You can’t avoid hearing about cryptocurrencies, whether from the news or blog articles. According to Currency.com, there are over 7800 different coins available on the market. Bitcoin has the largest share and is the best known. There is a lot of confusion and misconceptions about crypto, but does that mean it can’t be taken seriously as an investment vehicle?
As a long-time investor, I was against cryptocurrencies in general. How could a currency be created out of thin air and be expected to be taken seriously! Then, I read an article that changed my mind. After reading it, I realized that crypto is nothing more than a fiat currency.
A fiat currency is one that doesn’t have a physical commodity, like oil, gold, or silver backing it. And when Switzerland went off the gold standard in 1999, there are no longer any currencies backed by gold. Most governments still hold some precious metals stores, but it no longer backs the national currency.
So, my key realization was how is crypto any different than the USD, British Pound, or the Euro? None are backed by any form of physical commodity! But there is one main distinct difference with Bitcoin over major currencies. Once a coin has been issued there aren’t any more being created. This is de facto the same as commodity-backed securities.
Governments go off commodity backing so they can spend more. You see, if a currency is backed by a commodity, the government can only print as much money as they have in the vault.
Franklin Roosevelt started the extra printing during the Great Depression when he made private ownership of gold illegal. This increased the amount of gold that the government held and allowed more spending. Then, in 1971, Richard Nixon took us off the gold standard altogether. This was all done to be able to print more money that has continued into the 21st century. This is the main reason that I have finally decided to invest in Bitcoin.
The finite supply of crypto coins is the major difference. This realization in the last couple of years is why I have changed my mind. When someone says, “don’t buy crypto because there is nothing backing it.” You can say that neither does the USD or any other major currency. There is a limited supply of Bitcoin but governments can print as much money as…