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Hyperbitcoinization: The End Of Fiat Currency, $100M Bitcoin?

Hyperbitcoinization is defined Bitcoin commentator ObiWan Kenobit as “a theoretical state wherein Bitcoin displaces legacy currencies and becomes the dominant if not only method to exchange value”. Hyperbitcoinization was first discussed by Nakamoto Institute founder Daniel Kraswisz in 2014, and ObiWan Kenobit thinks it could lead to Bitcoin prices as high as USD 100 million per coin.

Essentially, hyperbitcoinization believers argue that Bitcoin is superior to fiat currency, and the demonetization of fiat as Bitcoin rises to dominance is inevitable. This is because Bitcoin is non-inflationary: it has a fixed maximum supply of 21 million coins, unlike fiat currencies which can be printed at will by central banks. Money printing and the associated hyperinflation has led to the collapse of Zimbabwe’s native fiat currency and currently, Venezuela and Iran are on track to similar fiat currency collapses. Even the most powerful fiat currency, the USD, experiences constant inflation from money printing.

Also, Bitcoin gives power over money back to the people. Bitcoin is decentralized, so no centralized authority can stop Bitcoin transactions. This is much more ideal than the current fiat system where money can easily be frozen and confiscated by banks and the government. Additionally, Bitcoin is borderless, breaking the current paradigm where citizens use their local government-backed fiat currency. Bitcoin is designed to work seamlessly as a global currency.

Due to these advantages, hyperbitcoinization believers think that Bitcoin adoption will steadily grow and eventually, it will cost people more money to reject Bitcoin than to accept Bitcoin. This will be the tipping point that leads to rapid adoption and the replacement of fiat with Bitcoin.

ObiWan Kenobit describes the evolution towards hyperbitcoinization in three phases: equilibration, nucleation, and crystallization, which is the same theory behind the growth of crystals. Equilibration was during the early days of Bitcoin when it first gained monetary value, and innovators and miners dominated the field. Currently, we are in the nucleation phase, which involves engineers, exchanges, wallets, and mining pools. Nucleation has a high energy barrier and many factors are needed for crystallization.

The latter parts of nucleation are defined by increasing trading activity, increasing practical uses, fiat onramps, and custodial solutions. During crystallization, Bitcoin will grow exponentially until it becomes the dominant global currency, and this phase will be defined by institutions, banks, and governments adopting Bitcoin. It can be argued that crystallization has already begun.

ObiWan Kenobit argues that Bitcoin will hit USD 100 million, based on a rough calculation that total money supply is USD 1.8 quadrillion and there are a total of 16.8 million accessible Bitcoins, since millions of Bitcoins have been presumed lost. In a recent article on BitcoinNews, this topic was explored, and it was found that there is roughly USD 90 trillion of real money in the world, which would lead to a Bitcoin price near USD 5 million in the event of fiat being extinguished. The 1.8 quadrillion figure is from including government debts, real-estate, and derivatives in the total amount of money, which isn’t accurate.

If hyperbitcoinization does occur then fiat would lose most of its value, so perhaps Bitcoin would hit USD 100 million or even orders of magnitude more than that. If fixed relative to 2018 valuations and ignoring all future fiat inflation, then Bitcoin is unlikely to get much higher than USD 5 million, since at that point Bitcoin’s market cap would include all of the real money in the world.


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How Much Would Bitcoin’s Price Be If It Extinguished Fiat Currency?

An interesting thought experiment can be conducted in regards to what Bitcoin’s price would be if all fiat currency ceased to exist, and if all of that money were put into Bitcoin. This can be defined as Bitcoin’s extinguishing capacity.

There are varying answers depending on what is defined as money, and money supply estimates for this article are taken from The Money Project which was last updated in 2017. Currently, there are BTC 17.128 million in circulation, and at a price of USD 6,600 each, that yields a total Bitcoin market cap of USD 113 billion.

The Bitcoin market cap pales in comparison to any measure of global money supply but theoretically, Bitcoin or some other cryptocurrency could become the dominant form of currency in the future and maybe in a radical scenario, fiat could simultaneously become obsolete. This extreme scenario is what this article explores.

For starters, all the fiat coins and banknotes in the world amount to USD 7.6 trillion. If all of these coins and banknotes were wiped out and an equivalent amount of money was invested into Bitcoin, Bitcoin’s price would be USD 443,700. John McAfee says Bitcoin will hit USD 1 million by 2020, which would entail more than double the amount of money being invested in Bitcoin than the total supply of fiat cash in the world.

However, the total amount of fiat currency in existence is nowhere near the amount of total money in the world. Combining the money held in all of the world’s checking accounts with the total amount of fiat yields USD 36.8 trillion, and this is considered “narrow money” since it is easily accessible. If global narrow money were converted to Bitcoin, then Bitcoin’s price would be USD 2.148 million.

There is much more money in the world that isn’t easily accessible and considered “broad money”, including savings accounts, money market accounts, time deposits, and all the narrow money, totaling USD 90.4 trillion. This is probably the best measure of all the “real” money in the world, and if all broad money were put into Bitcoin then Bitcoin’s price would be USD 5.28 million.

Broad money is considered physical money, yet only comprises 8% of all the money on the books in the world. 92% of money on the books is non-physical. USD 217 trillion of non-physical money is tied up in all of the world’s real-estate, and it is quite interesting that there is nowhere near enough physical money in the world to buy all of the world’s real-estate. This suggests that the real-estate market is hyperinflated and not based on reality.

It gets worse; the governments of the world hold USD 215 trillion of debt, which is more than double all the physical money in the world. This is an excellent way to visualize how unsustainable the global economy is, and this stems from uncontrolled money printing. Bitcoin solves the out-of-control money printing problem, since it cannot be printed at will and only 21 million Bitcoins will ever be created. This fact is what could cause Bitcoin to become the primary global currency since unlimited money printing could destroy fiat currency.

If that wasn’t bad enough, the global derivatives market is somewhere between USD 544 trillion and USD 1,200 trillion, outweighing physical money by an order of magnitude. A derivative is a contract between two parties that derives value from the performance of an underlying asset. Derivatives trading played a primary role in the 2008 global financial crisis, which was on par with the Great Depression. Derivatives can be considered another example of out-of-control money printing, while simultaneously being a deceptive yet legal way for investment bankers to take physical money out of the markets.

To sum up, if all the world’s fiat is put into Bitcoin, the price per coin would be near USD 500,000, and if all the physical money was put into Bitcoin the price per coin would be near USD 5 million. While it seems like a radical possibility, a global economy tiring of a flawed system relying on a tremendous amount of money printing – itself a possible death knell for fiat – could lead to Bitcoin becoming the primary global currency.


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IMF Exec: Crypto Could Weaken Central Bank Power over Monetary Policy

The deputy director of the International Monetary Fund’s (IMF) monetary and capital markets department, Dong He, has shared his views on how global adoption of cryptocurrency could change the financial world. One of the biggest takeaways from Dong He’s analysis is that he thinks cryptocurrency could deprive central banks of their ability to carry out monetary policy.

Clearly, cryptocurrency is now on IMF’s radar based on Dong He’s analysis, and the sentiments of a pivotal player in the global financial system could bear implications on the industry.

Dong He says that cryptocurrency has an advantage over banks when it comes to speed, anonymity, and divisibility. Indeed, a Bitcoin can be divided down to 1 satoshi (0.00000001 Bitcoin, currently worth USD 0.000074), while fiat currencies, in general, can only be divided down to 0.01, making cryptocurrency better than fiat for micropayments. Also, banks require users to divulge their full identity information before making a transaction, while with Bitcoin a user can send as much money as they want anywhere in the world without exposing personal identification information.

However, he says the fixed supply of Bitcoin at 21 million coins is a disadvantage since that will lead to deflation which is theorized to reduce economic activity due to money hoarding. According to him, a stable monetary system must protect against deflation. This point can be debated, however, as a deflationary currency like Bitcoin is a fresh of breath air after the intense inflation the world has experienced.

He notes that cryptocurrency has rapidly accelerated cross-border payments: with cryptocurrency it takes days instead of seconds since there are no intermediaries.

Due to the advantages of cryptocurrency over fiat, Dong He speculates that cryptocurrency will reduce the demand for central bank money. Central banks conduct monetary policy by setting interest rates for inter-bank transactions, but if they cease to have a monopoly over the money supply due to cryptocurrency, then their power to control monetary policy will weaken.

Essentially central banks have no control over cryptocurrency, so whatever money is invested into cryptocurrency is outside of their control.

Dong He suggests a few things central banks can do to remedy the situation. They could make fiat currencies better and more stable so people choose fiat over crypto, regulate cryptocurrency to remove the competitive advantage cryptocurrency has from lack of regulation, or make their money more attractive by releasing their own cryptocurrency.

Unfortunately, up to this point, central banks seem to just be taking one of his suggestions and have been hitting cryptocurrency with more and more regulations. One could hope that eventually they will change their attitude and improve their monetary policies to be more competitive instead of trying to weaken cryptocurrency’s advantages with unfair regulations.

The IMF is headquartered in Washington DC and is an international organization of 189 countries that seek to influence global monetary policy. It is in control of hundreds of billions of USD of reserves which are often used to help countries in peril from debt.


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Phil Archer – Bitcoin Versus Fiat Versus Gold

Phil Archer – Bitcoin Versus Fiat Versus Gold:

In Phil Archer’s latest article on (@TheGenesisBlock) he compares Bitcoin against fiat money and gold.  Excerpts:

“There are nine distinct characteristics of money: scarce, durable, portable, divisible, easy to recognize, easy to store, fungibile, hard to counterfeit, and widespread use. At first glance, bitcoin has a significant advantage over fiat currencies and gold in many of these.”


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