Bitcoin And Financial Crisis: Cause Or Cure?

by Sunday, January 14, 2018

Depending on who you ask, Bitcoin is either the currency of the future or it is a dangerous fad set to burst as a giant bubble of irresponsible speculation.

What are Bitcoin and Cryptocurrencies?

Bitcoin is a cryptocurrency that allows you to exchange it for goods or services.  It is decentralized and no controlled by any government.  Cryptocurrencies are digital and are a means of exchange. They rely on cryptography to secure transactions.

Bitcoin is a virtual currency made possible by the internet revolution.They were created by techie geeks. As a techie geek myself, I would have bought them if I had known about Bitcoin when the launched in 2009. If I had I would be a wealthy woman.  Their value has exploded.

NewsBTC is a dedicated to following Bitcoin in the news. Any investor would be wise to start reading its postings. Following the Bitcoin phenomena is fascinating and potentially very profitable.

How does Bitcoin relate to a financial crisis?

Breaking news suggests the frenzy of buying is set to set to fizzle out. Rather than avoiding the purchase of Bitcoin, I think purchasing them is a good idea for individual investors, businesses, and even large federal governments.

Echoes of the 2008 stock market and real estate bubble burst and subsequent financial crisis are still felt today. Investors are nervous about investments that appear too speculative or to be risky investments. They have gone from being a commodity only known to geeks and are now the daily talk on financial news networks. It is time for investors like you to pay attention.

How does Bitcoin relate to the derivatives and bond markets?

Bitcoin is part of the astronomically large derivatives market.  Derivative markets can be based on stocks, stock indexes (such as the S&P 500) or currency markets. The impact of a bubble on this sensitive market is not known.

Investors are also concerned about the bond market.  Bonds are issued by governments. They are normally extremely stable and safe investments. Bond markets are themselves usually also stable and safe.  However, they can be vulnerable. A collapse in this market would result in hyperinflation with wide-ranging impacts.

While traditional currency crashes during a financial crisis, Bitcoin and other Cryptocurrencies increase in value. Bitcoin prices soared during the Cyprus and Greece financial bailout. While consumers were left unable to get cash from ATM’s, Bitcoin still worked.  Business could function and consumers could get basic necessities.

How does Bitcoin relate to the financial crisis?

People were afraid that during the 2008 crisis the country would spiral into a depression.   Instead, the national experienced a recession.  During an economic crash, interests skyrocket and hyperinflation takes hold.  Citizens can’t finance the purchase of homes or the start-up new businesses. May financial dealings become impossible.

During the Great Depression, large portions of the country’s population were thrown into abject poverty.  The effects of the Depression were catastrophic and took decades to repair.

How are Bitcoin and Crypotcurrencies used?

International Coin Offerings, or ICO Markets, are an alternative to traditional funding sources. ICO’s, also known as International Public Coin Offerings (IPCO’s) are an unregulated means to raise funds for a new cryptocurrency venture. ICO’s are issued by startups to bypass the difficult business capital raising processes required by venture capitalists or financial istitutions. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies.

Are derivatives too big to fail?

The derivatives market is huge and is indeed too big to allow to fail. A collapse would be devastating for global and regional or local markets. Governments will need to find new solutions to avoid this possibility. The sooner they start exploring solutions the better.

With Brexit looming on the horizon, it is worth considering this.  Currency and exchange would become difficult in the European Union countries. During Brexit, the United Kingdom voted (June 2016) to consider withdrawing from the EU.  Financial markets are concerned about having such a larger partner in the EU withdraws.

Not only is investing in Bitcoin still a valid and indeed wise option for consumers, it is a brilliant economic plan for at least one major government to adopt it as a standard currency

 

 

 

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