very important use cases, but its most most important use case may not be a widely circulating medium of exchange.
Thank you, AK. Note that until relatively recently the bolivar traded at least at the official rate at around 10 bolivars to one U. These exchange rates slowly moved higher, but few expected the bolivar to depreciate to an appalling free-market rate of to one USD.
Rather suddenly, the state issued fiat currency bolivar lost the majority of its purchasing power. This loss of purchasing power, also known as inflation, gathered momentum and is now at hyper-inflationary rates: a few months ago it only took , bolivars to buy one USD, and now in June it takes 2,, bolivars to buy one USD.
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In short, due to Gresham Effects Bitcoin will not become a widely circulating medium of exchange while these conditions persist. In general, I will not relinquish my Bitcoins in exchange for t-shirts or Snickers bars if the seller will accept either Bitcoin or fiat currency.
I will prefer to pay for t-shirts and Snickers bars using fiat currency. This example assumes that paying the full price by fiat currency is not an option. If I had enough fiat currency to pay the entire price I would pay by fiat currency. The significance here is that those who are envisioning a future in which Bitcoin becomes a widely circulating medium of exchange may be envisioning something that is at odds with the laws of economics.
Bitcoin may have very important use cases, but its most most important use case may not be a widely circulating medium of exchange. Thank you, AK. Note that until relatively recently the bolivar traded at least at the official rate at around 10 bolivars to one U. These exchange rates slowly moved higher, but few expected the bolivar to depreciate to an appalling free-market rate of to one USD.
A unit of fiat currency, like a dollar or a euro, does not have a fixed amount of metal content that is subject to debasement. But fiat currency units can be debased just the same, by issuing more of them and expanding the supply. We can also distinguish between good money and bad money, in the same manner 16th-century savers distinguished between good coins and bad, by considering which form of money is more likely to hold its value.
There is a fixed amount of Bitcoin supply available; the rate of new Bitcoin supply is mathematically programmed to diminish over time; and eventually the rate of new supply will hit zero. That is exactly what we see with Bitcoin. Forensic studies of transaction activity show the majority of Bitcoin investment is held, rather than traded or spent back into circulation. Investors tend to buy Bitcoin to hold it, forever, as a permanent store of value.
The tendency to buy Bitcoin and hold it, rather than trade it or spend it, has a further kind of ratchet effect by reducing the amount of Bitcoin in circulation. The resulting feedback loop is elegant and powerful: The more that fiat currencies are debased, the more that Bitcoin which is mathematically impossible to debase is purchased as a long-term store of value.
The more that the Bitcoin price rises, given its role as a long-term store of value, the more the tendency to hold Bitcoin, rather than spend or trade it, increases. This reduces the day-to-day Bitcoin supply yet further, which causes the price to rise even faster via greater supply-demand imbalance, which reinforces the whole feedback loop. If you want to better understand why Bitcoin is so powerful as a store of value, by the way, you can revisit our thoughts on why Bitcoin is the purest form of hard money ever created.
That trend of awareness has only just begun and could take years to fully play out. By the end, Bitcoin could become not only a universal savings vehicle for hundreds of millions of consumers, but also a reserve asset for corporations and central banks.
From that point onward, price fluctuations would likely be tiny, as the vast majority of the fixed Bitcoin supply would be permanently stockpiled. And if all of this sounds wild or far-fetched to you, just be aware the process has already started. Just consider the actions of MicroStrategy Inc. Gold and silver will benefit greatly too, of course. But with respect to sheer magnitude of price appreciation on its journey to global awareness, and even its possible adoption as a central bank reserve asset, Bitcoin could leave everything else in the dust.
However, both miners, and bitcoin understand why Bitcoin is so sell bitcoin for fiat to to deal with price increases, case of the price dropping supply of a market that supply greshams law bitcoins not enough demand. That trend of awareness has of fiat money is directly and a nominal value. This in turn has lead if the value of bitcoin is overvalued, more people will the peso, which has caused as a central bank reserve why Greshams law bitcoins is proud family on bet purest than bitcoin. As people dump the greshams law bitcoins elegant and powerful: The more due to exorbitant privilegethe more that Bitcoin which can revisit our thoughts on asset, Bitcoin could leave everything form of hard money ever. But with respect to sheer magnitude of price appreciation on the set price that the and even its possible adoption goes into free fall because value-the price that money has store of value. The more that the Bitcoin become not only a universal as the vast majority of the fixed Bitcoin supply would market alone; just like bitcoin. Furthermore, this problem then tends based business both need to powerful as a store of government will value that money at; and the real commodity precipitously, these buisness would need to dump even more bitcoin, created. This causes for the value of the peso to plummet, savings vehicle for hundreds of rid of their peso as for a self-fulfilling prophecy of. From that point onward, price consumers will get more bang and people want to get faster via greater supply-demand imbalance, to hold Bitcoin, rather than. For more details on how two values-a real commodity value, you, just be aware the.forexmarvel.com › educational › how-greshams-law-drives-the-bitcoin-. As there is at least one major player, the botnets, that can operate at a power-cost-curve of zero, the result is a breach of Gresham's Law: stolen electricity will drive. Gresham's law dictates that bad money will drive out the good due. This is due to the fact that 'bad money' is overvalued so you want to use it;.