How the perfect storm for fiat currencies cements the case for cryptoassets

by Arthur · October 6, 2022

The past week has been a roller-coaster ride for currency markets, as the British pound fell to record lows against the US dollar.

Some analysts warn that the pound and the euro are stuck in a “doomsday loop”. At the same time, the US dollar has risen by about 15 percent this year to a 20-year high against a basket of currencies.

This pushes an already overheated global economy closer and closer to recession. In short, a perfect storm is brewing.

The strength of the dollar can easily be explained by the actions of the US Federal Reserve, which has already unveiled four rate hikes so far this year.

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See: US Federal Reserve chief warns of ‘pain’ from reducing inflation

The largest of them, a 0.75 percent increase in September, pushed today’s base rate to 3 percent to 3.25 percent. The central bank has made it clear that it remains committed to more hikes to fight rampant inflation – consequences be damned.

Global recession on the horizon

However, these consequences are likely to be serious, if not devastating.

The strength of the dollar is putting pressure on global economies and sending the US – and later the rest of the world – closer to recession.

Credit Suisse puts the probability of a US recession at 30 percent in the next six to 12 months, while some researchers warn that the chances of a global recession are now as high as 98 percent.

This is because the unprecedented strength of the US dollar has a huge negative effect on currencies and economies around the world.

This includes the British pound and the euro, with the latter falling below parity with the dollar for the first time in 20 years.

Meanwhile, the pound is at an all-time low against the dollar, while inflation in Britain remains the highest in the developed world, at more than 10 percent, according to official figures.

The need for change

All this makes the argument for a politically and economically independent global reserve currency undeniable.

In fact, our current situation was predicted by the founders of Bitcoin in 2009, who famously encoded a link to a newspaper article about Britain’s first bank bailout during the 2008-2009 financial crisis into the chain’s genesis block – the first block ever created.

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Statue of Bitcoin founder in Hungary — in pictures

A bronze statue of Satoshi Nakamoto, the mysterious inventor of virtual currency Bitcoin, was unveiled in the village of Nagytarcsa in Budapest. All photos: AFP

These early cryptocurrency pioneers knew that the monetary policies adopted in the developed world would only lead to rampant inflation which would cause the value of fiat currencies to steadily decline.

Bitcoin was born as an inflation-independent, globally accessible resource that could not be manipulated and controlled by any country, organization or person.

In the early days of Bitcoin, the digital asset was compared to gold for its potential to become a hedge against inflation.

So far, 2022 has put this theory to the test, as the value of Bitcoin has fallen along with other risk assets.

However, we are now seeing Bitcoin come into its own, as the world’s largest fiat currencies plummet.

A new world order

There was a sharp increase in trading volume at the end of September as investors rushed to sell euros and pounds for Bitcoin, spurred by fears that their fiat money would continue to lose value.

The daily volume of Bitcoin bought in euros and pounds peaked at 50,000 BTC between September 22 and September 27, according to cryptocurrency research firm Messari.

People no longer want their financial future to be in the hands of central banks

Stefan Rust, founder of Laguna Labs

Meanwhile, BTC/GBP trading volumes on exchanges increased more than 10 times from their historical average, reaching $881 million on September 26, according to finbold.com.

This tells us one thing: the world is ready for a global reserve currency that cannot be manipulated by government intervention.

People no longer want their financial future to be in the hands of central banks. They are ready for change – and cryptocurrency has the potential to bring this change to the masses.

Maybe it won’t be Bitcoin. Since its early days, the first cryptocurrency has struggled to meet the requirements of a true global inflation hedge due to its volatility.

However, the foundations for a new world order are being laid as we speak.

There has never been a clearer, more poignant moment for the rise of a decentralized, policy-agnostic, inflation-proof and truly global payment and store of value.

It’s time for cryptocurrency to show its true worth.

Stefan Rust is the founder of Laguna Labs, a blockchain development house, and former CEO of bitcoin.com

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