Bitcoin vs. US Dollar in Retaining Value

Bitcoin Retains Value Due to Lack of Money Printing, a Major Advantage Over the U.S. Dollar

Bitcoin Vs US Dollar

Bitcoin Vs US Dollar

In 2007-2008 the world was hit with the worst financial crisis since the Great Depression. This was mostly the result of the housing bubble bursting, in which property values which had been rising for years suddenly collapsed.

This caused the values of securities tied to real-estate to plummet, and financial institutions did not have the capital assets to handle this. The stock market crashed, and major financial institutions began to go out of business.

The government responded by injecting huge amounts of money into the economy, bailing out major financial institutions that were about to go under. This was done through a program called quantitative easing, where the federal reserve essentially printed money electronically. The monetary base went from $0.75 trillion to $3.9 trillion in about 7 years (as can be seen in the chart below), an unprecedented rise. The monetary base for the Euro went from 0.9 trillion to 1.8 trillion during the same time frame.

Increasing US Monetary Base via Quantitative Easing

Increasing US Monetary Base Skyrocketed from 2007 to Now

This resulted in the dollar and the euro rapidly losing value. This can best be seen by the price of gold in U.S. dollars rapidly increasing during the economic crisis and quantitative easing. The price of 1 ounce of gold was around $700 when the economic crisis began, and was near $2000 per ounce by 2010.

This was partially a speculative bubble, but fundamentally the rise of the price of gold was due to the dollar losing value, causing people to buy gold as a safe haven for their money. The bubble ultimately burst, but gold stabilized around $1300 per ounce, nearly double the price of what it was before the economic crisis.

Gold Price Increased due to Quantitative Easing

Gold Price Increased due to Quantitative Easing

A major advantage of Bitcoin is that it has no central bank or federal reserve, and cannot be printed at will. Bitcoin is only generated through the process of mining, where computers solve equations to find blocks. Currently there are over 12.5 million Bitcoins, as can be seen in the chart below.

Bitcoins generated per block started at 50, but halved to 25 after the first 210,000 blocks, and will halve again after another 210,000 blocks. This leads to a slowing growth rate in the supply of Bitcoins, and mining will stop at block 6,930,000. The total amount of Bitcoins will then be capped at 21 million.

Total Bitcoins In CirculationTotal Bitcoins In Circulation

Total Bitcoins In Circulation

The slow and steady growth in the total supply of Bitcoins currently is much like the U.S. monetary base (first chart on this page) before quantitative easing began. It has a healthy growth rate, not enough to cause damaging amounts of inflation. Over time the growth of the supply of Bitcoins will decrease, resulting in Bitcoin becoming more valuable.

This gives Bitcoin a major advantage over U.S. dollars and Euros. It is not prone to losing value due to the money printing actions of the central government. Bitcoin is somewhat similar to gold in this regard. Gold and Bitcoin can only be mined – not printed at will – and are thus a safe way to store money during an economic crisis.

Find this interesting? Feeling generous? 1PmmeQA9ijcSHptxWaGuVcGCBF2MeHcU5g

Buy and sell Bitcoins with Coinbase today. A trusted USA company.

No tips yet.
Be the first to tip!

Like this post? Tip me with bitcoin!


If you enjoyed reading this post, please consider tipping me using Bitcoin. Each post gets its own unique Bitcoin address so by tipping you're not only making my continued efforts possible but telling me what you liked.

One Comment

  1. Nidia Goltra says:

    Thanks !! Good Job !!

Leave a Comment