The Bitcoin currency recently topped US$50,000, hitting a more than three month high after the crash in May that followed the decision of Chinese regulators to cut down the cryptocurrency mining, and the announcement by Tesla’s Company CEO Elon Musk to stop trading Bitcoin.
However, investors have not lost faith in the digital currency, as more big finance companies have begun to deal with it.
The increase in the value of the currency came after PayPal’s news that it would allow its clients in the UK to buy, sell, and hold bitcoin and other digital currencies, expanding its digital currency transactions for the first time outside the United States.
On the other hand, analysts believe that the US Fed Reserve’s continuing support to the US economy has strengthened the Bitcoin currency, mainly because the Fed has held interest rates at their lowest levels, making risk-weighted investing more appealing.
According to Tey El-Rijula, an expert in digital currencies and blockchain technology, the cryptocurrency market has recently seen significant fluctuations, due to three factors: Media coverage, which directly impacts the price, whether negative or positive is the most important factor. The second is the speculation, and the third is the supply and availability of the crypto itself.
Tey adds a fourth factor, which is the fundamentals that exist in the cryptocurrency world that affect the price, such as the halving events in which the supply of Bitcoin is reduced by 50 percent every four years and is determining this through programs that affect its price.
According to Tey, there is no direct pricing relationship between the currencies and their prices. While certain significant coins increase in conjunction with Bitcoin’s rise and fall, this idea has recently been debunked. For example, the ADA digital currency is in the top three coins in terms of trading. Its price is rising faster than Bitcoin, owing to the public’s desire to invest in it at a higher pace than they would invest if it was for Bitcoin.
Bitcoin no threat to US dollar
Bitcoin and other cryptocurrencies may also be used to purchase goods and services in the same way as the paper cash. Bitcoin in particular, is backed by cryptocurrency whales as a store of value that can be used to guard against inflation or loss of fiat currencies like the dollar, with some even calling it “digital gold.”
This comes at a time when bitcoin has exceeded US$50,000 for the first time, as more institutional and individual investors accept cryptocurrency as a method to diversify their portfolios against currency deflation fears in the face of global money printing.
TradingView, a global stock charting platform, provided new statistics earlier this year indicating that poor economies are adopting bitcoin as a safe asset. But, of course, this brings the famous question: Will these currencies represent a threat to the US dollar?
Tey told TRENDS that cryptocurrencies vary from real currencies since they are issued by people and communities rather than governments, something that has never happened before in the history of money.
That is why Tey believes that digital coins can challenge local currencies but will not completely replace them, except in some extreme cases.
Lebanon, for example, is excellent proof of cryptos replacing the local currency. As a result of the Lebanese mistrust of their currency and the absence of the dollar from the market, the Lebanese market witnesses large-scale trade-ins and high demand for various digital currencies. We’ve discovered that those interested in these currencies prefer USDT or any other cryptocurrency over their local currencies.
Tey emphasizes that cryptocurrencies will coexist with paper currency. People may use their local currencies in their daily lives at micro-level. Still, when it comes to international transfers, storing value, and other aspects of money other than cash, cryptocurrencies will play a role in digital assets or medium of exchange. It will be used to transfer and receive money worldwide, without regard for national borders.
In terms of replacing the paper US dollar, Tey believes that, despite being a type of future money, bitcoin cannot be the dollar of the future because the US dollar is a fiat currency created and supported by the US government.
He goes on to say that the current events in Afghanistan, the Covid-19 pandemic and how the US government is dealing with it, are two significant indicators of a loss of trust in the US government, putting greater pressure on the US currency.
On the other hand, Bitcoin is not supported by any government; it is a pure mathematical software driven by money, with a fixed and non-lying mathematical process. As a result, they can’t be linked to one another, and bitcoin can’t take the place of paper money.
St. Louis Federal Reserve Chairman James Bullard has already said that Bitcoin is not a threat to the US dollar’s global reserve currency status. The Euro and the Japanese Yen are strong currencies, but “none of them will replace the dollar,” he says, pointing out that currency competition is nothing new.