Bitcoin as the New Gold Standard
With the Director of the Consumer Financial Protection Bureau (CFPB), Richard Cordray, suddenly leaving his position, it is time to discuss financial security under the Trump Administration. The resignation of Cordray is largely attributed to President Trump softening regulations on U.S. businesses. The purpose of the CFPB is to “enforce clear, consistent rules that allow banks and other consumer financial services providers to compete on a level playing field and that let consumers see clearly the costs and features of products and services.” In Cordray’s absence, President Trump is responsible for picking the leader of his direct opposition.
The second amendment in the United States Constitution stipulates that “a well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” The second amendment, and the constitution as a whole, were created in an attempt to protect democracy. The amendment outlines the right for citizens to protect themselves in the scenario that their democratic government turns tyrannical. However, what the constitution and many other government doctrines do not seem to enshrine is protection against metaphysical threats, namely, inflation.
However, what the constitution and many other government doctrines do not seem to enshrine is protection against metaphysical threats, namely, inflation.
Gold is a physical commodity that is limited in nature. The idea of scarcity and limited-supply brought about The Gold Standard, a financial protectant. The Gold Standard tied the U.S dollar to the quantity of gold owned by the country; this protected against the Federal Reserve overprinting the greenback, fighting prospective inflation and devaluation of the dollar. Investors were confident that the Gold Standard would keep inflation in check, and it did. After the Great Depression of the 1930s, the United States government, under Franklin D. Roosevelt, abandoned the Gold Standard in order to lower interest rates and inject money into the economy. .
A Bitcoin index opened on the NYSE at $236.59 USD in order to track the decentralised cryptocurrency. The currency’s success works similarly to social media companies, outlined by Metcalfe’s law, which states that “the value of a telecommunications network is proportional to the square of the number of connected users of the system.” To highlight this theory, consider the use of fax machines. One fax machine is seemingly useless, but the more users with fax machines, the more valuable they become. Through the use of Metcalfe’s law, Fundstrat Global has predicted 94% of Bitcoin’s movement over the years. Other than its predictability, the limited quantity of Bitcoin is what attracts investors.
The Gold Standard and Bitcoin could not be more differentiable on the surface.
There are only as many Bitcoin as a blockchain will allow – about twenty-one million total. Blockchains are created by Bitcoin miners solving complex math problems and are where transactions, purchases, and sales of Bitcoin are verified and added to the public ledger by miners. Blockchain technology ensures the authenticity of Bitcoin transactions, effectively mitigating the threat of hackers and keeping transactions safe. Bitcoin value has soared recently, due to increasing amounts of investor uncertainty in traditional markets and demand for anonymity. This sets up the case for it to be the 21st-century replacement for the Gold Standard.
The Gold Standard and Bitcoin could not be more differentiable on the surface. One is a physical currency that has held value since prehistoric times, while the other is a contemporary technological development.
The recent resignation of Richard Cordray increases investor distrust in a time when skepticism and governmental uncertainty is historically high. If investors want the Trump Administration to live within its means, then Bitcoin, like gold, represents the silver lining in a growingly volatile world. Ultimately, the prerequisite to a functioning society is a functioning economy, and the prerequisite to a functioning economy is investor certainty. In order to keep the government at bay and protect financial security, it is important to look at secure limited currencies – especially those not in the possession of governing bodies.
The views and opinions expressed in this article are the writer’s own, and do not necessarily represent those of The Bull & Bear