Is Bitcoin a good hedge against fiat currency?

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Is Bitcoin a good hedge against fiat currency?
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Is Bitcoin a good hedge against fiat currency?

One of the most commonly cited benefits of bitcoin (‘BTC’) is that it is a hedge against fiat collapse. ‘Fiat’ currency is simply a currency that is not backed by anything and can be printed at random.  Would you agree with this or this is false?

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Yes, I agree with the statement that BTC is an hedge against fiat collapse.

The following proves this to be true;

BTC has a total limited supply (unlike fiat that can be printed at will thus leading to constant devaluation).

BTC is decentralised and will not be controlled by any central body/bank.

BTC’s ease of use without the gatekeepers/banks ensures there’s still room for adoption.

BTC’s price will continually be determined by the laws of supply and demand.

It’s universal, transcending borders.

If we get credit for hindsight, then yes. The problem is that by the time you recognize your economy is crashing, even if banks are open, you don’t have time to get your money out of your fiat currency and into BTC. Thinking back to the collapse of the Greek economy, it crashed so fast, banks couldn’t open because they had nothing to give. If people in Greece, or Venezuela, recognized their monetary systems were in trouble, and moved their wealth to the blockchain, wouldn’t they be better off, then and now? I believe that is enough proof that BTC CAN be a hedge against fiat currency. However, if a fiat currency is strong, i.e. stable, then it may not be prudent to put all of your wealth on the blockchain, but I believe there is a place for it in everybody’s portfolio. Keeping some “emergency” money on the blockchain, is kind of a hedge, isn’t it?

FROM INDUSTRY GIANTS PERSPECTIVE

You know it is a good hedge when even the intense rivals say so (after undermining it to all their strength). From calling bitcoin a “fraud” to accepting its potential (at least as a hedge against a loss of confidence in domestic currency and payments system), JPMorgan has come to a long way.

Back in 2017, they said, “Bitcoin is a fraud that will ultimately blow up”.

In 2020, they are saying “Developments over the past year have not altered our reservations about the limited role that cryptocurrencies play in global portfolio diversification or as a hedge instrument,”

Also, “Crypto assets have a place in investors’ portfolios only as a hedge against a loss of confidence in both the domestic currency and the payments system.” and that “2019 will be remembered for the rise of digital money”

However, as Blockgks correctly identified, some believe that the Coronavirus (COVID-19) could be ‘Black Swan’ resulting in massive sell-offs and that Bitcoin may still be too young for it to withstand drastic events [3]

FROM TECHNICAL PERSPECTIVE

The following properties of bitcoin (as a unit of currency) and Bitcoin (as a protocol) makes it worth being a hedge against fiat.

* Scarcity
* Cross Border
* Store of Value
* Decentralized
* Equal participation opportunity
* Banking the unbanked

[1] https://www.theguardian.com/technology/2017/sep/13/bitcoin-fraud-jp-morgan-cryptocurrency-drug-dealers
[2] https://www.bloomberg.com/news/articles/2020-02-21/jpmorgan-says-blockchain-is-laying-foundation-for-digital-money
[3] https://www.ibtimes.com/coronavirus-could-be-black-swan-kills-bitcoin-cryptocurrency-heres-why-2934185

In the year 1971 President Nixon of the U.S.A made the dollar a currency when he removed gold from backing the dollar. Gold is a rare commodity and thus its value can’t be influenced by any government. Taking the backing of the Gil from the dollar has made the dollar to become just a paper backed by the confidence of the government. It has made it possible for the government to manipulate the price and value of the dollar. The dollar as we all know is the metric that other currencies use to measure their value. Bitcoin is like gold. It is not influenced by any policy of the government. The fact that it is limited and in high demand makes its value to rise.

What differentiates bitcoin from fiat currency is the fact that Bitcoin can’t be influenced by any government. It’s just like gold. It has its own intrinsic value unlike fiat currencies that depend on the confidence of the government.

This question is context dependent therefore the answer is context dependent.
Is Bitcoin a good hedge against (a specific high risk) fiat currency? Yes.
Is Bitcoin a good hedge against (any and all) fiat currency? No.
In both cases the reason is the same: Bitcoin is an automated store of value.
A fiat currency can be used within a jurisdiction without meeting any other requirements other than being within that jurisdiction.
An automated store of value can be imagined as a partially virtual ATM. The wealth is contained within a physical storage medium which has to be maintained in good conditions or the wealth is lost forever. To access the wealth an interface is required which itself requires energy and access to the internet.
An automated store of value allows wealth to be transported quickly and securely from a business unfriendly jurisdiction to a business friendly jurisdiction.
An automated store of value because it has prerequisites for access to the stored wealth it is highly recommended an individual store his wealth in personally convenient ratios of both automated and nonautomated stores of value. The latter includes at least 1 fiat currency from a business friendly jurisdiction.
Thus Bitcoin is a good hedge against a fiat currency controlled by a business unfriendly jurisdiction.
Thus Bitcoin is not a good hedge against any and all fiat currency.

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