Bitcoin and other cryptocurrencies have become forces to be reckoned with in today’s economy. They are being accepted as a valid asset class. As such it is only logical to expect that cryptocurrency would be affected by the economy of the US and other countries, right? Maybe not as much as you might think. Crypto, though, could have a large impact on the economy in the coming years.
Bitcoin Stands Alone
The important thing to remember about Bitcoin and other cryptocurrencies is that they have no real relationship to the dollar, euro, or other fiat currencies. Bitcoin is not backed by the dollar or by gold. It is a virtual currency that makes its own moves on its own market.
There are some few cryptocurrencies that are pegged to the dollar or other fiat currency. China may be in the process of developing a cryptocurrency token that is backed by gold. In any case these are the exceptions to the rule. Virtual currency has no need for being pegged to a traditional asset.
Because crypto is unique among assets, there is no way to really determine how the world’s economies affect Bitcoin. This will change some over time as more historical data becomes available. Right now there simply has not been enough time to see how Bitcoin reacts when a country plunges into a recession or has a booming economy.
Economic News Can Impact Crypto Markets
Those who want to know how the economy affects Bitcoin should take note of economic news reports and how they may swing the market price of digital tokens. This is another area where more data will be useful, but in the meantime it is possible to monitor these things.
For example, in the US there are economic numbers and indicators released each month by the Federal Reserve and other financial entities. These numbers may reveal how many jobs were added to the economy, the raising or lowering of interest rates, and other factors. One must watch these news items to see if they cause any movement in the value of Bitcoin.
Political news can also sometimes have an impact on the value of Bitcoin. The reason for this is how people perceive those in political power and what influence they can exert over cryptocurrency.
Asking the Right Bitcoin Question
The right question to ask is not how the economy affects Bitcoin, but rather how Bitcoin affects the economy. Most financial experts and analysts would probably agree that in the coming years we are going to see Bitcoin and cryptocurrency exert a much larger influence over the movement of the world’s economies.
Cryptocurrency is what is known as a disruptive technology. It is meant to upset the status quo of the financial sector. Bitcoin has the power to completely alter the way people, banks, and other institutions approach the transfer of money and wealth. This is in addition to the implications of blockchain technology and what it can do for many types of businesses.
If society were to become more dependent upon Bitcoin as a means of exchange it is certainly possible that the value of traditional currencies could fall. It is hard to imagine a world where economies could crash thanks to the influence of cryptocurrency, but it is certainly possible to grasp that crypto could become a cash replacement for many people. Indeed, this is already happening.
Crypto has proven useful in economies where it is hard for individuals to participate in traditional banking. It is also become a viable means of exchange for freelancers and other individuals who work across borders. Bitcoin and other virtual currencies can be used across borders. Fees are almost non-existent. This solves a problem for people who need to get paid without a hassle from international clients.
The next few years should provide us with more data on how the economy affects Bitcoin and vice versa. It is certain to be an exciting time in the development of virtual currencies and blockchains.
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