The U.S. dollar has been around for over 200 years. And for a majority of that time, the dollar was backed by gold. That all changed in 1971 when U.S. President Richard Nixon sold the world fiat money by ending the convertibility of US dollars to gold.
Fast forward to nearly 50 years later. The arrival of COVID-19 in early January has put the final nail on the coffin for the US. dollar. As of October 2020, the Federal Reserve had injected $9 trillion in stimulus to jumpstart the economy. The Fed’s 2020 money pump eclipsed two centuries of U.S. dollar creation. The debasement of the U.S. dollar continues in 2021 when the government injected an additional $1.9 trillion stimulus, further depressing the value of the dollar. With no productivity to back it up, the Federal Reserve just printed the digital money out of thin air.
However, in an effort to beat inflation and to insulate themselves from the further collapse of the U.S. dollar, many investors turned to cryptocurrency and digital assets as a store of value, asset diversification, and a means of protecting their hard-earned money. But is cryptocurrency really the best investment?
Over the past few years, we’ve seen cryptocurrencies like Bitcoin, Ether, and just recently, Dogecoin, going up in value. However, the timing of the rise in these current currencies is suspect. For example, the value of Bitcoin went up after the government sent out stimulus checks to millions of Americans. Many of the recipients invest the money in cryptocurrency. They are not alone. With the interest rate at almost zero and since yields from government bonds is almost nothing, institutional investors, who are flooded with trillions of dollars, also invest in cryptocurrency.
Unlike Gold which is fairly stable, cryptocurrencies are very volatile. It’s not usual to see a price swing of 10% in just 24 hours. Their prices also fluctuate based on tweets from celebrities like Elon Musk. Now, imagine currencies that can be manipulated with a smile and off-hand tweets on social media. What does that say about these currencies?
In the end, the greater fool theory holds true here. When all dust finally settles, millions of poor people are probably going to get burned and lose a lot of money. On the other hand, early investors are going to become even richer.
This video tells you what the so-called financial experts will not tell you about cryptocurrency. Enjoy!
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