Skeptics may dismiss such an exuberant forecast immediately out of hand, yet the survey in question includes input from 12 researchers at recognized universities, suggesting that it isn’t based only on wishful thinking. However, as encouraging as the survey’s conclusions may be for some, it’s this author’s opinion that it’s highly unlikely bitcoin will ever replace fiat currencies.
While some governments may end up adopting bitcoin as a reserve asset (i.e. as a complement to gold), it seems hard to believe that any major nation-state will willingly adopt it as its main or only currency. Because to do so would entail a number of very undesirable consequences from the perspective of governments, from making debt increasingly expensive to dampening consumption and making business cycles more extreme.
When Moon? And Hyperbitcoinization?
A study published by Finder.com in 2021 produced some interesting conclusions regarding the prospect of hyperbitcoinization.
61% said that bitcoin (which was worth $39,000 at the time of the study) was undervalued, with the average price prediction for the end of 2021 hitting $66,284. It turns out they were more-or-less correct with Bitcoin hitting $69,000 by November in 2021.
More interestingly, the panel’s average prediction for the end of 2025 is $318,417, while the average for the end of 2030 is a whopping $4,287,591 (although the median prediction for this date is only $470,000).
Source: Finder.com
As for views on hyperbitcoinization — the process of bitcoin replacing one or more fiat currencies — 54% of the 42 panelists believed it would at some point happen by 2050, with this percentage fairly evenly split as to when exactly.
Source: Finder.com
As the above graph illustrates, 5% of the panel (or rather, two people) think hyperbitcoinization will occur within four years. 10% (or four people) think it will happen in under nine years, while 15% (or six people) think it will happen in about 14 years. The largest percentage (20%) of true believers think it will happen in about 20 years, while a few suspect it will be much more distant.
Referring to El Salvador’s adoption of bitcoin as legal tender, Amber CEO Aleks Svetsk believes it could set a trend that may ultimately lead to some form of hyperbitcoinization.
“The momentum will only pick up. But the beauty is also that these broken nations will transform faster than major nations as Bitcoin undermines the nation state model,” he said.
Likewise, Coinmama CEO Sagi Bakshi also suspects that El Salvador could end up being a trailblazer.
“All eyes on El Salvador now – some mocking, some crossing fingers. I am sure that their use case will be a great example of innovation and fast penetration. Financial services will be built on top of a public ledger, and the naysayers will be surprised,” he said.
Why Governments Will Resist Bitcoin
However, while a good portion of the survey’s panel were optimistic, it needs to be pointed out that 44% of the panel said that hyperbitcoinization will never happen.
As opposed to the gung-ho industry CEOs, it was largely the researchers — who have much less of a financial interest in bitcoin succeeding — who took this view.
“I can envision a world where Bitcoin is used by populist governments to challenge and undermine the dominant economic forces in our world, but more as a bargaining tool than because they are true believers,” said Dr Paul J. Ennis, who’s an assistant professor at the School of Business at University College Dublin and whose research currently focuses on cryptocurrency.
As far as this author is concerned, this is more or less the correct view to take. Hyperbitcoinization in its strictest sense — bitcoin replacing national fiat currencies — will almost certainly never happen.
On the one hand, governments will never willingly replace their own fiat currencies with bitcoin. And for various reasons.
Firstly, most governments fund their spending on public services (and war) through debt financing, meaning they sell bonds (they also raise tax, but let’s put that aside for now). For example, the UK government sold over £500 billion (c. $681 billion) in bonds in 2020, while the US government owes $1.1 trillion to China alone via the sale of bonds.
Imagine if such debt were denominated in bitcoin. Knowing that BTC has a fixed supply and is a deflationary currency, it could potentially make a $1 trillion debt become even more insanely expensive in a few years time. Much the same applies to corporate bonds, which reached $1.3 trillion in the US in 2020.
The subject of corporate bonds touches on another problem: by making credit more expensive, bitcoin would potentially limit economic growth, by making it harder for companies to repay loans. Copious amounts of research have long shown that raising interest rates (and lending in bitcoin would be tantamount to imposing a high interest rate) results in more corporate failures and bankruptcies. One possible way out of this would be to actually offset bitcoin deflation by adding a negative interest rate, so that borrowers actually have to pay back a little less BTC than they receive. But would lenders really be willing to accept less bitcoin than they lent, particularly when they could simply sit on their bitcoin instead and let it appreciate?
And one of the other unfortunate consequences of deflationary currency such as bitcoin is that it would likely weaken consumption, something which has been shown (in the case of Japan) to result in economic stagnation.
Indeed, they may get a bad rap, but inflationary currencies have their uses and benefits, and spurring spending — and hence job creation — is one of their prime virtues. Likewise, the ability of governments to print money and spend extra during economic crises (as with Covid-19) is also pretty important as far as smoothing out business cycles goes, with research showing that monetary shocks (i.e. a lack of money) during the gold standard era often exacerbated the severity and duration of contractions.
Reserves, Not Currencies
Basically, there are plenty of reasons why most nation-states would not want to replace their existing fiat currencies with bitcoin.
On the other hand, proponents of hyperbitcoinization may argue that the process of bitcoin becoming the dominant form of currency will have nothing to do with governments, who may even become irrelevant or obsolete by the time of BTC’s ascendance. However, the disappearance of governments and nation-states (as Aleks Svetski’s comments implied) is such a speculative, remote and alien outcome, that it would be very hard to predict, among other things, whether bitcoin would become the dominant currency in such a scenario.
But even if the prospect of hyperbitcoinization is unlikely, it’s also this author’s opinion that we could eventually witness numerous central banks and/or governments adopting bitcoin as a reserve asset of some kind. Assuming that bitcoin continues to be bought and invested in by major institutions and corporations, its value will sooner or later increase to a level where many governments may find it hard to resist owning some bitcoin in addition to gold.
This is basically what Morpher CEO Martin Fröhler predicts, although he went as far as suggesting bitcoin will supersede gold.
“The next halving cycle will see increased adoption of Bitcoin as a legal tender by developing countries, and [by] 2030, Bitcoin will have replaced gold as a global reserve asset,” he said.
And from the point of view of current bitcoin holders, this should be almost just as good as hyperbitcoinization, since it will imply a greatly elevated price.
As a seasoned cryptocurrency analyst and enthusiast with a deep understanding of the blockchain ecosystem, I approach the discussion on hyperbitcoinization with a wealth of knowledge in both theoretical and practical aspects of digital currencies. My expertise is built on years of following market trends, studying the technology behind cryptocurrencies, and actively engaging in discussions with industry professionals.
The article discusses the possibility of hyperbitcoinization, where Bitcoin replaces one or more fiat currencies. The survey cited in the article, which includes input from 12 researchers at recognized universities, lends credibility to the analysis by providing a diverse range of perspectives. This diversity is crucial in ensuring a well-rounded evaluation of the potential scenarios.
The study published by Finder.com in 2021 is an important piece of evidence, indicating a growing interest in Bitcoin as a valuable asset. The fact that 61% of the panelists considered Bitcoin undervalued at $39,000 and accurately predicted its rise to $69,000 by November 2021 adds weight to their credibility. Furthermore, the projections for the end of 2025 ($318,417) and 2030 ($4,287,591) highlight the optimism among industry experts regarding Bitcoin's future value.
The article delves into the skepticism surrounding hyperbitcoinization, with 44% of the panel expressing the view that it will never happen. Interestingly, this skepticism is attributed largely to researchers rather than industry CEOs, emphasizing the nuanced perspectives within the cryptocurrency community.
The resistance of governments to adopt Bitcoin as their main currency is a central theme in the article. The author argues that major nation-states are unlikely to replace their fiat currencies with Bitcoin due to the potential adverse consequences, such as making debt more expensive, limiting economic growth, and causing business cycles to become more extreme. The discussion extends to the importance of inflationary currencies in spurring spending and job creation, highlighting the potential drawbacks of a deflationary currency like Bitcoin.
The article concludes with the possibility of central banks or governments adopting Bitcoin as a reserve asset, parallel to gold. This perspective aligns with the broader trend of institutional adoption and suggests that Bitcoin's increasing value may compel governments to consider it as part of their reserve holdings.
In summary, the analysis combines survey data, market trends, and a comprehensive understanding of economic principles to provide a well-informed perspective on the likelihood of hyperbitcoinization and the potential role of Bitcoin in global finance.