Why is a strong dollar not good for Bitcoin?
Everyone wants to see the strength of the dollar, but is it really positive?
The usefulness of a fiat currency lies mainly in its stability. The currency of a country can be neither too strong nor too weak. The ideal is the right medium. In this case, the supply shortage is not the most important thing. What is important is that the money supply reflects the amount of goods and services available at any given time. That is, production and currency must be synchronized in order to have price stability. In the case of speculative assets, the opposite is true. A scarce asset increases in value with increasing demand. But even the scarcest asset can fall in price, if demand falls due to lack of liquidity. Why are so many Bitcoiners promoting a strong dollar?
Here is a great irony. The bitcoin community celebrates the shortage of Bitcoin and celebrates the arrival of new buyers. But generally, he criticizes liquidity injections. We must remember that this is a community obsessed with the price of Bitcoin. It is our daily bread to read a new price prediction. Bitcoin is said to hit $ 40K very soon. But then it will hit $ 250k without a hitch. And after that, it will continue to rise like foam.
Now, you could say that Bitcoin is priceless. We say informally that it has a price, but in reality the term is not the most appropriate. Bitcoin has no intrinsic value. It is a cryptocurrency and what it actually has is an exchange rate. And, right now, its most important pair is the US dollar. A coin by definition does not exist by itself. A currency always exists in relation to other assets. Does a medium of exchange without exchange make sense? That would be absurd.
Exchange is the life of a coin. The dollar, for example, is closely related to the national production of the United States and the rate of other currencies. The Federal Reserve constantly analyzes macroeconomic data to determine the required supply for a given time. If there is a lot of currency, inflation shoots up. If there is too little currency, deflation shoots up. If the dollar rises in value relative to other currencies, exports suffer. If the dollar falls in value relative to other currencies, the price of imports rises.
The stability of the dollar is important to the US economy and world trade. And this implies that it must move away from the extremes. Deflation and inflation. Strength and weakness. The adjective “strong” is generally regarded as positive. And one could assume that all countries want to have a strong currency. But here we must make an important distinction. We could say that a currency is strong if it is stable and has a high level of adoption. Such a currency makes a strong financial market possible.
On the other hand, the adjective “strong” can be used in a slightly different sense. “Strong” in this context does not mean stability. What it means is a lack of liquidity. What generates a drop in demand, decreased spending and depreciation of assets. In addition, it hurts exports and makes imports more expensive. This scenario decreases revenue. Consequently, unemployment increases and the economy decreases.
The foregoing contradicts many of the assumptions the public has about the economy and money. Of course that does not mean that it is false. What it really means is that the average person understands very little about economics. Countercultural movements have traditionally always promoted savings and discouraged spending. Spending is associated with consumerism. That is to say, to materialism and excesses. That discussion is perfectly valid. And everyone has the right to choose their lifestyle. However, in this article I am going to limit myself to describing the economic fact. I will do it as someone who describes the processes of a machine.
Spending has a twin brother. That is, one cannot live without the other. I mean siblings, expense and income. Because the expense of one man is the income of another. In other words, the economy requires transactions. And economic growth needs money to circulate. This is not to say that we should all become consumerists. What it really means is that, financially speaking, the smartest thing to do is to become an investor.
The investor is different from the saver. The saver accumulates dollars. The investor invests in assets. The saver discourages spending and wants a hard currency. But without spending there is no income. And without income, there is no job. Therefore, the economy does not grow. On the other hand, the investor wants economic growth, because his investments depend on the success of the economy. A stable coin is ideal for the investor. Liquidity injections raise the price of assets. So we have jobs, growth and investments. But with a stable currency. For better or for worse, the world, after World War II, has chosen the path of the investor, not the path of the saver.
Of course, there is still a minority unhappy with the path of the investor who wants to go back to the past. Historically, in the promotion of the saver we have groups of the right and groups of the left. But, in the case of the crypto community, this current comes to us from the American right. Libertarians, in particular. This is a position that derives from classical liberalism and dates back to the time of Thomas Jefferson. His hero is the self-sufficient individual, inspired by Yeoman farmers and pioneers. It is an ultra-conversational vision that promotes the separation of the state and the economy. As well as the return to the gold standard. The current still lives in a very small wing of the Republican Party (remember Ron Paul?) And in the Libertarian Party. And in economic matters they lean heavily on the Austrian and Chicago schools.
Of course I fear that this is a political movement rather than an economic one. He refers to me that these ideas are more popular with libertarians than with contemporary economists. In the investment world, these ideas still live on many gold beetles and many bitcoiners. Wall Street, for example, has fully subscribed to the investor path. But not just Wall Street. The path of the investor is the path of governments, the Republican Party, the Democratic Party, banks, multilateral organizations, large corporations and, above all, the Federal Reserve.
Now, a medium of exchange cannot claim to be totally autonomous. That would not make sense. It is like holding a dollar bill and saying that its exchange value is irrelevant. That’s like buying a watch and not caring if the time is right or not. Or, it’s like creating a language that only its creator understands. In short, there is a close relationship between the amount of dollars in circulation and the price of assets.
I must confess that I personally do care about the price of Bitcoin. I am not satisfied with the idea that a Bitcoin is a Bitcoin. Would a ton of gold or 100 million dollars be worth on a desert island? An apple can be an apple, because I can eat the apple. But when it comes to money, I do care about exchange rates. Because with money is that I solve my needs, like house, food and others. A strong dollar does not increase the price of Bitcoin. Employment, economic growth, production, and liquidity do increase the price of Bitcoin. So I choose the investor path.
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.