The former denizen of the fringes of the American economy has transformed into the currency of choice for a new generation. Among the largest populations of Bitcoin users are those who hold it in reserve as a speculative bubble that will burst, one day, after which they will be forced to pay dearly. Despite its volatility, many people have been lured into the virtual world because they can speculate on Bitcoin’s potential for a speedy rise in value, and if it crashes, they can sell off the “bad” parts of their investments. However, the currency’s volatility could cause serious problems for a nation state that controls the supply.
In the U.S., the volatile market for “currency speculators” has begun to put more pressure on central banks, which are forced to intervene in the market to “coerce” the currency speculators into buying safe government paper. Central banks are considering the option of printing more money to control the currency speculators. Many economists believe the program will increase inflation, reduce purchasing power, and destroy the credibility of the United States as a stable currency.
Another obvious problem with printing more money is the thought of creating too much money, in an attempt to keep inflation at bay. The currency speculators would quickly demand it would cause inflation. And then, why create more money when people can use their hands to turn loose credit? They can sell whatever goods they wish for whatever goods they wish, for whatever goods they wish.
But the printers can print as much money as they want, so why not print more “crap” as a means of controlling the market. It does not make sense. Printing more money is akin to printing more bullets in a war, which leads to greater casualties and loss of life.
Some analysts predict that more money will be printed to curb Bitcoin speculation, and that it will eventually “flip”, turning the Fed and the banking industry into richer. As a speculative bubble, inflation can cause severe problems, as it did in the economy during the Great Depression. If the currency speculators lose confidence in the value of their Bitcoin holdings, it will continue to devalue, causing everyone to sell off assets they hold, and there will be fewer assets to buy with the same value, thereby causing deflation.
If the United States is indeed attempting to control the currency speculators through inflation, it might also drive them to other alternative currencies, like gold, or paper money, especially considering the United States itself may not be as secure against the currency speculators as it has been in the past. It is good to know that most currencies are not as safe as they once were, but what is to be done in the event that they all crash?
With respect to Bitcoin, printing more money will only hasten its depreciation, and cause the same thing to happen to paper money. Bitcoin as a speculative bubble, instead of as a hedge against inflation, is a problem for the United States. Bitcoin can make it easier for the people to establish an online cash business, but it is not advisable to “fool” your customers with this software.
One simple way to protect yourself from an impending collapse of the market, in the event that it is threatened, is to invest in hard assets that are difficult to devalue, such as gold, or a well secured asset like a Swiss bank account. Investing in these types of assets will make it easier to buy back into the market when it starts to rise, while protecting you from a catastrophic economic collapse.