Is the Bitcoin exchange rate a real currency or is it primarily an investment or a stock of value? Opinions are divided on this issue. And it could be crucial to the further development of Bitcoin’s exchange rate if the US Federal Reserve quickly reverses interest rates. James Bullard, head of the US Federal Reserve in St. Louis, has already brought an interest rate hike into the game for 2022. A review of the currency debate on Bitcoin and the potential impact on Bitcoin’s exchange rate.
These reasons speak against Bitcoin as a world currency
Critics complain that Bitcoin’s exchange rate does not meet currency requirements for a number of reasons and is therefore not a serious alternative to the U.S. dollar.
On the other hand, Bitcoin exchange rates fluctuate considerably, which from the critics ’point of view does not provide a stable exchange rate for other currencies such as the dollar or the euro. A year ago, the price of Bitcoin was less than $ 10,000, two months ago $ 65,000 and now about $ 33,000.
Indeed, this range may be an obstacle for Bitcoin to establish itself as a currency. It’s no coincidence that because of the huge price jumps, many investors want to move their Bitcoins to standard coins, such as the Tether, whose value is directly linked to the U.S. dollar. Tether now has a market capitalization of just under $ 61 billion. This puts stablecoin in third place behind Bitcoin and Ethereum among the most valuable cryptocurrencies.
Another weighty argument from critics is that governments do not accept Bitcoin as a means of payment all over the world and Bitcoin bans are repeatedly in the room. However, skeptics believe that the world’s currency should be available and available everywhere.
Is El Salvador the cornerstone of the Bitcoin currency revolution?
But in this regard, currency defenders have recently been caught in the backwind. India, for example, originally wanted a general ban on Bitcoin. But lately, the voices of government districts have been much milder. So tells the newspaper The New Indian Expressthat the treatment of highly differentiated Bitcoin should take place in a new law. There could be regulation instead of a general ban, but Bitcoin would still be useful as a means of payment and a trading tool in certain specifications.
And then there’s this little feeling about Central America, which many Bitcoin supporters even celebrate as big, that could pave the way for digital currency as a global means of payment. The small country of El Salvador recently announced that Bitcoin is the official currency. Novelty for the cryptography industry.
With a law passed by Parliament, Bitcoin is now officially the second national currency alongside the US dollar. In practice, this means that retailers and service providers in El Salvador will continue to have to accept or offer Bitcoin as a means of payment. In addition, the country’s citizens must be able to pay taxes in Bitcoin in the future.
– Nayib Bukele 🇸🇻 (@nayibbukele) June 9, 2021
Behind the milestone of the cryptographic market is the president of the country himself. Nayib Bukele announced plans to transform El Salvador into a Bitcoin center. The only 39-year-old president has toured himself as a Bitcoin fan on Twitter and introduces himself on social networks with laser eyes – the current meme of the crypto community.
PayPal also apparently believes that Bitcoin could be a means of payment with the future. The industry’s leading service provider announced last fall that it would integrate Bitcoin, Ethereum, Bitcoin Cash and Litecoin as a means of payment. The news sparked a real leap in the cryptography market. Shortly after the announcement, Bitcoin was able to break away from the $ 10,000 side move and massively raise new all-time records. Other companies have also jumped on the cart and already offer Bitcoin or plan to do so in the future.
Isn’t Bitcoin a rare commodity like gold?
On the other hand, there are many investors and institutional investors who do not see Bitcoin as a means of payment or a currency, such as dollars, but are nevertheless eager Buy BTC. Their thinking is to use Bitcoin as a store of value. While the new dollars will move at the rate of inflation, the amount of Bitcoin will be clearly limited by the release of Satoshi Nakamoto. The maximum possible amount is 21 million BTC.
Investors argue that Bitcoin will have to be valued sooner or later simply by limiting its supply. Bitcoin is often compared to Gold and is similarly referred to as digital gold. From the point of view of supporters, Bitcoin has clear advantages over gold. Bitcoin does not need to be stored in heavy bars in large vaults, but can be easily and digitally Through the Bitcoin hardware wallet or software wallets can be managed and protected.
Bitcoin is also much easier to transport than gold. Bitcoin can be sent in seconds via a blockchain event. However, you need a burglar-proof driver if you want gold from your gold stock from A to B. It is very time consuming. At least it doesn’t work digitally.
Bitcoin at risk? Interest rates can rise and curb the dollar flood
The value of Bitcoin rose enormously, especially during the Corona crisis. According to experts, this is not a coincidence, but is related to the inflation of the US dollar. As the chart above shows, the amount of dollars in circulation rose rapidly again in 2020. This is largely due to the trillions of state aid provided by the U.S. government as a result of the pandemic.
In previous years, massive dollars were issued. Alternatives to cash have benefited from this in recent years. In addition to cryptocurrencies, the stock market celebrated new records in 2020/2021.
But the question is how long this will continue. Because U.S. fiscal policy may be at a turning point. Reversing interest rates and moving away from inflationary monetary pressures appear to be increasingly likely. “We anticipate that we will start raising interest rates in late 2022,” James Bullard, president of St. Bull’s U.S. Federal Reserve, told CNBC recently.
He received approval from Janet Yellen, the U.S. Treasury Secretary and former head of the central bank. He recently told Bloomberg News that it wouldn’t be a “bad thing” if interest rates go up again. In their view, this could prevent prices from rising further and the economy from overheating.
If rising interest rates slow dollar inflation, the dollar’s move to another asset class could be dampened. It is still a long way off. But the signs are growing. Bitcoin investors should therefore closely monitor U.S. monetary policy.