Has Bitcoin Gained on the Dollar?
For a few years now, there has been sporadic talk about the potential of Bitcoin’s potential to become a global currency. In a sense of course, it already is just that. But the implication in these discussions is that it might become more of a universal, singular option.
This was something that was suggested a couple years ago by none other than Twitter CEO Jack Dorsey — himself an indirect supporter of cryptocurrency by ware of the Square Cash app and related ventures. Dorsey was quoted in a CNBC article about Bitcoin’s potential, suggesting that some of the issues with cryptocurrency (slow speed and high cost) would “go away” as more people obtain it. This, he seems to believe, would help Bitcoin on its way to becoming the “single global currency.”
Indirectly, this sort of prediction suggests that Bitcoin would more or less supplant the U.S. dollar — not a true “global currency” in the same sense, but still the dominant form of money on the planet. This relates to the idea of ‘Crypto Currencies and De-Dollarization’ we covered back in 2018, and now seems a good time to take another look at that discussion. Specifically, two years later, it’s worth examining whether or not Bitcoin has gained ground on the almighty dollar.
In that previous piece, four “fundamental advantages” for the dollar were identified: liquidity, trust, security, and a well known, accepted infrastructure. Strength in these areas has long helped to prop up the dollar as the de-facto reserve currency of the world. But in at least some of them, we can see that Bitcoin has gained more strength as well.
Beginning with accepted infrastructure, Bitcoin is a bit of a mixed bag. For pure acquisition and use of the cryptocurrency, there are now several wallets and exchanges that have become somewhat mainstream — even if they can still be mildly intimidating to new users. On the trading and investment side of things though, Bitcoin has made its way onto reputable platforms that were already trusted to support other types of assets. FXCM’s guide to opening accounts for other markets such as stock indices, forex trading, and commodities makes clear that Bitcoin can now be traded alongside these assets. This, as opposed to Bitcoin living on its own, independent platforms, lends it more credibility in the investment world. It’s a step toward “well-known, accepted infrastructure” on the world stage.
The question of security is closely related to that of infrastructure. Simply put, the more comfortable people are with the platforms for investment and storage of Bitcoin, the more secure they’ll feel that the asset is. Additionally though, there’s something to be said for the very nature of Bitcoin. Cryptocurrency is designed to be more secure than fiat currency. Thus, it stands to reason that as more people explore cryptocurrency, they’ll also come to appreciate its inherent security. This does not mean that Bitcoin is guaranteed to be a safe or secure asset, but it does mean there’s always room for the cryptocurrency to gain ground in this area. More understanding of the technology yields greater appreciation for its security.
Trust, meanwhile, is likely the weakest pillar for Bitcoin. Consider a survey by Yahoo Finance, for instance, which actually asked millennials and “Gen Z” members in the U.S. questions about Bitcoin replacing the American financial system. Younger generations in western countries are thought to be among the populations most enthusiastic about cryptocurrency, and sure enough, 43% of the people surveyed believed that cryptocurrency could immediately replace the U.S. financial system; another 26% said it could do so in short time. Despite these numbers though, 37% of all respondents claimed not to trust cryptocurrency anyway. This seems to encapsulate a widespread sentiment. People are curious about Bitcoin and even excited for its potential — but there remains a significant lack of real trust of the cryptocurrency as it exists today.
Liquidity is the last factor mentioned, and it’s a somewhat fluid concept with any relatively new asset, like Bitcoin. At times in the short history of cryptocurrency, Bitcoin’s daily trading volume has fluctuated, meaning it’s been more liquid at some times than others. We can say, however, that Bitcoin has moved toward more reliably high liquidity in recent years. More Bitcoin in the world, more people interested in trading, and slowly expanding trust in exchanges and trading platform have all led to steady, high activity on a day-to-day basis.
Looking at all of these factors together, we still can’t determine whether or not Bitcoin will one day replace the dollar, or when something like that might happen. But we can see some general progress being made in key areas. Bitcoin is making gains with respect to infrastructure, security, and liquidity, and to some extent trust (though this looks to be the most problematic area). If it continues to move forward in these areas, it will only look more like a viable competitor to the dollar and other major world currencies.