What are the implications for Bitcoin if all fiat currencies collapse?

[TheBigShort]

Moved from another thread so this important question does not get lost.

I keep flip-flopping on a daily basis with this. On the one hand I'm being convinced that this is all a mania at best, a fraud at worst.
On the other hand, are we simply witnessing the birth of a whole new monetary system?
Is this gold 2.0 or Pokemon 2.0?

I'm reading today about Google's new super AI computer that learned how to play chess and become the best player of all time, in four hours.
I'm reading about China's super computers that are processing data at 3,4 times speed anything done before.
I'm reading about AI robots on the cusp of displacing workers in a technological leap.

Is all this true?

Is it beyond possible that the bots and the algorithms are deducing that the money printing scams of trillions and trillions of €'s and $'s and Yen etc... otherwise called QE can only lead to one outcome - a massive devaluation of fiat currencies?
Is it possible gold and silver would be soaring now only for the manipulation of those markets?

Is it possible (last point) that bitcoin is the future avenue to conduct all digital transactions over the internet?

 

[cremeegg]

You can’t have it both ways.

If this was widely accepted

Is it beyond possible that the bots and the algorithms are deducing that the money printing scams of trillions and trillions of €'s and $'s and Yen etc... otherwise called QE can only lead to one outcome - a massive devaluation of fiat currencies?

Gold would be soaring DUE to the manipulation.

Is it possible gold and silver would be soaring now only for the manipulation of those markets?

 

[TheBigShort]

You can’t have it both ways.

I was posing questions, not making declarations.

Money printing should devalue a currency against other assets, including gold. This hasn't happened to any great extent - that is the manipulation.
Perhaps, with QE, money-printing, this time is different?

 

[Brendan Burgess]

I am very worried about QE. It has not really been tried before and nobody knows how it will end up. It surprises me that it has not caused inflation.

Let's say that the $ and € and stg all collapse to almost zero simultaneously.

What happens to bitcoin? Why would it be the "currency" of choice? Why not one of the other cryptocurrencies?

It will be very difficult to do any business on any scale without a currency. But I would need some "money". So I sell some of my shares for Bitcoin?

Can someone explain or speculate about the actual mechanics of what will happen?

Brendan

 

[cremeegg]

Let's say that the $ and € and stg all collapse to almost zero simultaneously.

Well then obviously the magic money fairy will arrive with cartloads of fairy money and distribute it to all those wise people who are holding gold and bitcoin and fairy money vouchers. And tulips, I nearly forgot the tulips.

In the meantime my investment in No. 7 Privet Drive will still comfortable house a family.

 

[RedOnion]

Let's say that the $ and € and stg all collapse to almost zero simultaneously

Unless you've got lots of tinned food, bottled water, and a shotgun you're not prepared for that scenario!

 

[Merowig]

I am very worried about QE. It has not really been tried before and nobody knows how it will end up. It surprises me that it has not caused inflation.

The aim of QE is to achieve some kind of inflation to ease the pain of the Southern European countries.

Let's say that the $ and € and stg all collapse to almost zero simultaneously.

Collapse in relation to what? The Yuan and Yen?
The only way I could see this happening is if we would have the First World Economic War by some coordinated dumping by China/Japan of their foreign currency reserves together with cyber attacks against Western Stock exchanges and Central Banks. Though that would make exports of Western countries extremely cheap and imports from Asian countries very expensive... And in the end I believe the West would be able to recover rapidly.

I would go into Swiss Francs and/or Danish Krones but unlikely in bitcoins.

What happens to bitcoin? Why would it be the "currency" of choice? Why not one of the other cryptocurrencies?

I would not believe it would be the currency of choice - at least not mine.
Cigarettes could become again a medium of bartering

Unlikely that Europe / the US will experience in the foreseeable future something like Argentina, Zimbabwe or Venezuela...

 

[Duke of Marmalade]

Boss Merowig has already asked the question “collapse against what?” These currencies have of course collapsed against BTC without much implication. I suppose you mean collapse versus the price of consumer goods and services. QE is not going to cause that. Other inflations were caused by printing money to pay for goods and services. QE is targeted at financial assets. No way is a pension fund going to push up the price of bread. QE can be reversed by selling back the financial assets. If you have been printing money to support illusory pay rises for the populace, very hard to reverse that. QE has caused a fall in currencies but not against consumer goods and services, against financial assets. A case can be made that if QE is stopped that process might be reversed - I would be a bit of a bear on financial assets, have been since they were half their current prices

Anyway on topic no way will BTC save the day. I see Venezuela are launching a government backed crypto presumably playing on the hype that you can’t print crypto. Oh but you can it’s just that for cryptos like BTC it needs the consensus of the community to do the printing.

 

[Merowig]

I see no way that the ECB would start hyperinflation a la Zimbabwe/Venezuela/Argentina - it would simply break the Euro by Germany/Finland/Austria/the Netherlands and others leaving it.
It would be a very grave violation of the treaty
https://www.ecb.europa.eu/mopo/intro/objective/html/index.en.html

 

[Brendan Burgess]

I am trying to answer Shorty's question.

QE can only lead to one outcome - a massive devaluation of fiat currencies?

Are you all saying that Shorty is wrong? QE won't lead to a massive devaluation? Or have I misunderstood Shorty's question?

I don't know whether it will or not, but QE is new. We don't understand what the long term implications are. You may disagree with Shorty and believe that there will not be a massive devaluation. But because we have no history to go on, no one really knows.

Brendan

 

[Merowig]

We have precedents: https://en.wikipedia.org/wiki/Quantitative_easing#Precedents

Yes QE is causing inflation and this is the intention - but there is also an inflation target of ~2% so I don't see this as a problem right now if I look at actual inflation numbers.
This is no way a massive devaluation/inflation.

 

[TheBigShort]

My perception of QE is that it has created huge bubbles in European bond markets, US stock and bond markets, and property valuations in the capital and major cities of US, UK, Canada, Australia, Ireland and more.
When the printing taps turn off, what will happen then?
The 'real' economies of US, Ire, parts of Europe are, apparently recovering. But such is the manipulation of money markets, the banking system (it's not just Ireland, it's a problem in US and Europe and probably globally) that it is becoming less and less credible to rely on official data as a means to making sound decisions - 26% leprechaun growth is one example.
In the end, from banking scandals that are now commonplace, to QE, to paradise papers, to market manipulation, it is clear to me that the international monetary system is rotten to the core.
This is leading to economic tensions, like the US attempting to provoke NK into doing something stupid. Not because NK is the threat, but because the Chinese economy is geared to displace the US dollar as the world's reserve currency.
All in all, is it possible that bitcoin surge in value is related to a disease ridden, war inducing monetary system?

 

[Merowig]

No the Bitcoin surge is definitely not induced by QE / the monetary system but just by the perception of being a great get rich quickly scheme.
The US already started with a small interest rate increase and it worked out fine so far.

That NK is not a threat is a joke I guess - they sunk a South Korean ship, they shelled a South Korean Island, they develop long range missiles and testing nukes - but you claim the US is the bad one.
I assume you have a perception problem based on your ideology - being it on economics or politics...
E.g. what have the Paradise Papers to do here with anything? You are throwing here around with terms which relate to nothing.

You speak at the beginning about massive inflation but the real inflation numbers don't reflect what you are claiming. And as already stated in another thread - Bitcoin so far doesn't represent a new "financial system"

 

[TheBigShort]

No the Bitcoin surge is definitely not induced by QE / the monetary system but just by the perception of being a great get rich quickly scheme.

You could be right, I don't doubt that a large element of it is because of that. But the speed upon which the price has grown indicates to me that there is something more profound going on. What that is, I don't know. I suspect the monetary system as it currently operates is a significant factor also.

The US already started with a small interest rate increase and it worked out fine so far.

Eh, wasn't the last raise a quarter point? At the start of December? Don't you think such a small raise may take its time to impact, if at all?

That NK is not a threat is a joke I guess - they sunk a South Korean ship, they shelled a South Korean Island, they develop long range missiles and testing nukes - but you claim the US is the bad one.

I never said NK was not a threat. I inferred that the Chinese economy is the bigger threat to US dominance. NK is a pawn. But the US cannot take on China in a military clash yet.
Geopolitics are somewhat more complicated than determining who is the 'bad one'.

I assume you have a perception problem based on your ideology - being it on economics or politics...
E.g. what have the Paradise Papers to do here with anything? You are throwing here around with terms which relate to nothing.

Paradise papers, an avenue for wealthy people to avoid paying tax on their wealth. I've nothing against it face value, I just think everyone should be afforded the option of opening a bank account in Panama. That way, if I was a self-employed lorry driver I would divert all my earnings to Panama and not have to pay any income tax. Then PAYE workers could foot the bill for everything.

You speak at the beginning about massive inflation but the real inflation numbers don't reflect what you are claiming.

The 'real' inflation figures are not reliable.
Ten years ago, just as the housing bubble was bursting, the 'real' inflation figures in Ireland were somewhere between 3-4%. Interests rates weren't far behind. This type of information leads economists and central banks to conclude that the economy is sound.
If the inflation figures reflected the reality on the ground, then alarms bells would have been ringing a lot sooner. Most people having a mug of tea could have told you the boom was unsustainable, central banks couldn't - because they rely on their inadequate, unreliable and manipulated economic models.

 

[PMU]

Let's say that the $ and € and stg all collapse to almost zero simultaneously.

They have. Long dated bond yields in developed markets are all less than 2% and many close to zero, https://www.bloomberg.com/markets/rates-bonds. DE, AT, FR and JP have issued negative interest rate bonds. So if you buy a developed market government bond, and it is government bond yields that in the long term determine the price of a currency, i.e. the forex rate, you are getting little or no return, and possibly a negative return, i.e. the currency has collapsed. They all have. I think bitcoin is irrelevant in this situation. Inflation, in developed market economies, is again close to zero or is or is less than zero https://data.oecd.org/price/inflation-cpi.htm#indicator-chart. Bond yields are low because inflation is low because investors expect it to remain low. I stand open to correction on this, but I doubt there is a massive flow of funds from developed market currencies to bitcoin, because of the collapse of developed market bond yields.

I am very worried about QE. It has not really been tried before and nobody knows how it will end up. It surprises me that it has not caused inflation.

QE in itself is not inherently inflationary. It's essentially creating money to buy government debt to swap for other financial assets, that stay on the central bank's balance sheet. So it's not increasing the money supply, i.e. M0 – M3 in the real economy, which risks inflation. But QE doesn't or shouldn't do this. However, if inflation were to return would investors move from an inflating currency to bitcoin? Central banks would most likely move to choke off inflation by raising interest rates. But a currency with relatively higher interest rate should depreciate relative to a currency with lower rates. As bitcoin has lower, i.e. zero, interest rates, I think you could see funds flow to bitcoin (or equivalents, e.g. gold, Swiss francs, etc.) in an inflationary world. But we don't live today in an inflationary world. We live in a non-inflationary or a deflationary world, so does buying bitcoin or any equivalent cryptocurrency asset give you an edge over no yield or low yield developed market government bonds?

Is it possible (last point) that bitcoin is the future avenue to conduct all digital transactions over the internet?

This is an intriguing possibility. If bitcoin/domestic currency fx rates stabilize (i.e. you are not exposed to unexpected fx risk), you transact over the internet in bitcoin and save on bank fees. Not significant for the individual but for large scale online retailers they add up. So massive savings for online retailers here. You may not trust bitcoin but would you have confidence in a cryptocurrency from Amazon or Google? Of course, you would. And it would fit into their business model.

 

[fpalb]

I won't comment about the QE side of things, as I'm no expert, but regarding bitcoin I can say that is in no way prepared to handle a significant volume of transactions for it to replace any significant percentage of national currencies. There were almost 400k bitcoin transactions in the last 24 hours, and that was basically the network operating at full capacity. This is a drop in the ocean of total global financial transactions.

There's no point even considering bitcoin as a full fledged alternative for everyday use, until there are layers on top of it that vastly increase the transaction capacity. People are working on such technologies and believe it's theoretically possible, but as of yet there is nothing complete and ready for production use. I reckon we're still years away from this, if it ever even comes to fruition.

 

[TheBigShort]

Just some back of envelope calculations, given what fpalb has just said.

Only a limited number of transactions are possible at the moment. At full capacity this amounts to about 400,000. Perhaps the surge in Bitcoin price is that there is actually demand for 4m or 40m transactions, or even 1,000 times that at 400m transactions. But currently only 400,000 are possible before the network starts to crash.
Given that Bitcoin is around €13,000 a coin (last time I looked anyway, about an hour ago - God knows what it is now!) and it is divisible by 100m units then the smallest Bitcoin unit is worth €0.00013c. So for the smallest monetary unit of Bitcoin BTC 0.00000001 to have any value in monetary terms, its current value would need to increase in value by 1,000.

Or basically 1 BTC to go €1,000,000?

 

[PMU]

There's no point even considering bitcoin as a full fledged alternative for everyday use, until there are layers on top of it that vastly increase the transaction capacity. People are working on such technologies and believe it's theoretically possible, but as of yet there is nothing complete and ready for production use. I reckon we're still years away from this, if it ever even comes to fruition.

You are correct, at this point in time. But Bitcoin is selling itself as an “innovative payment network and a new kind of money” and there are other projects around, e.g. cryptocurrency tokens, etc. to add payment functionality on cryptocurrencies.

I think it's more than just a technical issue. Large number of businesses today are inherently deflationary in that their products cost less today than previously or they provide a platform to enable consumers to source cheaper products. If savings can be achieved by adopting a cryptocurrency for financial transactions instead of paying bank fees and thereby reduce or eliminate significant costs, these companies will do it. And they a have sufficient resources to throw at it.

The other point is fiat currencies are inherently inflationary in that government can devalue them by either printing money or adjusting long term bond yields. It would appear that cryptocurrencies are not open to this type of abuse as they lack central authorities. So I think cryptocurrencies fit into today's economic environment, i.e. a certain utility value in deflationary times and congruence with contemporary business models.