Is Bitcoin a Threat to the Dollar?

The world has used the US dollar as a reserve currency for decades. However, some people believe that the growing popularity of Bitcoin threatens this global US dollar supremacy. Some people have even warned that digital currencies like Bitcoin threaten the dominance of the US dollar over the current financial system.

Essentially, Bitcoin will replace the US dollar or interfere with its purpose as the world’s reserve currency if it works and achieves its purpose. But if this virtual currency fails, many investors will lose their money.

Currently, some experts believe that the dominance of the US dollar over other currencies has many advantages, especially for Americans. For example, the Federal Reserve generates profits for the US Treasury. Moreover, the dominance of the dollar allows the United States to influence the actions and policies of other countries by using economic sanctions. Therefore, the United States will likely lose these privileges if Bitcoin is successful.

Bitcoin for emerging markets

Experts have noted that growing interests in crypto have some connection with emerging markets. And it further made Federal Reserve officials question whether Bitcoin is threatening the US dollar. Essentially, some investors in developing and underdeveloped countries choose to use Bitcoin as a safe asset.

In the past, these people used the US dollar or gold as a safe bet. However, Bitcoin is replacing these alternatives by ensuring the safety of some investors in unstable regions. Crypto bulls defend Bitcoin as a store of value that people can use to depreciate fiat currencies or hedge against inflation.

For some people, Bitcoin is digital gold. Additionally, Bitcoin provides a way for people to pay for services and goods, much the same way they use fiat currency. This is why many people rush to buy this virtual currency on platforms like Also known as crypto exchanges, these platforms allow people to buy Bitcoin using fiat currency.

Some Federal Reserve officials are concerned about the increase in Bitcoin transactions on these platforms. There are concerns that more people are trading Bitcoin, investing in it, and using it for international transactions instead of the US dollar.

The declining dollar monopoly

Several politicians have expressed concerns about how Bitcoin is likely to affect the US dollar. Some fear that no one will know how the future will unfold. While the dollar has historically worn down due to its support for the bigger economy and stable politics, beating Bitcoin might not be easy.

If people continue to use cryptocurrencies like Bitcoin, the world will have more currency units. And this will affect the stability of only one incumbent, which is the US dollar. The impact could be worse due to the high volatility of Bitcoin.

If people systematically and long-term substitute Bitcoin for the US dollar, the need to hold dollars will decrease while the supply of fiat money will increase. And this will lower the demand for the dollar, thereby affecting the rate of circulation.

And when that happens, the Fed will have to compensate for tightening monetary policy to maintain the same level of monetary accommodation. The substantial use of Bitcoin could make the measurement of speed uncertain. Moreover, judging the appropriate stance of monetary policy would not be clear.

Final thoughts

While some people increasingly use Bitcoin as a medium of exchange, some experts argue that cryptocurrency may never become a unit of storing value and accounts. Additionally, Bitcoin faces fierce competition from countries like the United States that are unwilling to relinquish the dominance of their fiat currencies. At the same time, some countries and individuals are experimenting with Bitcoin. However, only time will tell whether or not Bitcoin threatens the US dollar.

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About Meredith Campagna

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