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US Currency and Bitcoin



Posted on: September 7, 2022

On the surface, bitcoin’s relationship to U.S. currency seems relatively straightforward. The primary functions of bitcoin is to make payments,  act as a decentralized ledger for storing assets and liabilities, and act as a means of keeping value. Proponents of bitcoin claim that it’s a form of money due to its underlying design. In this regard, it’s reasonable to expect the cryptocurrency to behave similarly to the dollar.

But its behavior is virtually unrelated to that of the U.S. dollar, suggesting that its relationship to the world’s most popular fiat currency is not as straightforward as it might appear. Even though bitcoin was designed to be a money substitute, it’s best viewed as a technology venture with lots of promise but with limited traction as a form of money. 

The cryptocurrency bitcoin has overtaken the U.S. dollar in the eyes of cryptocurrency enthusiasts, but it hasn’t gained enough commercial traction to enable it to be traded like money. As such, bitcoin trades inversely to the U.S. dollar, similar to other technology ventures.

As the World’s Reserve Currency, the US Dollar Dominates the Market

Trade between countries and cross-border investments have become commonplace because of globalization. As a result, international business and investment activity demands a single benchmark for comparing prices across countries. Essentially, the U.S. dollar is the world’s monetary yardstick since it’s the world’s reserve currency. 

Most international trade is conducted in U.S. dollars, while major assets (like commodities) are traded against it. This applies even to parties who don’t transact domestically in the U.S. dollar. Due to the need for an independent measure of prices, the U.S. dollar is used in this type of situation.

Dollars Provide Global Security Beyond Being a Monetary Yardstick

In addition to international payments being primarily made in U.S. dollars, the majority of cross-border lending is also done in U.S. currency. This is because the U.S. has one of the most profound and sophisticated capital markets in the world. Moreover, dollars have the characteristic of a “haven” currency due to their role as the world’s liability currencies. 

Borrowers move to the dollar (as bank loans or debt securities) when global economic growth accelerates. Dollars depreciate as more dollars chase foreign investment opportunities. Borrowers often accept foreign exchange risk because hedging dollar debt costs so much.

Decelerating global growth is the cause of the problem. The repayment of U.S. dollar loans becomes more complicated once economic conditions worsen. As lenders begin to doubt the creditworthiness of borrowers, U.S. currency credit taps dry up. In the event of financial hardship, borrowers often get out of debt by selling their assets and buying U.S. dollars to repay the debt. A fire sale ensues, increasing the U.S. dollar’s value relative to other currencies.

Dollars serve as a classic haven asset because they depreciate during booms and appreciate during busts. However, the dollar trades against global risk sentiment in the opposite direction to most other currencies. Unlike haven assets, most currencies are considered “risk-on” assets, as they are not heavily used for cross-border lending. 

During global growth accelerations, risk-on currencies appreciate, while during downturns, they depreciate. Aside from the Japanese yen, the U.S. dollar, and the Swiss franc, all other currencies display risk-on characteristics.

Bitcoin Is Not a Currency — but It Is a Risk-On Asset

The volatility of currencies is lower than that of equities or commodities, which tend to be riskier. However, as a result of excessive fluctuations (such as in some emerging market currencies), the currency becomes irrelevant as a monetary yardstick in a country. 

The result is a significant slowdown in domestic trade and investment. A daily 1% swing in the dollar’s value would cause investors and businesspeople to reduce their dollar transactions and seek more stable alternatives.

As a speculative asset, bitcoin has been successful, but as a form of money, it has mostly failed. Despite its strengths, cryptocurrencies suffer from many problems, including high volatility, unresolved security issues regarding storage, risk of technology obsolescence, inefficient payment networks, and limited use as a method of payment.

Because Bitcoin Is Highly Volatile, It Is More of a Technology Venture Than a Currency

According to BitMEX, a leading cryptocurrency broker, bitcoin’s rolling 30-day annualized volatility is north of 80%. By contrast, the rolling 30-day annualized volatility of Nasdaq Stock Market is under 30%. 

Given the large number of technology stocks traded on the Nasdaq exchange, the index is considered a risky asset. However, compared to safer assets such as short-term government bonds, rolling 30-day volatility is only 1%. As a result, bitcoin can’t compete with the U.S. dollar today without tying its value to a stable asset.

Bitcoin should be considered a technology startup rather than a currency. Due to increased payment volumes, favorable economic conditions for growth-oriented investments, and high expectations for the technology, cryptocurrencies soared in value in 2017. More recently, cryptocurrencies have fallen in value due to waning risk sentiment and a decline in payment volumes. 

There’s an Inverse Relationship Between the US Dollar and Bitcoin

The relationship between bitcoin and the U.S. dollar is limited, given that bitcoin isn’t a currency at present. Bitcoin and the dollar trade inversely because the dollar is a haven currency, and bitcoin is based on future technology expectations.

Ultimately, while they can both be used to buy one another and as remuneration for goods and services, the dollar and bitcoin are very different. 

However, even though they differ in many ways, here’s one connection that can be made: Both dollars and bitcoin can be withdrawn and deposited most conveniently and efficiently via ATMs.

Bitcoin ATMs

As with regular ATMs, bitcoin ATMs allow cash deposits and withdrawals for bitcoin transactions. You can withdraw money from the ATM or deposit cash to buy bitcoin. 

In addition to transaction fees, you must be aware of the regulations since there are different rules for different bitcoin ATMs. You can, however, get cash for your bitcoin very quickly and easily with this method. 

In addition to being the most reliable and discreet method of buying bitcoin, bitcoin ATMs are becoming increasingly popular.

Cryptobase ATM

Cryptobase ATM provides bitcoin ATMs throughout the United States. By hosting a bitcoin ATM in your store, you can profit from the growing trend. It’s as simple as providing a place for the machine, and we’ll take care of the rest. 

We hope you’ve gained better insight into the relationship between the dollar and bitcoin after reading this article. To find the nearest Cryptobase ATM or to host an ATM in your store, don’t hesitate to get in touch with Cryptobase ATM today.