Bitcoin is Gearing Up to be a World Reserve Currency
Recently, The People’s Bank of China added to Bitcoin’s credibility by meeting with the executives of the largest Bitcoin exchange platform in China.
In effect, officials from The People’s Bank of China met with BTCC on January 6, 2017.
The purpose of the meeting was to “urge rational investment in Bitcoin,” Reuters reported.
However, most importantly, the meeting demonstrated that authorities at The People’s Bank of China consider Bitcoin trading a proper business endeavor.
Commenting on the BTCC-The People’s Bank of China meeting, a Reddit user, vapor114, wrote, “China just did BTC a favor in acknowledging that the exchanges are legitimate businesses that the gov’t recognizes.”
Moreover, this was not the first time that BTCC met with bank authorities. A statement from BTCC reads, “BTCC regularly meets with the People’s Bank of China and we work closely with them to ensure that we are operating in accordance with the laws and regulations of China.”
Bitcoin is a Safe-Haven Currency
Policies on demonetization, signs of inflation, isolationist trends from the UK and the US, and the threat of trade wars with China and other big US business partners are just some of the factors that will test or are already testing Bitcoin’s capacity to function as a safe-haven currency.
Investors move to safe-haven currencies when they want to minimize the risk of losing wealth through the eroding effects of inflation and economic uncertainty.
Recent events demonstrate that investors are using Bitcoin as a safe-haven in China. As we have seen, fluctuations of Bitcoin’s value are inversely related to the value of the yuan. Bitcoin has been surging as Chinese investors have been buying bitcoins to hedge against the declining yuan.
On the other hand, when the yuan soars, investors stop buying bitcoins. For example, this happened on January 5, 2017 and caused Bitcoin’s value to retrace over 20 percent from a three-year peak of $1,139.
Bitcoin is an Antidote for Countries Afflicted by Inflation
Signs of inflation are showing up globally, fueling investors and businesses’ appetite for the cryptocurrency.
Now, Venezuela is rapidly adopting Bitcoin. As a galloping inflation erodes the Bolivar, the cryptocurrency is coming to the rescue. For instance, a travel agency, Destinia, no longer accept Bolivars. Explicitly, a press release of December 23, 2016, states, “Destinia decides to operate exclusively in Bitcoins in Venezuela.”
The question now is what role Bitcoin will play if inflation shows up in the economies of developed countries, such as the US and Eurozone, where pressures to increase prices are also popping up.
In the US, the Federal Reserve acknowledges that inflation increased in 2016, although it is still below the Fed’s objective of 2 percent. Nevertheless, the Fed worries about inflationary pressures that policies from the upcoming administration could generate.
“Asset price movements, as well as changes in the expected path for U.S. monetary policy beyond December, appeared to be driven largely by expectations of more expansionary fiscal policy in the aftermath of U.S. elections,” states the Fed Minutes of December 2016.
Similarly, in the Eurozone, inflation is increasing. The annual inflation rate reached 1.1 percent in December 2016, which represents an increase of 0.6 percent from November 2016, according to Eurostat. This rate of inflation is the highest since September 2013, reports CNBC.
Economies in Turmoil Increase Bitcoin’s Value
Isolationism, demonetization, and political uncertainty are driving investors to buy bitcoins to shelter their wealth.
Additionally, Fiat currency flaws have caused governments to demonetize their economies, which in turn, have triggered an increase in Bitcoin’s users as well as its Bitcoin value, as is the case in Venezuela and India.
Indeed, as governments increase monetary restrictions, people use bitcoins to protect their capital and to move money across borders.
In this regard, Gil Luria, Director of Research at Wedbush Securities, told the New York Times, “The more there is an expectation for new barriers to be erected, the more there is an expectation that Bitcoin will be valuable for moving money across borders.”
Each of these events strengthens Bitcoin’s path to prominence as a world currency. Additionally, as Bobby Lee, CEO of BTCC, predicts, “Bitcoin can serve as reserve for digital currencies globally.” Moreover, says Lee, “Bitcoin’s blockchain can be the global anchor (proof-of-work chain) for all nationally created digital currencies.”