Well I have spent a lot of time trying to figure it out - not Bitcoin, per se, but how our monetary policy in 2020 is affecting all asset classes in the US - and smarter minds than mine, as well as $ billions in computing power, are still trying to reach a conclusion.
I am starting to wonder if... instead of Bitcoin gaining value, whether it is the dollar that is losing it. Makes sense, given how prices are increasing in just about every major asset class - financial investments, real estate, commodities, gold, bitcoin.
You can't continue to print dollars and assume that you won't depreciate their value. In 2020, the Federal government deficit spending equated to about 15% of GDP.
In economic crisis times as now we fight the last war, but a little differently. In the Great Depression the governments of the world's nations did the opposite with the money supply, attempting to control the integrity of their currencies. They could see what printing money was doing in post-WWI Germany and they were bound and determined to avoid that. They demanded hard currency in international trade, and gold, the hardest of all currencies was restricted to ownership only by governments, so not much trade continued. That started a cascade of economic shutdowns of industry and commerce and led to long term 25% unemployment in the USA and worse across the world. With nobody buying stuff, workers were not needed to mine, grow, make, transport, sell or service much of anything. Businesses can't operate at 50% capacity for long because their fixed costs of real estate and machinery always includes mortgage payments on all that equipment and inventory, so they go bankrupt and the banks holding the mortgages can't pay bond holders interest payments and they go bust, too. No one and no commerce is immune from what happens when the flow of cash stops abruptly. It's not called a cascade for nothing. It's like being in a rowboat on eastern Lake Ontario without oars. You may not know exactly when you're going over Niagara Falls, but you are going over sooner or later.
So, we know restricting money & trade doesn't work. It took WWII to get out of the Depression ten years later.
No war, no end to the depression. Printing money as we are doing now on a limited scale is monetizing the problem. That is: debasing the value of a currency by dividing the net value of the currency into more units (dollars for the USA). I can't do the calculations, but if they issue 10% more dollars than the increase in goods and services being created, the the value of all the dollars in circulation goes down about 10%. Which is worse: currency that is worth less after the crisis, or the cascade? It's an easy question with an easy answer, but with one little caveat: it can't continue for long because small businesses drop like flies where the Mom& Pop shops operate out of their pockets and go irretrievably broke in weeks or months. Not years, -weeks or months-, and they are 25% of the economy. How long has this lasted already?
Fiat money is created by governments in normal times in the same amount as the increase in value of goods and services. Joe makes cigar boxes. He pays for wood, rent, machinery, heat, glue, labor, taxes and paint for 50 cents his cost and sells them at a 40% mark-up for 83 cents. He has increased the value of the goods and services by 33 cents. The government needs to increase the number of dollars by 33 cents or there will be a shortage of currency. It's pretty simple. Don't print enough and pretty soon the system doesn't work. Print too much and the value of each unit goes down.
How does BTC fit into this scheme? It doesn't. It's attempting to become a fiat currency not connected to a government. (fiat means it's worth what somebody says it's worth) In this case the holders are the people issuing the fiat. Are they to be trusted any more than the governments that have been the issuers of dollars, pounds & yen? Are you kidding? They are trying to tell the world that BTC is the new gold as a store of value. The slight difference is that gold is real. You can hold it and it is
limited in supply so that someone can't create it out of thin air, or debase it out of thin air.
PT was right.
