Bitcoin is criticized, but the dollar “is highly volatile”


Key facts:
  • Unlike what happens in Bitcoin, governments can issue money indiscriminately.

  • State decisions can be “arbitrary and inefficient.”

Ark Invest, one of the issuing companies of bitcoin (BTC) ETFs in the United States, has highlighted an existing disparity in the global monetary landscape. While the digital currency is often criticized for its volatility, the reality is that the US dollar “is highly volatile.” Perhaps not in terms of its value (which is constantly depreciating at a moderate rate), but in other aspects.

In a recent report, the company talks about the differences between bitcoin and central bankswhich are the institutions in charge of a country’s monetary policy.

One of the main value propositions of bitcoin – according to Ark Invest – is the “clear distinction between human decision makers, such as central banks, and money.” This is because fiat currencies can be created at the discretion of States.

Such policies, often “arbitrary and inconsistent,” can generate uncertainty in financial markets and negatively affect the value of traditional currencies. Bitcoin, on the other hand, has a limited supply of 21 million coinswhich makes it less susceptible to inflation.

Unlike fiat money, which can be issued by central banks at will, bitcoin’s monetary policy is fixed and immutable. This scarcity creates intrinsic value for bitcoin, as it is an asset with limited supply and currently increasing demand.

“It is no coincidence that bitcoin evolved amid extreme volatility in the monetary base during the Global Financial Crisis of 2008-2009,” says Ark Invest.

The monetary base of a country is the total amount of money that a central bank has created. It includes physical money (coins and banknotes) in circulation among the public, digital money that may have been issued, and reserves that commercial banks hold at the central bank. The monetary base is important because it is the foundation on which an economy’s money supply is built.

In the following graph you can see the volatility of the monetary base of the United States that the report mentions.

Volatility of the monetary base in US dollars. Source: Ark Invest.

This fact reveals the vulnerability of fiat currencies to manipulation by central banks and highlights the need for a more robust and independent monetary system, such as Bitcoin.

Bitcoin emerges as a refuge after banking crisis

The report also highlights the role of bitcoin as a safe haven in times of banking crisis. Since the beginning of the United States banking crisis in 2023, bitcoin has proven to be an asset for storing value due to characteristics such as non-confiscation and resistance to censorship. In addition, BTC facilitates the saving and mobilization of any sum of money without geographical limitations. This has caught the attention of investors concerned about the stability of the traditional financial system.

By this, Ark Invest refers to the cessation of operations of several banks, such as Silvergate Bank, Silicon Valley Bank and Signature Bank, in March of last year. All of these financial entities were intervened and declared bankrupt, as CriptoNoticias reported at the time.

The fall of those banks eroded confidence in the US regional banking sectordriving investors towards alternative assets such as bitcoin and gold.

In fact, the value of the regional banking ETF, which represents a basket of regional bank stocks, has fallen. This indicates a loss of confidence in the regional banking sector after the crisis. Below is a chart showing the performance of the regional banking ETF, gold and bitcoin:

Performance of BTC, gold and regional banking ETF. Source: Ark Invest.

Gold, another asset traditionally considered “safe,” has experienced a smaller increase than that of bitcoinas seen in the previous image.

Currently high interest rates keep pressure on regional banks’ share prices, adds Ark Invest.

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