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.
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.
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?
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.
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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