3 Ways the US Government is Helping Bitcoin

It’s been 14 years Bitcoin (BTC -0.08%) first launched, and since then it’s been a rollercoaster ride. There have been several crypto winters and of course some historically explosive bull runs. As these cycles have developed, Bitcoin’s popularity and recognition as a legitimate investment only seems to grow.

There are probably a handful of reasons why Bitcoin has risen to this level of notoriety today, but what trends could bring it to the next stage?

Well, there are probably three in particular – and they all have to do with the US government.

Persistent inflation

One of the main premises for investing in Bitcoin is that it acts as a hedge against inflation. This is especially relevant today with inflation at multi-decade highs, but if we zoom out even further, having a means of preserving wealth becomes critical.

The US has a long history of debasing its currency; since 1971 the US dollar has lost 98% of its purchasing power. While some rates of inflation are generally considered healthy for the economy, its continued and unpredictable bursts (of which the lower and middle classes usually bear the brunt) may prompt investors to seek an alternative to the status quo.

While many believe that gold is superior when it comes to maintaining value, even this precious metal has been shown to provide weak returns when inflation is taken into account. The truth is, for those looking to bypass government-induced monetary deterioration, Bitcoin is a viable option.

Unlike the dollar and even gold, both of which are subject to the whims of central banks and governments, Bitcoin operates on a decentralized network that is resistant to unforeseen increases in inflation and deterioration.

This is because Bitcoin has a pre-programmed limited supply. There will only ever be 21 million coins in circulation. This scarcity increases demand and makes it an attractive asset to hold in a world where fiat currencies continue to lose their value.

Confidence in government continues to slip

Not only could Bitcoin benefit from the devaluation of the dollar, but it is likely to become a benefactor of a larger growing trend – a lack of trust in the US government.

According to the Pew Research Center, trust in government is close to an all-time low. As a result, people are looking for alternatives to traditional systems of finance and governance. As a decentralized and independent asset, Bitcoin is central since it is not subject to government handover or inflationary policies.

Should trust in government continue to erode as it has since Lyndon Johnson was president in 1964, the recognition that Bitcoin operates outside the control of traditional authorities will likely only make it more alluring. If this happens, the demand for Bitcoin will have to compete with the limited supply of 21 million coins – and that could mean big things for Bitcoin’s price.

The debt crisis

While inflation and mistrust of the government may have helped Bitcoin over the past 14 years, there is one other aspect that could further exacerbate these problems – money supply expansion.

This is the cherry on top, but it can get a little confusing. By understanding this concept, we can see the true meaning of Bitcoin in our current world.

Expansion of the money supply helps keep the US debt minimal in nominal terms. This is done in two ways. Firstly, it allows the government to finance several revenue-generating projects related to national defence, infrastructure and healthcare. Also, it makes the debt seem smaller compared to how much money is available. By doing so, this reduces the value of each dollar and thus makes it easier to repay debt.

The downside of this approach is that it leads to inflation. This is why many people were concerned about the expansion of the money supply by the Federal Reserve in response to the economic fallout from the COVID-19 pandemic – a similar strategy to that taken during the Great Recession.

Although today it appears that the worst of covid-19 may be behind us, the country’s debt continues to rise exponentially, with little sign of abating. If the strategies used in the past are used again, they could prolong the effects of inflation and lead to further distrust of the government.

Bitcoin fulfills its purpose

All of this may sound like a long shot, but Bitcoin was actually created back in 2009 as a way to combat these exact circumstances. Perhaps it’s just a coincidence that Bitcoin’s rise since the Great Recession occurred during a huge increase in the nation’s debt and money supply. Perhaps it is a coincidence that Bitcoin continues to gain attention just as faith in government is waning.

Or maybe it isn’t. Perhaps this is exactly what the pseudonymous Satoshi Nakamoto intended when he (or they) designed Bitcoin 14 years ago, and why it continues to prove the naysayers wrong.