Digital Currency: Paper Money in the Middle Ages?

"If you think you’ve got what it takes, you should have been buying BTC a year ago."

With Trump’s election and a loosening of monetary policy, Bitcoin has nearly doubled its summer prices this year, becoming the winter’s new sensation once again.

It seems that digital currencies are experiencing another growth season. Does this mean that after a year-long winter, during which Bitcoin lost two-thirds of its value compared to the peaks of winter 2022, we are in for two springs in a row?

Bitcoin has been climbing since the beginning of 2023. From $20,000 per BTC, its price has comfortably settled at places that, during the COVID era, were mere fleeting glimpses of peaks. Throughout the pandemic, $60,000 was a short-lived and sharp pinnacle. By this summer, $60,000 had become quite the standard. And during the events of autumn, the price skyrocketed again to today’s $100,000.

Something similar is typical for digital currencies. In the winter of 2017, BTC reached $20,000, only to later plummet to a fraction of that value. It wasn’t until the COVID winter of 2020 that Bitcoin holders saw a return to those levels. In other words, “holders” needed three years of iron nerves and not to sell, to avoid selling at a loss. And the peak of 2017 eventually became the day of declines before 2023. So, it’s like a wobbly staircase. Two steps up, one step down.

An Opinion-Based "Non-Political" Currency

Trump was, until recently, a critic of digital currencies – as would be expected from a conservative who values traditional principles. He saw Bitcoin as a competitor to the dollar and a breeding ground for various illegal activities. However, in the past year, he made a sharp turnaround and became a fan of it instead. A similarly confusing stance was displayed by Elon Musk, who initially was a huge enthusiast, and cars could be paid for not only with dollars but also with this new, bold, unpredictable digital currency. Nevertheless, the enthusiasm didn’t last long, and within two months, Tesla backed away. The price of BTC dropped by 10%.

Today’s staunch supporter of Trump has returned to the good old dollar for ecological reasons. However, the digital currency Dogecoin, which by itself is a monetized "joke" is still accepted. But only for smaller items. Not for cars.

This by itself paints a rather interesting (or rather ugly) picture. These digital currencies largely behave like the combined moods of Trump and Musk. I’m curious to see what opinion/value this political currency (which was meant to be entirely apolitical) will settle on. What is certain, however, is that these two gentlemen will be able to play with it as they please.

Paper Currency in the Middle Ages

Betting on Bitcoin today is like betting on paper currency in the deep Middle Ages. The material era required tangible stores of value (i.e., gold), and the immaterial era requires intangible values and money. That is, fiat currency – quite fictional – but politically backed money.

The digital era will undoubtedly require digital currency, but we’re not there yet. Bitcoin is set for further declines, crises, bans (such as in China), regulations, and perhaps over time even fiscal interventions and so on. Although Bitcoin has a developed monetary policy, it is too primitive and simplistic for the complex world (political and economic). Sure, that’s where much of its charm lies, but as with all miracles, it also brings great danger. Simply put, Bitcoin does not have an appropriate monetary policy for people. And just at the time when it seems we’ve learned to manage the monetary policies of our regular currencies fairly well, there is no interest for anyone for anything so untested and unstable to become the backbone currency.

How would you conduct quantitative easing in BTC? How would its interest rates react at a time when central banks set zero rates, because the market rates would otherwise shoot up to the moon on their own and suffocate the economy of the entire developed world?

Those who are eager to buy should rather wait for the next drop. Buying at peaks is a dangerous game. It’s best to go against market psychology: buy when prices are low and hardly anyone believes in BTC. Conversely, when even your hairdressers are buying, and BTC is breaking one record after another, sell. Or hold „HODL“, no matter what happens. But: who has the psychological strength for that? At first glance, everyone thinks they do, but in reality, only seasoned players, and often not even them. And if you think you’ve got it, you should have been buying a year ago.

It’s like buying Trump’s mood combined with Musk’s mood and the opinion of totalitarian China. In short, our era is still not ready for this in many ways. We do not understand money or monetary policy well enough to hand it over to an algorithm.

#Bitcoin #Cryptocurrency #DigitalCurrencies #MacroPhilosopher #CryptoFuture