Imagine a world with a Bitcoin world reserve currency. This may seem like an unrealistic expectation to some however, for many in the Bitcoin space, the world economy is edging closer and closer to this “far fetched” reality.
In a recent Youtube Vlog, well known Bitcoin OG Simon Dixon outlines how bitcoin could become a world reserve currency by 2020. Let’s dive in!
This is a currency that central banks have on reserve in order to maintain value and use for global settlements. Central banks are basically the bankers of the main street banks. They tend to hold the most trustworthy currency or asset to backup their creation of local currency and hedge risk. Today the US Dollar is accepted as the global reserve currency. It is also the currency most used to quote pricing of commodities like oil.
According to the Currency composition of official foreign exchange reserves (1965–2018) produced by the IMF, the US dollar makes up at least 60% of the reserves held by these banks. Simon Dixon likened the US Federal Reserve and the US dollar to the startup space,
“If we think of it as the startup space, the US dollar is like the incumbent, it is the most dominant by far,…you can expect the incumbent to use all the same policies or tools it has used in the past to fulfill its mandate, for example, drop interest rates (which the US has just recently done)”
Having set the stage with the “incumbent” central bank, Dixon went on to explain further,
“We are likely in phase 1 or have been in phase 1, this is when there is a central bank who hasn’t got much to lose, let’s call it an “opportunistic” central bank, for example, small economies like the Bahamas or Switzerland. The “opportunistic” central bank will notice the opportunity and start quietly accumulating Bitcoin defensively (just in case scenario), whether this is via mining or straight out buying OTC (over the counter). This could be an ultra-speculative bet on whether Bitcoin becomes a global reserve asset. This risk/reward ratio of doing such a thing would be heavily skewed in their favor.”
In phase 2 of Dixon’s hypothetical scenario, he introduces another stakeholder, the “Futurist Central Bank” that he uses to describes second-tier central banks, in other words, not the biggest (incumbent) but still significant in size and political clout. They will likely have strong aspirations of taking over the incumbent’s top position.
“A good example of a Futurist Central bank could be the Central Bank of Japan, ……, Japan could become the leading world superpower. They are engaging and putting together a regulatory environment for Cryptocurrency exchanges, they are supporting the growth of the cryptocurrency industry, they are treating it like currency so it is as good as legal tender. They are embracing the future.”
Next phase in this scenario would be the “opportunistic” central bank publicly announcing that they have accumulated Bitcoin as a reserve asset.
“The opportunistic country’s central bank would accumulate as much as they could up to the point that they, in their own interest, announce that they are holding it on reserve. This would likely set off the game theory (Game of Thrones-like scenario) where a race or scramble to accumulate bitcoin starts between the central banks”
Dixon believes that the incumbents will resist for as long as possible, claiming that Bitcoin is a Ponzi scheme or only used by drug dealers, trying to paint a negative narrative, whilst the “futurist” and “opportunist” banks will see the writing on the wall.
“It only takes one Futurist bank to come out and announce that they have accumulated a bitcoin reserve, you could see the Bitcoin price suddenly increase in price as the world starts to realize there is massive scarcity and understand the economics of Bitcoin”
By this time, Dixon theorizes that another superpower such as Russia or China (or similar) would see an opportunity to challenge the US Dollar as the global reserve currency.
“The central banks that will likely fair the worst in this Game Of Thrones scenario are likely the US Federal Reserve and European Central Banks as they will defend their current positions and will end up being late to join new reserve system.”
In a world where the global monetary system as we know it is upended in such a short time frame, there will likely be big losers and widespread financial suffering – it is not something to take lightly. We could see this type of scenario play out and it could happen by the end of 2020 however is not something to pin our hopes to.
Bitcoin as a store of value with a real capped supply will encourage strong price growth if governments or central banks start accumulating. We will likely be left in the dark for a long time to enable them to accumulate as much as possible. The real question is what will the proverbial “canary in the coal mine” be?
Will Bitcoin become a World Reserve Currency by 2020? Let us know what you think, jump on our Facebook page and leave us a comment or prediction.
Note: Some quotations from the original video have been edited for friendlier formatting, all definitions and points made are kept the same or as close as possible to the source.
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