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The State, Banks and Bitcoin

The State, Banks and Bitcoin

Most of us have been used to money that is created by the State government or rather money that is usually created by banks on behalf of the State government. You need to understand that the State lacks direct control of money created on its behalf by the Private sector. However, you will realize that the government influences the amount of money created by the private sector through the monetary policy and fiscal policy especially now that interest rates are near-zero. The money that private sector creates on behalf of the State ends is equally drawn into banks where you can not distinguish it from the bank reserves and physical currency. You can not disentangle this money thus; you only need to accept that after all, this money is equally valuable.

In most cases, many of us have lost trust in this state money and as a result we are going for Bitcoins as a private sector alternative. Bitcoin is seen to gain much credibility into the future since the State government is perceived to renege its implicational pledge as a way of guaranteeing money safety. As a result of the negative returns that have continuously hit us, we focus on it as fraud by the state and not the banks. The state’s zero interest rate policy and QE have particularly resulted to such a feeling by the citizens and therefore believe that the state is greatly involved in setting the price of money. That is why most of you have actually opted to choose Bitcoin as a better option over the state currency system.

You know that currency of all kinds serves three major functions. That is; a store of value, accounting unit and a medium of exchange. Majorly, Bitcoin is a store of value since it is intrinsically scarce and does not easily decay. Bitcoin as digital as it is and hardly with a limited number of units which can be created, meets this criteria. Most people are now taking advantage the scarcity factor to try and invest in Bitcoin as a store of value. They know that Bitcoin will appreciate in its value over time and as a result, they will get richer. However, Bitcoin is less as a medium of exchange. Consequently, most of you will look at Bitcoin as a contributor to deflation as a result of deferment in spending decisions while expecting price fall. If controlled well, inflation will still be realized and so the economy will be kept moving. In the long run, you will learn that the design of Bitcoin will be suitable for long term investment rather than a medium of exchange.

On the other hand, non-monetary stores of value have a problem with liquidity. Once you have decided to sell an investment like Bitcoin, you need not look behind; move on and sell it since its popularity is high. Remember that this is only brought about by the suspicion of the State-guaranteed currency. You can use Bitcoin in making purchases thus bypassing the state money since its liquidity is currently assured. Hence, there is a great need to promote it as a currency. You will realize that in relation to the dollar, the value of Bitcoin fluctuates since it is not denominated in dollars. But in the current situation, the value of Bitcoin is doing well. You only need to understand that like any other investment, its price is prone to fall or rise and therefore know how to play your cards.