One of the factors that could be influencing inflation is the issuance of trillions of US dollars. As a store of value, Bitcoin exhibits some advantages over gold.
The price of Bitcoin could reach USD 500 thousand in the next decade due to the US economic crisis. That’s the opinion of well-known cryptocurrency market entrepreneurs Tyler and Cameron Winklevoss.
On August 27th, the entrepreneurs stated in an article on the Winklevoss Capital blog that gold, the US dollar, and oil currently have “fundamental problems”, although they have been historically strong. They argue that Bitcoin is the only long-term protection against inflation.
The authors say that, contrary to the measures that the US government has implemented, it is wise to combine a savings policy with moderate public spending and very controlled money issuance. In times of economic expansion, that would be the best decision.
The recession of late 2007 ended in July 2009, according to data from the National Office for Economic Research. Since then, the Treasury has managed deficit budgets, which doubled the debt to USD 22 trillion in early 2020.
A graph shows the increase in the circulating money supply, expressed in billions of US dollars. As the chart indicates, it started at around USD 16 trillion in 2020. On August 3rd, it had exceeded USD 18 billion, which represents a 12% increase.
When examining the balance sheet of the Federal Reserve, it is possible to see that USD 344,000 million in securities associated with mortgage debt were added along with USD 820,000 million of long-term securities this year.
According to the document, the relationship between debt and gross domestic product (GDP) grew from 83% to 106% from 2009 to 2019, as a result of the crisis that COVID-19 has caused. “This relationship will reach 135% next September, and will have grown more this year than in the last decade.”
Advantages of Bitcoin
“Bitcoin is not just a scarce commodity, but the only good known to have a deterministic and fixed supply,” notes the article. Bitcoin is not subject to “demand shocks”, as has happened with oil or can happen with gold. The main cryptocurrency exhibits other important advantages, such as ease of portability and robust security. “It is better as gold than gold [itself],” according to the document.
Comparing gold and Bitcoin in detail, the document highlights portability, divisibility, storage media, and scarcity, among others. Bitcoin is divisible to a hundred millionth, while the minimum measuring unit of commercial gold is one troy ounce.
The protection of Bitcoin occurs through software by storing the private keys in a wallet. On the contrary, gold requires expensive safes that are not very easy to transport.
According to the Winklevoss brothers, Bitcoin has moved fast into the domain of gold since its introduction. The entrepreneurs predict that, if its trajectory continues as before, a bullish scenario reflects that Bitcoin is undervalued by a factor of 45.
This estimate places the price of Bitcoin at about USD half a million. The authors suggest that if Bitcoin replaced 10% of the USD 11.7 trillion in fiat currency that central banks hold in reserves, the top cryptocurrency would trade close to USD 600 thousand.
By Alexander Salazar
