Covid-19 Killing the Dollar? Is Bitcoin the Beneficiary???

Our lifestyles and personal economies are being radically altered by Covid-19.  In addition, world economies are being tattered.  Some commentators I listen to say the US Dollar will collapse.  Others say Bitcoin will finally get its chance to take over.  So the question is...  

Is Covid-19 really going to kill the Dollar and let Bitcoin take over?  No.  At least not yet.  Actually, the Dollar has strengthened during Covid-19 and still maintains control of the world reserve currency.  
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Lets look more in depth at what would cause the Dollar to collapse, what role Bitcoin will play in that transition, and how a collapse of the Dollar would impact us.  

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Why Would The Dollar Collapse?

There are really only two simple reasons the Dollar would collapse:
1)  An underlying weakness in the US Dollar
2) A better alternative.  


Why Has The US Dollar Strengthened During Covid-19?

The US economy is still perceived to be the world's best economy and International business still trust the US government to back its currency. In addition, most other major world economies such as China and the euro have had equal amount of struggle with the Coronavirus as the US.  


Will The Dollar Continue To Strengthen During Covid-19?

In my opinion the US dollar will continue to be seen as the best solution during the crisis. However, with the US government creating over $6 Trillion dollars, (with more to come) the long term fallout after the crisis becomes a legitimate concern.  


What Would Cause The Dollar To Collapse and Does Covid-19 Cause Any Of These To Happen?

1)  Decrease in demand for US Dollars internationally. (No...Covid-19 has not caused this yet)
2)  High inflation rates which come from excessive money creation.  The US just created $6 trillion new dollars & reinstated QE.  (Yes-Covid-19 has directly caused this.)
3)  Alternate World Currencies which become more desirable than the US Dollar.  For example businesses wanting to trade in the Euro or the Yuan instead of the US dollar.  (No...Covid-19 has not done this.  At least not yet).
4)  Slow growth and poor economic productivity. (Yes...Covid-19 has crushed US Economic Growth)
5)  Decrease in export prices. The Fed dropped interest rates to 0%.  This helps for importing but hurts exporting goods.  (Yes - Covid-19 caused this)
6)  Political Instability.  The US had political instability long before Covid-19. (No - Covid did not cause this.)  


How Does Bitcoin Perform In Each Of These Economic Decline Scenarios?

• Supply & Demand: if the demand for US Dollars were to decrease, the potential for investors seeking Bitcoin as an alternative may increase.  However, Bitcoin would still need to prove itself as a more viable alternative than Fiat currencies such as the Chinese Yuan and the Euro.  Bitcoin would have an advantage if investors lost trust in centralized government money but would be at a disadvantage when it comes to investors and world trade that would likely continue to seek more stable and less volatile currencies.  

• Inflation and QE:  This is where Bitcoin could best separate itself against a failing US Dollar. Central banks can easily create money out of thin air and cause a hidden tax known as inflation.  If inflation ran out of control, prices on consumer goods would skyrocket and consumers would begin seeking alternatives.  Bitcoin becomes a viable solution for people looking for a currency outside central banking control and monetary manipulation.  In addition, Bitcoin continues to prove itself as a good store of value in such a circumstance.    

• Alternative World Currency:  If business and trade lost confidence in the US dollar as the world reserve currency there would need to be a better alternative. Unfortunately, Bitcoin is not likely to be the World Reserve Currency at this time. It is to volatile, and not stable enough for business to conduct trade.  Unless Bitcoin had a way to maintain decentralization while also holding a stable value, we would likely see a gradual shift toward another world fiat currency before we would see a shift to Bitcoin. 

• Slow Economic Growth:  Covid-19 has completely slaughtered economic growth, not just in the US, but around the world.  Because the impacts are worldwide, the US Dollar will not immediately lose ground.  Because of this scenario, Bitcoin is not likely to improve its standing as a reserve currency do to poor economic growth.  On the other hand, slow economic growth combined with unprecedented money printing make it likely that there will be long term economic impacts that Bitcoin could benefit from in the long term.  

• Falling Export Prices:  The United States imports more goods than it exports.  In addition, if these exported goods are exchanged for less money, the overall strength of a Dollar would likely decline.  The question is would Bitcoin be a viable solution to solve this problem. Unfortunately the answer is no.  Again, the world Reserve currency would need to be something relatively stable that could be traded against. Bitcoin at this moment does not offer the solution.

• Political Instability:  If the United States impeached and removed the president there would be political instability. A new leader would have new ideas about how money should work in their country and the dollar may be viewed as less trustworthy.  While Bitcoin probably not be a good Reserve Currency, it could be a good hedge against political instability. Citizens and investors looking to own assets outside government control, and political instability, could find a home with Bitcoin. For this reason Bitcoin May benefit from political instability and US Dollar decline.

  
What Would The Effect Be If The US Dollar Collapsed?  

1)  Investors would run away from the US Dollar and toward other fiat currencies, commodities, and possibly cryptocurrencies.
2)  The demand for US Treasuries internationally would drop and interest rates would rise rapidly causing slower economic growth.
3)  U.S. import prices would skyrocket and that would cause massive inflation with higher cost of goods for consumers.
4)  Unemployment would worsen, and productivity would decline.

Conclusion

Covid-19 is devastating and is quickly reshaping the worldwide economic landscape.  Currently the US Dollar is holding its ground, but will likely be facing heavy pressure in the long term as it fights to maintain its place as the world reserve currency.   Coronavirus has triggered several "red flags" that will directly threaten the US Dollar long term.  Bitcoin and several other major fiat world currencies have an opportunity to gain ground as the dominant currency in the world.  It is an interesting development that deserves our close attention as we prepare and make decisions for our future.     


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