Will Bitcoin Become a Sustainable Global Currency?

Introduction

Technology has never moved at a faster rate of development across many different sectors, in finance Bitcoin has taken the globe by storm being the standout in many Digital Currencies as how the human population trades with each other and continues to evolve. Bitcoin received a lot of attention 2-3 years ago and raised the eyebrows of many, leaving many different questions and concerns in the wake of its depreciating valuation. The question is “Will bitcoin become a sustainable global currency?” In this course we have learned how economics works on a macro level. Bitcoin pushed new heights far beyond the Nasdaq bubble of 2000, due to its potential, hype and billions that investors are putting into it. This is a new age and in time it will run its course in history books reshaping global economics even more than it already has. It is affecting how we interact financially on a global scale, even a park city a multi-million-dollar home was recently closed in an all bitcoin currency offer which made the closing very easy. Bitcoins peak recently surpassed 18,000 which was a valuation that Tim draper (venture capitalist) saw in the foreseeable future 5 years ago and people thought he was crazy for thinking it could reach – it has become a reality. Now bitcoins hype has settled down, regulations are in place and investors are more Leary. Bitcoin still a market cap of 185 billion even with no tangible assets for its currency, no GDP which we learned the dynamics of in this course and is not attached to any entity nor country which shows how complex it truly is. The research question has multiple points to focus on that will give an answer with supporting evidence, this paper will focus on bitcoin itself, how it affects the global economy as well as its differences from other currencies attached to countries that may or may not allow it to be sustainable as a global currency which would drastically change forms of global exchange.

Bitcoin

Bitcoin is encrypted and you own one coin per purchase, or a fraction/decimal at based on what bitcoins valuation is. In an article by Nathan Reiff he states, “There are only 21 billion bitcoins that can be mined in total” (Pg.3, Reiff) That is 21 billion bitcoins that are not able to be cracked nor replicated in circulation. There is only 21 billion as of right now however Bitcoin may be able to change its protocol to allow for an expansion in supply. The gold rush was mining for gold, however now there is a global supply of bitcoins is also finite that are mined by coders predominantly in Canada on massive computers that will cap out at 21billion. This limited supply which causes the prices to increase with demand which is at an all-time high and continues to grow. It is very easy to trade any currency globally through kraken to purchase bitcoin and use as a currency to buy any goods that accept bitcoin. There are many people who see bitcoin becoming a global currency but if so, when, and how would this effect currencies currently in place. If looking back on history, we see every two to three hundred years a mass shift in monetary systems almost like a Kondratieff wave for money. In the renaissance amidst a huge economic downturn the Medici family could establish the Medici bank “which provided services to merchants and eventually lead to making them the one of the wealthiest families in Europe” (chap5, B. kelly). In the 1600’s the Qing Ming dynasty used a bimetallic system with coins as a form of trade which was revolutionary. Fast forward another 200 years to 1871 to the first transfer of money via wire thanks to Western Union. Now modern day, as advanced of a society we are, and as fast as technology is moving, we are due for another huge shift which typically results from a financial crisis. Bitcoin was created in 2009, amidst a huge world economic downturn and originally created for the dark web. Since then, Bitcoin has now established itself as a new form of currency - a technology which is completely revolutionary in how we can trade with one another. It has garnered the attention of large companies for example overstock which has its HQ right here in SLC, they have made a massive bet on Bitcoin, so massive it could make them go under if it doesn’t go as planned. Bitcoin is volatile since it’s so new, however Bitcoin has the power to cause the next shift which we haven’t seen for approaching 200 years. Just as Western Union eliminated a middle man Bitcoin now has the power to eliminate multiple currencies by establishing itself as a global digital currency that will then be looked back upon in two to three hundred years a shift into a new era which will be historic, however that shift takes time, this is just the beginning of a shift over years which would allow it to take over. The shift to bitcoin would completely change our financial systems.

Global Impact

   There are countries talking about releasing their own ICO (initial coin offerings) which basically means producing their own form of Bitcoin, however this would contradict that bitcoin can be a singular shift as a sustainable global currency. If countries shift to their own cryptocurrency example from USD to an ICO replacing USD then there would just be encrypted coin currencies used in global trades on a macro and micro level in representation of the united states dollar. Rather than a tangible currency that is produced, shifting to ICO. Europe has been accepting bitcoin as a form of payment for 4 years now. There is a flip side to this which has proven to be very interesting. China briefly at bitcoins peak “banned all forms of ICO’s” (Article, Bus brief).  That is 1/3rd the global market that has banning ICO’s as well as the expansion into alternate forms of digital currencies competing with Bitcoins dominant market share. Bitcoin was temporarily affected only dropping for 3 weeks to then surpass its peaks prior to the banning. Resilient, Bitcoin is proving itself without ICO’s, or global support with Chinas withdrawal its able to sustain itself which is why china reentered the market and allows for bitcoin to continue to reach new heights in valuation. At its peak of 18k the market cap was 300b, now at 5,000 down over 60% it maintains 185b in cap.  Its proving itself as a global currency since it isn’t associated with any country it was capable to do the opposite that China was intending and sustain itself.  Ethereum is starting to have its own share in the digital/crypto market due to the fact it is even more encrypted and able to process more transactions a second. Bitcoin can process 3-4 transactions a second right now, Ethereum 12-15 and visa 400. Bitcoin becoming a global currency is probable by proving independence and its capabilities. It has a predominant force in global economies by integrating itself into all forms of trade and proven to be unaffected by bans. Its counterpart, Ethereum, another digital currency that’s globally recognized. Instead of hundreds of currencies it seems the world is shifting to under a dozen in digital which is making steps to match Visas ability to process such a heavy load of transactions. Below is a visualization of the expansion of Bitcoin globally we have discussed. “Each dot is an individual bitcoin download. The yellow dots are a general reference of all bitcoin downloads ever, while the red ones represent a specific OS use” (Data Visualizations) Red dots are interesting because they represent a transaction. Its already, in 7 years, expanding globally with an emphasis in Europe and the United States which are predominate continents in population, exchange and dominant economy’s.

Inflation & Volatility

Bitcoin has a long way to go to get where it is fully capable of getting to there are many pros and cons, Goldman Sachs and ledgerX cater to sophisticated investors and after the crash they had difficulty navigating their new business ventures with investors that they had stake in. They found there were many delays in the crypto exchange, and the bank itself hasn’t received regulatory approval to buy and hold actual bitcoins for their customers which presents some issues. In the New York Times article its said “the smart money knows crypto is not ready” which has a pessimistic yet optimistic standpoint, the smart money knows there is potential but there is time that is needed for it to be less volatile, and a more stable form of not only investment - a form of trade. Many lot countries have issues regulating currency and bitcoin could be a great way to fill that void when bitcoin stabilizes it can avoid the issues that come with a countries currency instability such as the inflation in Zimbabwe. Bitcoin would allow the mass populations of people in these countries to not only have access to a currency that is more stable, but without needing to convert it they would be able to send it to and from people in other countries effortlessly. This is already being done as we see in the map pictured above bitcoin wallets are also in undeveloped countries crypto power rises leading in the direction of a global currency.

Sustainability

Bitcoins capabilities lead to massive potential to become a sustainable global currency pros and cons weighed out which are in constant discussion in headlines even recently we saw a spike. There were many concerns discussed with inflation and how complicated these markets are to predict, Tim draper when asked if he would ever sell of his Bitcoin, he says why would I sell my currency. This is referring to Bitcoin as replacing what we have grown accustomed to, for example the dollar. However, there needs to be more logic to it than that, Bitcoin is being driven by the media attention not so much the valuation behind it. There are no assets, no forms of production, resources dictating its value other than it being a finite resource. The SCC has started to put restrictions on bitcoin that affect it in multiple ways in how it will be used globally. Regulations have potential to pop the bubble seen with bitcoin which may lead to sustainability by having rules in place it would be less volatile. Globally countries have started to regulate bitcoin which has been making the volatility of Bitcoin less aggressive.

 A new global currency this would affect the economy in so many ways completely shifting future generations ways of interacting with different countries. These restrictions that are out in place regulate it and benefit the peripheries already positioned in our core countries that make our global economy function the way it does right now by having more of a global market. Below are two charts, Chart 1 shows bitcoins surge and Fibonacci retracement after the bubble popped and became more stable, and Chart 2 shows bitcoin in comparison with Nasdaq in 2000. There is a bubble that is visibly present. The chances of a currency like bitcoin being able to sustain itself when it’s as volatile as wall street in terms of recessions in the market is makes it likely it can be utilized in the long run and if history repeats itself, we will see bitcoins value rise and billions can be made, and put into the economy.

Chart 1

Chart 2

Conclusion

  In conclusion Bitcoin can be a functional global currency its well on its way to completely revolutionizing economics completely. It is an advanced form of currency that will evolve trade and the global economy however over time it won’t happen overnight. Bitcoin will be a socioeconomic norm in 100 years, in 10 years it should be in the range of 1.3 billion (according to Tim Draper) bitcoin wallets, today there are 32 million. There will be a day that it is comical to purchase anything other than via digital currencies like bitcoin even with its competitors such as Ethereum. It’s insane to be amidst a global shift, Investors are pumping billions into this market since there is an insane value in this technology. It is more secure than any other currency due to encryption and extremely mobile which shows how wiring money have influence in the use of bitcoin. Right now, a countries dollar is backed by their forms of production, wealth and resources and this is decentralized and allows for endless possibilities.

It would be a struggle to find valuation in a country having its own ICO and the problem of no singular currency would remain, granted it will take decades for bitcoin to ever be able to be used as a global currency, sustaining itself and eliminating all forms of financial exchange that are in use is within reason, bitcoin may have a “segment of market share” (Pg.916 Springer) in the years leading up to the global shift. That market share being 1.3 billion people is a huge share of the market. It will continue to have a tremendous impact and will one day be able to sustain itself when all 21 billion bitcoins are sold off in circulation there will be a valuation reflecting that. The market cap with however much of the worlds money that will equate too will balance itself out, right now it’s at 300billion. It was great to go so in depth on the capabilities of bitcoin, and see how the future will be for myself, and future generations. It’s a phenomenon that isn’t going to go anywhere soon this is only the beginning and it will be interesting to see if this is how it actually plays out or if everyone rooting for bitcoin will have to watch its demise rather than its continued success.

References:

• Banning Fred. Mondaq business Briefing: China bans initial coin offerings Hk tightens Regulations. 2017
• Ciaian Pavel. Bitcoin: The digital agenda of virtual currencies: Can BitCoin become a global currency? 2019
• Draper Tim. DFJ Summit: E779 Brian Armstrong, Coinbase & Tim Drape, DFJ on the state of cryptocurrencies maturing market, 2018
•  Fawcett, Jay Palmer Bitcoin regulations and investigations: A proposal for U.S. policies. 
• Utica College, ProQuest Dissertations Publishing, 2018
• Kelly Brian. Bitcoin Bang: The bitcoin bang: how Alternative Currencies are about to change the world. 2015
• Nelson John. The United Nations of Bitcoin: Visualizing Bitcoins amazingly fast spread around the world. 2013
• New York Times - https://www.nytimes.com/2019/04/02/technology/cryptocurrency-bust-wall-street.html?action=click&module=News&pgtype=Homepage 2018
• Reiff Nathan. Investopedia: What Happens to bitcoin after 21 million are mined. 2017