For some, dedollarization is the talk of the town as the failure of fiat currencies becomes increasingly obvious due to runaway inflation and cryptocurrencies continue to gain steam. Not everyone sees it that way, however. Brian Armstrong, CEO of Coinbase and prominent crypto thought leader, sees cryptocurrency (Bitcoin in particular) as key to stabilizing the dollar and even extending Western civilization.
But when Bitcoin and other cryptocurrencies are intentionally decentralized and not tied to the dollar in any obvious way – and when people are divesting from fiat currencies into cryptocurrencies to protect themselves from inflation – how can that be the case? Let’s break it down to get at the heart of what Armstrong’s suggesting.
Countries that hold the reserve currency in any given era tend to “inflate the money supply and increase deficit spending” until losing that advantage, Armstrong says. We are seeing that happening now with the US dollar and its inflation rate, which is prompting the talk of dedollarization. It’s essentially an inevitable outcome for any centralized fiat currency.
However, the best reserve alternatives to the dollar, being the yuan and the euro, aren’t stable enough to be suitable replacements for the dollar. Instead, what we’re seeing is increasing adoption of cryptocurrencies around the world. Argentina is an excellent example of this, where the 113% inflation rate has made cryptocurrency widespread as the peso tumbles in value. Ultimately they suffer the same disadvantages of the U.S. dollar, with the added fragility of changing geopolitics.
Bitcoin won’t ever fully replace the dollar as the reserve currency, Armstrong argues. Instead, its existence will serve as a “natural check and balance” for the dollar to prevent it from inflating so much it collapses. In that way, the more Bitcoin grows, the more competitive the dollar will become, especially with the establishment of a U.S. central bank digital currency that will put the dollar and Bitcoin on equal playing fields when it comes to accessibility and usage. Institutional adoption of cryptocurrency, as well as the infrastructure that brings, is a positive for all cryptocurrencies.
Put another way, Bitcoin’s presentation as an alternative to the dollar – even if it is not fully viable as a one-to-one replacement – will cause the dollar to stabilize by necessity. In doing so, it will help cement the sphere of influence of Western interests, and serve to prolong the duration of Western civilization in general.
In other words, Bitcoin and the dollar are not rivals, but complementing currencies. Bitcoin has a long way to go before it is on fully even footing with the dollar, of course, but with it recently passing $40,000 and some calling for an exponential boom in value for 2024, it’s clear that the restraints that were holding back the cryptocurrency market are being lifted.
Perhaps some policymakers who are charged with stabilizing the dollar are making the same realizations that Armstrong is – and seeing that the strength of one helps lend to the long-term strength of the other.
When we’re talking about big picture concepts like the duration of Western civilization, it may be hard to see how that fits into an investment plan. The important takeaway is that both fiat and crypto currencies are going to be present in the future, and there is, as we speak, a seismic shift in the power and value represented by cryptocurrencies as they take on that position. We don’t have to see Bitcoin as a replacement, but rather another tool of our economic toolbox, alongside other cryptocurrencies and blockchain technology. Bitcoin and others can fill the gaps where the U.S. dollar and fiat currency is weakest. It’s a symbiotic relationship that will challenge everyone to adapt to an everchanging world.