Right now, the digital market is in the doldrums. Many Blockchain projects have lost their popularity and capitalization, thereby going bankrupt, and the value of all the top altcoins has returned to the price of mid-2017. Even the cryptocurrency Bitcoin continues to hold a relatively stable rate around $4,000.
This situation raises the question for many investors:
Will cryptocurrencies really be able to recover their value? Perhaps it is worth diversifying into more reliable instruments like the U.S. dollar or the euro, which do not depend on the digital world of Blockchain in any way? Or invest in the best crypto mining companies in UAE.
If we look deeper into this question, we can understand that all current fiat money is not isolated by anything (including gold, silver or other precious metals). It is also worth saying that in recent years, when the world of cryptocurrencies has just begun to spread around the world, the instability of the fiat dollar, the euro has greatly increased.
It is because of this that many adherents of cryptocurrencies assume that this payment instrument is just an ordinary paper, secured by a state monopoly, the value of which is directly dependent on Bitcoin and other digital assets.
However, is this really the case? Which is better – cryptocurrencies or fiat money? What is the correlation between the two? Do the digital assets of various Blockchain companies really affect the instability of fiat money these days?
We will try to answer all these questions in this article, from which you can learn how cryptocurrencies depend on reserve fiat currencies and what awaits them in the near future.
Bitcoin cryptocurrency and national currencies
Many crypto skeptics and corporations around the world suggest that the value of all digital assets (including bitcoin) will eventually run out.
Yes, such a situation may indeed happen in the future with cryptocurrencies, as this payment instrument is essentially unsecured by any valuable resources, precious metals, minerals. However, such statements are unsubstantiated, as modern fiat money is also not backed by anything.
If we look into economic history of the world we will see that national fiat currencies start to lose most of their purchasing power in the course of time. And even governments, which have virtually unlimited power, are unable to stabilize the value of reserve fiat currencies.
For example, the U.S. dollar has now lost more than 98% of its purchasing power since the Federal Reserve Act was passed in 1913.
After analyzing the fiat currency market, we’ve identified several countries that were most affected by annual inflation in 2017.
In first place is Venezuela – more than 655%, second place is South Sudan less than 181%, in third place is Congo (only 42%).
Inflation of fiat currencies was very detrimental to the economies of these countries, which is why their only chance at the time was to invest the budget in the system of cryptocurrency Bitcoin.
According to general statistics of the Blockchain world and the entire digital market, Venezuela ranks 4th in terms of BTC trading volume (about 11.2%), while Nigeria, which also has a very unstable situation in the state, ranks 7th (3.5%).
Summing up, we can conclude – the world is slowly beginning to understand the true nature of all national reserve currencies, that they are just an ordinary paper, subject to inflation, and a payment instrument, not secured by any valuable resource.
Bitcoin cryptocurrency as an alternative to national fiat currencies
As mentioned above, cryptoskeptics believe that all digital currencies (including bitcoin) do not have any value, but why then, for example, the cryptocurrency BTC is trading on various Blockchain projects at a price of 4000 USD per piece at the moment, while in late 2017 1 bitcoin was worth almost 20000 USD? Why isn’t Bitcoin selling for $10 or $1 per coin?
The whole thing is that now cryptocurrencies have gained a very high value among a huge part of the population of our planet, that is, the demand for Blockchain assets has increased significantly. This is mainly due to the constant inflation of world fiat currencies.
Right now, trust in all reserve currencies is constantly decreasing and people are starting to turn to crypto-assets. Bitcoin and alternative cryptocurrencies in the modern world calmly withstand the pressure of the depreciation factor, thus maintaining their positions, unlike the established financial systems of states.
And even despite the downward market trend and the significant decline in the value of almost all digital currencies, the overall level of the Blockchain sphere capitalization decline is not as large as the depreciation of all fiat currencies of the world, which are supported by banks and states.
Accordingly, each country, which is experiencing a sharp economic decline, can, in turn, turn to cryptocurrencies and diversify part of its budget in them in order to preserve the original amount of money.
It is worth noting that despite this advantage of cryptocurrencies over reserve fiat currencies (especially in those countries where there is a severe economic crisis), digital assets have a number of disadvantages such as strong volatility, risk of complete depreciation, various manipulations of the price of an asset by unscrupulous investors, etc.
In general, now investing in cryptocurrencies is a very risky, unstable investment, which has an uncertain future. But this does not stop the states and big investors of the world to try to invest part of their budget in them in order to find out whether cryptocurrencies are suitable for reliable diversification and preservation of their capital or not.
