Bitcoin Mania Boost

The United States has created a strategic bitcoin reserve, similar to how countries have gold or foreign exchange reserves; something to fall back in case of a crisis. Its President Donald Trump signed an executive order that said, ‘With a fixed supply of 21 million coins, there is a strategic advantage to being among the first nations to create a Strategic Bitcoin Reserve. The United States currently holds a significant amount of bitcoin but has not maximized its strategic position as a unique store of value in the global financial system’ This was also accompanied by the establishing of a digital stockpile which will contain other cryptocurrencies. Trump then topped it out with a summit of cryptocurrency business leaders at the White House.  

All of which shows that US government wants to legitimise cryptocurrencies. And, yet, it is hard to see how such an unwieldy chaotic instrument can ever become mainstream. For instance, a currency requires stability. Imagine if 100 rupees buys you 10 eggs today and then the next it only buys 5, not because anything has altered in the supply of eggs but because of the rupee’s value changing. Who would have faith in such a currency? People will just stop using it. Countries go to great lengths to stabilise their currency. Cryptocurrencies, including Bitcoins, makes seismic movements overnight. There is no predictability to their value but it does not matter because almost everyone who buys bitcoins don’t do it to make transactions, which is the main role of a currency. People buy bitcoin only because of the expectation that it will rise in value. It is the definition of a bubble and bubbles only look enticing when they are rising up.

Trump calls the earlier US administration foolish for selling off seized Bitcoins because they rose in value later but what if they decrease in value tomorrow? Who can guarantee that the movement will only be in one direction? At some distant future cryptocurrencies might replace what exists today but by then it might not have anything to do with what is present today. Despite gimmicks  like a strategic bitcoin reserve, no country is going to give up the power to mint and manage currency. The stability of their economies are underpinned by it. The US government joining the mania is not going to help when economic realities catch up with cryptocurrencies.   

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