As the Executive Director of the Canadian Blockchain Consortium and a long-time entrepreneur in the cryptocurrency space, I’m often asked why Bitcoin is booming and what makes it such an excellent investment. Banks, billionaires and ordinary people are buying it in droves. With bitcoin’s price hitting a new all-time high of USD 60K, I’m fielding these questions more than ever.
I admit that I sometimes struggle with an answer – unless they have a few hours – because it’s not a simple subject. It took me years to fully understand that a confluence of technological uniqueness, culture, factors and decisions made by global political leaders explains the rationale behind Bitcoin’s popularity as a store of value.
Bitcoin is changing the world in dramatic ways. It’s no wonder why people from all walks of life are so curious about precisely what Bitcoin’s true value proposition is.
Koleya Karrington will serve as emcee of ITWC’s inaugural Canada’s Top Women in FinTech/Blockchain celebration on June 1, 2021 recognizing Canadian women who’ve made significant contributions to the advancement of the FinTech and Blockchain industries. If you know a Canadian woman with more than three years of experience in the Canadian FinTech/Blockchain field, nominate them for recognition today. Self-nominations are welcomed. The deadline for nomination is April 16, 2021.
This article will focus on the economics of Bitcoin, some of the political movements driving its price explosion and resources for anyone interested in reading further.
“We have elected to put our money and faith in a mathematical framework that is free of politics and human error.”
– Tyler Winklevoss, Co-creator of Facebook
1. Austrian Economics
Skeptical of consolidating power in central banks and wary of the inequality that often results from their monetary policies, the Austrian School of Economics proposes that the most prosperous and equitable financial markets evolve organically with low government intervention. Bitcoin has a stable amount of currency (only 21 million coins will ever exist). Its entrepreneurial origins and a market controlled by BTC holders, rather than governments, is a monetary system that Austrian economist Carl Menger would have approved of had he not been 120 years too early.
Read more: Austrian Influences on Bitcoin
It’s a shocking statistic that, since 1989, the top 1% wealthiest people in the world have seen their wealth increase by over $21 trillion. This wealth grab correlates to monetary policies that increase the amount of money in supply, which spur a dramatic rise in wealth inequality by boosting financial markets while making life more expensive for ordinary people.
Central banks can’t print more Bitcoin; it’s an inflation-proof currency. Bitcoin has the power to help rebalance the inequality of haves and have-nots by providing accessible, wealth-preserving investments that don’t decline when governments decide to increase the money supply.
Read more: Bitcoin’s Monetary Policy will Help Solve Wealth Inequality
In our chaotic world, risk is everywhere, and global governments’ movements cause some of the most significant turmoil. Alone among the cryptocurrencies, Bitcoin’s price rises when geopolitical risk is high, demonstrating its acceptance, much like gold, which acts as a safe harbour in uncertain times. Since no one government controls Bitcoin, it holds its value in currency crashes due to political and economic crises, such as the Argentinian collapse in the late 1990s. As an international currency, Bitcoin isn’t subject to the devastating capital controls that prevented millions from trading their Argentine pesos for dollars or moving money to a safe place outside the country.
Read more: Digital Gold and Geopolitics: Bitcoin as a Political Risk Haven
4. Currency Wars
The world’s biggest powers are in constant conflict – but it’s not a military or a cold war or anything easily recognizable. Economics is the battlefield, and currencies are the weapons of choice. China has long been accused of intentionally devaluing its currency to gain an advantage in international trade, making its products cheaper and causing other manufacturing-heavy countries, like Japan and Malaysia, to follow suit. Currency manipulation has a devastating effect on trading partners and other manufacturing economies and would be impossible with an international, non-government-controlled currency like Bitcoin.
Read more: Currency Wars: The Rise of Bitcoin
Closely tied to points 1 and 2, inflation is a major driver behind the widespread adoption of Bitcoin and one of the key reasons for its rapid growth in unstable emerging markets. Inflation – when the money supply increases so much that goods and services cost more – results from policies. Look at the enormous bond-buying program the US Federal Reserve is conducting to inject liquidity into the economy during the pandemic, with $3 trillion in assets purchased since just March, 2020. The US might not be in hyperinflation territory yet, but with the sheer volume of money flowing into the private sector, it’s a looming possibility. As precedents, Bitcoin already sees massive adoption rates in countries with enormous inflation, such as Brazil, Venezuela and Nigeria.
Read more: Bitcoin vs. Inflation
“I own Bitcoins. It’s a store of value, a distributed ledger. It’s a great place to put assets, especially in places like Argentina with 40 percent inflation, where $1 today is worth 60 cents in a year, and a government’s currency does not hold value. “
– David Marcus, CEO of Paypal
There are significant economic and political factors moving Bitcoin to new heights, but that’s only part of the story. Part II of this series will cover some of the other elements driving the adoption of Bitcoin. I’ll also deeper dive into the unique aspects of its technology and its utility as a currency.
We may live in uncertain times, but it’s also exciting to see how quickly how technologies like Bitcoin are starting to level the playing field between the haves and have-nots. People have always been at the whims of tremendous forces like monetary policy, borders, government decrees and geopolitical conflicts. Now, technology offers a way to step outside of those pendulums to gain true -and fair- financial independence.