Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Coronavirus Deviation from Overall Outlook for 2020 - Video - 28th Feb 20
Stock Market SPX to Rise back to 3350 - 28th Feb 20
Stock Performance in the Rising Coronavirus Fever - 28th Feb 20
Stock Market SPY Breaks Below Fibonacci Bearish Trigger Level - 28th Feb 20
Will CoronaVirus Pandemic Trigger Stocks Bear Market 2020? - 28th Feb 20
Dow Long-term Trend Analysis - Coronavirus Triggering a Stocks Bear Market? - 27th Feb 20
Trump or Sanders? Both will pile up the Debt - 27th Feb 20
Oil Price Is Now More Volatile Than Bitcoin - 27th Feb 20
A Digital “Fedcoin” May Be Coming… And It Would Be Terrifying - 27th Feb 20
India's Nifty 50 Stocks: Does the Bad Jobs Outlook Spell Trouble for Stocks? - 27th Feb 20
How Crypto Currencies Are Helping Players Go Private - 27th Feb 20 -
Gold and Silver The Die Is Cast - 27th Feb 20
US Economy Permanently Addicted to Zero Interest Rates - 27th Feb 20
Has the Stock Market Waterfall Event Started Or A Buying Opportunity? - 27th Feb 20
Advantages of Enrolling in a Retirement Plan - 27th Feb 20 - LS
South Korea Coronavirus Outbreak Data Analysis Warning Rate of Infection is Exponential! - 26th Feb 20
Gold Price Long-term Trend Analysis Forecast 2020 - 26th Feb 20
Fake Markets Are on Collision Course with Reality - 26th Feb 20
Microsoft is Crushing the S&P 500, Secret Trait Of Stocks That Soar 1,000%+ - 26th Feb 20
Europe's Best Ski Resorts For The Ultimate Adventure - 26th Feb 20
Samsung Galaxy S20+ vs Galaxy S10+ Which One to Buy? - 26th Feb 20
Gold Is Taking on $1,700 amid Rising Coronavirus Fears - 26th Feb 20
Is This What Falling Through the Floor Looks Like in Stocks? - 26th Feb 20
Gold Minsky Moment Coming - 26th Feb 20
Why Every Student Should Study Economics - 26th Feb 20
Stock Market Correction Over? - 26th Feb 20
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Bitcoins And Bolivars: Two Hot Potatoes

Currencies / BlockChain Mar 03, 2019 - 05:50 PM GMT

By: Steve_H_Hanke

Currencies

It was just a little more than a decade ago when “Satoshi Nakamoto” ushered in what has become the era of private cryptocurrencies. Nakamoto’s vision was clearly laid out in a whitepaper: “Bitcoin: A Peer-to-Peer Cash System.”

Nakamoto’s bitcoin money machine—or as Larry White refers to it: a private “algorithmic central bank”—was going to wipe out the inflation risk and the accompanying loss of purchasing power that plague fiat monies issued by government-controlled central banks. Alas, bitcoin’s source code that predetermines its supply is set on a fixed-quantity path that is unresponsive to changes in demand. In consequence, bitcoin inhabits a demand-supply space in which supply is almost perfectly inelastic. So, to reach a demand-supply equilibrium, all the adjustment falls on the back of bitcoin’s price (read: purchasing power). As a result, bitcoin’s price is inherently volatile and unstable. Indeed, small changes in demand in the face of an inelastic supply create a price volatility storm. Furthermore, unless more demand can be attracted to bitcoin, there is no reason why its price should trend upwards, as many have been led to believe. If speculation wanes, bitcoin’s price could trend downwards. Indeed, bitcoin’s design guarantees volatility, which inhibits its widespread use. In short, it is very risky to hold bitcoins or accept them for deferred payments.


Since bitcoin is such an unstable unit of account, it should be viewed as a speculative asset, not a currency. Some equally unstable units of account are considered currencies simply because they are issued by central banks and are legal tender. The Venezuelan bolivar is but one example.

This raises a question: if you had to be paid for a day’s hard work in bitcoins or bolivars, which would you choose? In 2018, that would have been a tough question to answer. Indeed, the value of both assets made a race to the bottom of the barrel.

Twenty years of socialism and scandalous central bank policy in Venezuela produced an annual hyperinflation in Venezuela of 80,000%/yr at the end of 2018. When compared with the U.S. dollar, the bolivar lost 99.87% of its purchasing power in 2018. The bolivar was totally wiped out. It is no surprise that Venezuelans treat the bolivar as if it were a hot potato.

Bitcoin’s decentralized public ledger and leaderless source code were supposed to have solved the problems thrown up by central banks, like Venezuela’s. But, crazed speculators pumped bitcoin’s price up to a high of $20,000 per bitcoin in December 2017 before it plummeted to under $4,000 by the end of 2018. Like the bolivar, Bitcoin was a hot potato, too.

Faced with two hot potatoes, what would you do? In a weekend op-ed in the New York Times, Carlos Hernández, a Venezuelan, reported that, for him, the bitcoin has been less hot than the bolivar.  And, he is not the only Venezuelan who harbors those sentiments. Aside from Russia, Venezuela accounts for the second largest volume of bitcoin trading in the world.

The title of Hernández’s op-ed is “Can Bitcoin Save Venezuelans?” To this question, Hernández answers in the affirmative. In doing so, Hernandez recounts how he uses bitcoins. One might ask, how does he convert one hot potato, bitcoin, for another, bolivar, so that he can buy milk? To do this, Hernández uses a peer-to-peer electronic trading platform. In his case, he uses LocalBitcoins.com. But, there are other platforms, such as Airtm, where I serve as a member of the Board of Directors.

What Hernández and other crypto-enthusiasts miss is that it isn’t bitcoins or other cryptocurrencies that are going to save Venezuela. Instead, it is peer-to-peer electronic trading platforms that join buyers and sellers in free exchange that will mitigate the pain of the Venezuela’s hyperinflation. These allow holders of hot potatoes to freely unload them for real money that can be used to purchase real things.

To demonstrate the value of peer-to-peer platforms and how they can transform non-currency cryptos into real money and increase the demand for cryptos, I and my colleagues at Airtm have embarked on the AirDrop Venezuela Campaign. Our goal is to raise $1 million and transfer it to 100,000 qualifying Venezuelans. The modalities are simple. Donors gift cryptos to the Airdrop. These are distributed to the “wallets” of Venezuelans registered on the Airtm platform. Then, the Venezuelans will have a choice: Do they speculate on the value of the cryptos and retain them? Or, do they offer them for sale on Airtm’s platform, where they can be exchanged for real money, such as U.S. dollars?

By Steve H. Hanke

www.cato.org/people/hanke.html

Twitter: @Steve_Hanke

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. Prof. Hanke is also a Senior Fellow at the Cato Institute in Washington, D.C.; a Distinguished Professor at the Universitas Pelita Harapan in Jakarta, Indonesia; a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing; a Special Counselor to the Center for Financial Stability in New York; a member of the National Bank of Kuwait’s International Advisory Board (chaired by Sir John Major); a member of the Financial Advisory Council of the United Arab Emirates; and a contributing editor at Globe Asia Magazine.

Copyright © 2019 Steve H. Hanke - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Steve H. Hanke Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules