Bitcoin has reached a four-year high, trading over 40% higher than its average price on the eve of the November 5th US elections. This is considered to be due in large part to the promises of the Trump campaign and its allies to ensure that the federal government is fair to the innovative new Internet industry.
Additionally, it is a repeat of a historic pattern in Bitcoin’s 4-year market supply cycle. Peter Schiff, founder and chief strategist of the Euro Pacific macro hedge fund, said that money spent on Bitcoin is a “misallocation” that will lead to inefficiencies in the economy and larger trade deficits, a weaker dollar, and lower GDP.
He also stated that Bitcoin will ironically become a source of inflation, even as buyers use the cryptocurrency as a shelter from dollar inflation. Schiff may be getting tangled up in the terminology of inflation, as Bitcoin’s role in the ecosystem is still difficult to comprehend, even for a capable economist.
The rising business and consumer costs from low-rate dollar environments are the inflation that cryptocurrency users use Bitcoin to protect and grow their wealth. Rising BTC prices represent the dollar’s inflation and Bitcoin’s relative deflation. Bitcoin actually supports the central bank in its efforts to balance the trade deficit with China and US dollar inflation while slowing new supplies of goods and services that people use money to buy.
Every dollar sent to Bitcoin instead of overseas to China for imports actually helps balance the trade deficit. It is not Bitcoin that causes dollar inflation; the Federal Reserve increases the dollar supply to target lower borrowing costs. Bitcoin helps the central bank by locking up excess savings in a digital economy that incentivizes participants to not spend their surplus earnings.
Bitcoin helps the economy by providing a secure layer of the Internet and financial transactions, as well as helping the central bank balance the trade deficit and US dollar inflation. However, there is still some debate over whether Bitcoin will lead to inefficiencies in the economy and larger trade deficits.
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<p>The post Bitcoin and the Economy: Inflation, Trade Deficits, and the Dollar first appeared on CoinBuzzFeed.</p>
