The recent market excitement around Bitcoin has slightly detracted from one of the factors that attracted many people to cryptocurrencies, namely their decentralised and egalitarian setup. Unlike the US dollar and other government-backed currencies, no one person or organisation has control over Bitcoin. This makes the currency very appealing to libertarians and others who believe strongly in small government and personal freedoms. Recently, speculation has been building that Bitcoin may one day replace the US dollar or other reserve assets such as gold. In this article, we’ll examine each of these ideas in turn and discuss how likely they are to happen in the near future.
Bitcoin to replace the US dollar?
This would require a major change to the way that people use currency. At the moment, Bitcoin is far too volatile to be used as a day-to-day currency. The regular swings in Bitcoin’s value would play havoc with the market economy, requiring goods to be repriced several times a day to track the fluctuating value of the cryptocurrency. If Bitcoin is to replace a major currency in day-to-day use, it will have to become far more stable than it is at present.
Could Bitcoin replace gold?
This seems far more likely. Gold is a reserve investment that is treated similarly to Bitcoin by many investors. If Bitcoin becomes a popular asset at times when stocks, currencies and other investments are in turmoil then there is every chance that it could join or replace gold in the minds of investors. One thing that may hold Bitcoin back is its non-physical nature. Many investors like to invest in gold during tumultuous times as it is a physical object that will always have some intrinsic value.
Bitcoin’s rapid rise over the last few years makes it hard to predict exactly what lies next for the currency. Given what we’ve seen over the last few years, nothing could be described as truly surprising.