Bitcoin and the US dollar share a lot of similarities, making them interconnected in various ways. For instance, they are both payment methods and stores of value. Although the dollar is the world’s reserve currency, some people consider Bitcoin as the crypto’s reserve currency. Those are some of the reasons some people think a crash of the dollar would negatively impact Bitcoin. However, that is not the whole story. The following article explores what would happen to Bitcoin if the dollar crashed.
The Future of the Dollar
Top economists project the dollar would depreciate by about 35% against other leading currencies over the next one or two years. Some argue macroeconomic disparities could lead to the US dollar’s implosion, allowing crypto assets to rise in value in the next few years. While such imbalances have existed for some time, the pandemic made things worse. It has impacted decreasing domestic savings rates and increasing budget deficits.
The stimulus programs also put an extra financial burden on national budgets, surging the already high debt levels. Economists say the US policy is also becoming more protectionist, striving to separate itself from the rest of the globe. Such situations make a dollar crash inevitable soon, imposing more significant challenges for investors. US companies would have to pay higher prices for imports due to the dollar’s depreciating value.
Some economists compare the current situation of the US dollar to the 1970s when consumer goods prices rose, but the economy remained stagnant. They predict rising inflation that could significantly depreciate the value of the dollar against several leading currencies.
How a Dollar Crash Would Impact Bitcoin
Economists, academics, financial market experts, and investors have shared different opinions on what they think would happen to Bitcoin if the dollar crashes. A majority of them agree cryptocurrencies such as Bitcoin would significantly benefit from a dollar crash. However, they also believe the asset class is still relatively meager to completely accommodate the global financial market adjustments.
Reports from currency markets such as the bitcoin circuit suggest Bitcoin has immensely benefited from the past US dollar’s devaluations. Even a tiny percentage of money flowing into the crypto markets could massively boost prices since the daily trading volume in forex markets is more than $6 trillion. Besides, investors would swiftly sell off their positions in dollar-linked stable coins for crypto assets.
A dollar crash would significantly weigh on US equities, triggering a worldwide selloff, like the one experienced during the Coronavirus pandemic. Thus, a dollar crash could impact increasing demand for cryptocurrencies such as Bitcoin that have proven their resilience to recession and other similar shockwaves. That could mean a significant surge in the price of Bitcoin and other cryptocurrencies in the next few years.
On the other hand, others also say Bitcoin would not replace the dollar even if the latter crashes. While Bitcoin’s volatility and decentralization make the dollar seem rigid, it professes some of the dollar’s worst characteristics. Those opponents argue it is challenging for Bitcoin to exist as money due to its capped supply and speculative value. Nevertheless, good money should have a stable measure of value, and the government-issued fiat currencies are not currently living up to that standard. Cryptocurrencies, too, have not attained a stable measure of value.
Leading fiat currencies like the US dollar are currently one of Bitcoin’s most significant competitors; significantly slowing the latter’s global adoption. However, cryptocurrencies are arguably a market response to the less-trustworthy and restrictive government-regulated currencies. Therefore, a dollar crash would potentially benefit Bitcoin, facilitating its increasing market demand and value.
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