Can Bitcoin be an alternative to the dollar?
Almost unprecedented levels of debt, and the seemingly unstoppable money printing to monetise these debts, have caused the significant decline in the longer-term value of the U.S. dollar, the global reserve currency.
Many are speculating that Bitcoin, the world’s largest cryptocurrency by market capitalisation, could provide an alternative to the greenback. This was evidenced as the U.S. government started feverishly adding digital dollars to its economy during the pandemic, diluting its value, and the price of Bitcoin shot up.
Clearly, the dollar is not going to be replaced overnight by Bitcoin, which is the dream of Twitter founder Jack Dorsey amongst others.
But I do believe that to assume that we’re not rapidly going towards a mainstream combination of both a traditional and digital monetary system would be wrong.
There are two key reasons why Bitcoin could become a serious alternative to the dollar: its limited supply and blockchain authentication.
Bitcoin has been capped to 21 million coins. This can never change. Currently around 85% of all the BTC that can be mined has been.
Caps on Bitcoin circulation means no excess supply, keeping inflation in check. In addition, the crypto’s annual rate of mining falls by about 50% every four years or so. Given the known supply schedule, Bitcoin’s annual rate of production will be around half of gold’s, for example, which is often used as a benchmark against the dollar and will continue to fall further, making it more valuable over time than the greenback.
Second, decentralisation. Bitcoin has no controlling central authority. Instead, it’s in the hands of a robust, transparent, accountable global network on the blockchain. This makes it resistant to external pressures that could shift its ‘monetary policy’, which could put the important scarcity characteristic of it at risk.
Mass adoption of Bitcoin is, without question, picking up pace. From Bitcoin ATMs to cryptocurrency credit card rewards, from major Wall Street banks offering it to their clients to whole countries (which use the dollar) adopting it as legal tender, crypto – which was barely even in anyone’s thoughts a decade ago — is everywhere.
Indeed, Mastercard this week noted: “They are early adopters and new adopters, but we have switched toward mass markets, [and] that will be a very important aspect for financial institutions to move into the space.”
Like many before him, the Mastercard chief compared the current phase of the cryptocurrency sector with the early days of the internet. “Think about the advent of the internet; no one was thinking that Amazon could even be a concept — you need the internet for Amazon to work.”
Over time, the crypto market is becoming less and less volatile. This means that over time crypto will increasingly be used day-to-day household purchases.
To my mind, there’s no question that in a matter of years, we will have mainstream, deeply embedded will be digital and non-digital monetary systems, and they will all compete. And the dollar-dominated system will come under increasing pressure.