The role of the money supply – Why debates about a bubble are often irrational

29. October 2018 // by admin

These days many self-proclaimed experts take the floor when it comes to crypto currencies. Often the word bubble can be heard in this context. Neither criticism nor comparisons are saved, either with the tulip mania of the 17th century or the New Economy of the late 1990s. We take a closer look at the argumentation and classify it.

At the same pace, forecasts for Bitcoin evolution in astronomical highs and enormous lows

Most media are predicting a terrific crash. A yield of 18,000 % is hardly comprehensible for many. A new, unique product that has never existed before. Where is this to end? An imminent end is inevitable. That’s how many people think about Bitcoin these days, but not about technology companies like Apple. The 18,000 % yield has not only brought Bitcoin, but also Bitcoin evolution Apple over the last 14 years. The perception in the media is currently quite distorted.

So it’s time to take a neutral look at the development of crypto currencies and put it into perspective. Professional investors like to hedge their portfolios with gold. The same investors today complain about the trustworthiness and meaningfulness of Bitcoin. But they both have one thing in common: they are only valuable because the majority of investors see it the same way. It goes without saying that Bitcoins become worthless if nobody shows more interest in the crypto currency. However, the same applies to gold: if the perception of gold changes, the price would plummet. The industrial use of gold is not the only reason for the high market value. Those who hold a troy ounce of gold in their hands profit only to a very limited extent from pure possession. Nevertheless, the commodity has long been valued as a “safe haven”. Bitcoin, on the other hand, is increasingly accepted as a means of payment. It would be wrong to say that Bitcoin is independent of politics. The news from China and Korea in recent weeks shows this in particular. Many governments are displacing digital currencies or issuing concrete bans.

Advantages of a Bitcoin evolution

However, crypto currencies stand for a freedom that classic fiat currencies do not offer. Read more about it here: Officially, central banks and politics are separate in democratic countries, but the influence cannot be denied. However, no state has direct access to the properties of crypto currencies. This is a major advantage in times of growing political instability and restrictions on civil liberties. The example of Bitcoin evolution Venezuela shows how much a state guarantee is worth. The bolivar is almost worthless, inflation has risen dramatically. Many countries experienced comparably terrible inflation in the last century, in some cases several times. A national currency is thus in no case a guarantor for security.

But Bitcoin’s money supply is still small from an international point of view. We are currently talking at Bitcoin about a market capitalisation of 200 billion or 0.2 trillion US dollars. This is very small compared to the money supply of the two most important economic areas in the world, the USA and the EU. Even all crypto currencies in circulation are around 0.5 trillion US dollars. The smallest money supply, M1, comprising cash and demand deposits, is currently around USD 10 trillion in the euro area and USD 3.6 trillion in the USA. A comparison with the money supply M1 is not sufficient, as it primarily covers cash. The money supply M2 also includes short-term savings products. This is a more suitable indicator, as many Bitcoin and other currencies now represent an investment instrument for investing money. The money supply M2 for the two economic areas is 13 trillion (USA) and 14 trillion US dollars (Europe) respectively.

For completeness, the money supply M3 should also be mentioned. It is relatively close to M2, and also includes savings products that run for even longer. However, the amount for M3 is no longer published regularly.

So far, we are only talking about two, albeit large, economic areas. The entire Asian region is not yet included. And it is there that digital currencies meet with a lot of enthusiasm. The global money supply is therefore many times the market capitalization of all crypto currencies. In other words, there is still plenty of room for growth.

Also the Bitcoin (or another Krytpow currency) is still no competition to the current foreign exchange trading volume Рthus the daily trade of Fiatwährung, also FX-Trading mentioned. This number is about 6 trillion US dollars daily! Bitcoins are daily in the equivalent value of approximately 1.5 Mil

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