Venezuela’s economy is a case study of financial mismanagement by the government. The country is besieged by rampant starvation, hyperinflation, and massive immigration. The downfall of Venezuela’s economy has its roots during the administration of Hugo Chavez and has worsened in Nicholas Maduro’s presidency.
It should be noted that governments worldwide, including the United States, have been borrowing at levels perceived to be unsustainable. If these debts cannot be managed, they will collapse and lead to the downfall of several countries’ economies.
Because Fiat money is an instruction or demand from the government to recognize the money as a medium of payment, its value can be affected by the performance of the country’s economy.
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The Argument For Bitcoin Over Fiat Money
Advocates of the theory that bitcoin will one day replace fiat currency as the primary monetary system point to the situation in Venezuela as proof that governments cannot be trusted with managing the country’s economy.
The fiat currency doomsayers will present as Exhibit A the trend of Venezuelans selling the government’s fiat money, the Bolivar, for bitcoins.
What they fail to recognize is that despite Venezuela experiencing hyperinflation, the Bolivar remains a usable currency. Proof of the Bolivar’s viability is that you can still exchange it to another currency. Thus, there is still demand for Bolivars in the foreign exchange market.
Bitcoin advocates also failed to consider the implications and repercussions of a country’s economic collapse on society and politics.
History has recorded the fall of some of the world’s most powerful economies. The collapse in a country’s economy is almost certainly followed by a period of social and civic unrest.
Again, going back to the crisis in Venezuela, the country’s crime rate is rising. For the reason that hyperinflation has made it impossible for Venezuelans to buy coffee more so basic commodities, incidents of theft, looting, robbery, and murder have been on the rise.
Likewise, the worsening crisis has led to greater political instability. The downfall of Venezuela has emboldened the Opposition party led by Juan Guiado to initiate a power grab from Maduro.
The Risks Of Favouring Bitcoin Over Fiat Money
One of the consequences of the political struggle between Maduro and Guiado is the loss of basic utilities such as power and water.
How can you access bitcoin if there is no power to use a computer?
When a country’s citizens are looting basic commodities, hoarding water, and arming themselves with guns as a means of protection, what will be the purpose of bitcoin when it has zero tangible value?
At a time when social and civic unrest increases the need for survival, people will tend to hold on to commodities that still have tangible value. With bitcoin, you will not be able to pay for basic necessities.
You cannot even exchange bitcoin for foreign currency at the local bank. This is because the bank will be left with only local currency that has very little value.
If you have been keeping track of news about bitcoin in the last few years, you will see just how volatile the cryptocurrency market is. It will reach unprecedented record highs and hit rock-bottom lows without much indication or warning.
Ironically, the performance of bitcoin can be symbolised by the traditional coin. For every person who made a killing in the bitcoin market, on its flip side are people who got killed by investing in the bitcoin market.
Bitcoin is extremely volatile and unpredictable!
You might see the value of your newly-purchased bitcoin drop in only a few minutes if it is matched by a significant volume of declines.
This risk; this vicious cycle of steep climbs and sharp drops will continue to happen with bitcoin because there aren’t many bitcoins to accommodate the high level of demand for them.
In a market where high demand is met with low supply, you can be assured of extreme volatility and greater risk of chaos.
Lastly, bitcoin advocates can’t seem to get around the fact that the value of their favorite cryptocurrency is pegged to the fiat currency being circulated by the government.
Therefore, if the fiat currency falls in value and essentially becomes worthless, what would be the value of bitcoin?
If your country erupts in chaos and civil unrest, would you use bitcoins to pay for food, water, and a gun to keep your family safe? Good luck with that!
The argument that bitcoin will one day replace fiat currency does not, and will never hold water.