The risk for today’s bitcoin buyers, now the price has regularly topped $US50,000 in 2021 and more than quadrupled since March 1 when the printing presses were turned on, is that the price retreats when this crisis passes and fiscal tightening returns.
Modern fiat or central bank money largely serves three purposes; of liquidity, as a store of value, and as a stable unit of account.
Bitcoin cannot replace the need for liquidity in the event of a crisis like a war that requires a government-backed response, and the price volatility rules it out as a unit of account. For now, anyway.
It might though have some utility as a store of value, like a kind of digital gold, or if you were to take a more bullish point of view, as a replacement for cash to barter for goods and services as a future unit of account.
After all cash, like bitcoin, has no intrinsic value and is vulnerable to replacement as a means to exchange wealth between two counterparties as part of the digital future.
After the abandonment of the gold standard, fiscal, and monetary responsibility in 1971, inflation ripped through Western economies. In the US in the 1970s, interest rates rose to 20 per cent and the dollar’s value collapsed. In the UK, inflation spiralled out of control above 25 per cent and a repeat today, under similar circumstances, would also theoretically benefit bitcoin’s value given it has a fixed supply of 21 million coins.
As Mark Carnegie argues, gold is also a strong hedge to protect the real value of savings if another inflationary rip hits as central banks print money as fast the presses will go. Curiously though, gold’s value hasn’t taken off anywhere near like bitcoin. It has added 11 per cent in US dollar terms over the past year, but the competition from cryptos is arguably eroding returns.
Carnegie’s conclusion as a widely respected investor that crypto is a vaccine against another collapse in the financial system will shock a lot of old-school investors, although risks remain around the bitcoin price drifting back to earth if real world vaccines succeed in erasing the pandemic and cutting the printing taps.