Bitcoin Versus Fiat: A Case of Devaluating National Currencies

Simply put, the Fed began printing more money to boost the economy and purchasing assets with newly created bank reserves to promote spending in the economy.

Weakening Fiat

Looking back to the turn of the 20th century, the total US money supply was just $7 billion, whereas today it is close to 2,000 times that amount — around $14 trillion. This inevitably means that the US dollar as a currency is weakening with its purchasing power reduced by more than 15 percent in the last decade alone. Despite this, the same proponents that support centrally managed and weakening fiat currency systems like the USD have been some of the harshest critics when it comes to alternate currency systems like cryptocurrencies.

$USD lost 99.99% of it's value … against #bitcoin 2011-2019 pic.twitter.com/BeUq4yBeND

— PlanB (@100trillionUSD) May 27, 2019

BTC Vs. US Dollar

Comparatively, Bitcoin (BTC) has been around for only the last decade, while the US dollar has been in use for well over 200 years. Because of this, a direct comparison between the two currencies may not be of much value. For instance, back in 2011, a single Bitcoin (1 BTC) could be purchased for $1. Compared to today, that same $1 would buy you just 0.000114 BTC. While some might argue this is a 99.99 percent drop in the US dollar’s BTC purchasing power, the truth is that Bitcoin’s growing value is responsible for the difference and not a sign that the dollar is failing. Additionally, it doesn’t matter which currency you compare with Bitcoin prices since BTC is not pegged to any currency or commodity — arguably this is the one trait it shares with the USD. Since 1971, the US Dollar is no longer pegged to gold, changing it from a commodity-based currency to a fiat currency. In doing so, the dollar lost its intrinsic value and instead now derives its value from an international floating exchange rate. In a vague sense, this is similar to how BTC derives its value, with the difference being that Bitcoin is entirely decentralized and hence not controlled a single entity. Because of this, Bitcoin and most other cryptocurrencies (barring stablecoins), obtain their value through supply and demand in a free market. In today’s world, cryptocurrencies are proving to be a much needed and potentially more reliable currency system than some fiat currencies. For example, the Argentinian Peso, Venezuelan Bolivar, and Ugandan Shilling are prime examples of fiat currencies that clearly do not meet the needs of their users. In the future, when it comes to comparing cryptocurrencies to US dollars, we should remember how they both derive their value from an open market. Any argument that says one of these currencies would fail while the other will survive should be considered purely biased speculation. Do you think BTC is a stronger store of value than the USD? If so, why? Let us know your thoughts in the comments below!