SYMBOL – 23 April 2024, Baden-Württemberg, Rottweil: The logos of the cryptocurrencies Bitcoin … [+]
Private, or “crypto” money will eventually replace government money. Bank on it. As written in The Money Confusion, profits from the trading of fiat currency chaos ($7 trillion per day worth of currency trading) ensure the eventual erasure of those margins. The speculation here is that stable, private money will be the instigator of the erasure.
The problem, at least for now, is that there’s no logical replacement for the dollar and fiat currencies like it that referee most global exchange. To which some will reply that Tether and bitcoin are poised to throw the dollar into history’s proverbial dustbin. The replies don’t impress much.
Take Tether. Presently it facilitates four out of five crypto-style transactions. The previous stat is both impressive and a look to the future, but let’s not forget that Tether’s stability as a medium of exchange is an effect of its peg to the dollar. And the dollar’s own instability can presently be found in the flashing market signal that is $7 trillion worth of daily currency trading.
Let’s also add that assuming economists, politicians and pundits ever get real on what inflation actually is (a shrinkage of the medium of exchange) as opposed to what they want it to be (rising prices when the opposing political party is in office), the dollar has inflationary tendencies like all the other global currencies. And while the dollar’s volatility is less notable than the typical currency, readers should simply chart it over the last twenty-five years versus the euro, pound, yen, CAD, AUD, CHF, and gold to see just how unstable it’s been.
Which is a long way of saying that while Tether does something truly brilliant (provide a world bereft of remotely trustworthy currencies with a dollar proxy that everyone can avail themselves of digitally), it’s not a replacement of the dollar. It’s an extension of the dollar’s relative turbulence to private money. This is something to keep in mind considering the routine assertion that cryptocurrencies were a response to the instability of government-issued fiat money. In truth, the most stable of them are just an extension of that instability.
To which bitcoin proponents will reply that the latter is digital gold, that its limited supply makes it an inflation hedge par excellence and that it will emerge the proverbial dollar or gold of cryptocurrencies. No, not really. See the fact that already Tether is well ahead of it as a medium of exchange, refereeing 4 out of 5 crypto transactions.
Of course, the fact that Tether is so far ahead of bitcoin as actual money can be found in the reality that bitcoin is many things, none of them money. At best, it’s a speculation on scarcity which renders it the opposite of money. The only purpose of money is its perception as a reasonably stable measure of value that facilitates the exchange of actual wealth, but as the biggest bitcoin proponents tell us repeatedly, their coin is only going up since its supply is limited.
Which means if we ignore bitcoins own historical volatility that has included major dips, we can conclude per bitcoin’s greatest proponents that it will never be money. The dollar isn’t the global currency of the moment because it keeps rising in value, but exactly because it’s reasonably stable as a measure. What’s bitcoin’s case to replace it?
Which means bitcoin isn’t at all like gold, a metal that rises when the currencies in which it’s priced are falling, and falls in the currencies in which it’s priced are rising. In truth, bitcoin is yet again nothing more than a speculation on scarcity, and one that’s priced in dollars. See Tether to understand the dollar problem for both.
