US Treasuries on a Decline since 1987: Can Bitcoin Pop the Fiat Bubble?
During late 2017, bitcoin investor Freddy Callan stated “Bitcoin isn’t a bubble, it’s the pin,” emphasizing the disruptive nature of the cryptocurrency and its ability to compete against the global banking system as the premier store of value and digital currency.
For many years, so-called economists have continued to condemn bitcoin by criticizing its lack of supporting, real-world assets and intrinsic value, despite the fact that no asset or currency in the global market has intrinsic value.
As bitcoin critic-turned investor Mark Cuban explained, the value of the cryptocurrency is always subjective, and it depends on the demand and the supply conditions. He said:
“It is interesting because there are a lot of assets which their value is just based on supply and demand. Most stocks, there is no intrinsic value because you have no true ownership rights and no voting rights. You just have the ability to buy and sell those stocks. Bitcoin is the same thing. Its value is based on supply and demand. I have bought some through an ETN based on a Swedish exchange.”
On December 26, 2017, widely recognized financial news publication Zerohedge released a chart entitled “The Most Important Chart in the World,” that demonstrated the consistent decline of the US Treasury (UST) since 1987. The visualization showed that the fiat currency system of the US, which operates as one of the few reserve currencies that support the global monetary system, has been on a decline.
Investopedia, which recently announced bitcoin as the “2017 Term of the Year,” describes a bubble as “a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive sell-off occurs, causing the bubble to deflate.”
As portrayed by the chart above, investors in both the domestic US market and the global market have clearly struggled to support the value of the US Treasury, and in the long-term, a similar trend is likely to be shown. Analysts have also predicted the value of the US dollar to continue decreasing throughout 2018, even though a 14-year low was recorded in 2017.
“We have a negative bias on the dollar, which is extraordinary considering that interest rates are going to rise at a very good clip. It got too strong before January, and the other factor is that global growth is very strong,” Jens Nordvig, CEO of Exante Data, told CNBC.
While the price of bitcoin has entered 2018 with an annual gain of nearly 14-fold, nevertheless it has experienced significant price corrections on many occasions. The short-term corrections of bitcoin have prevented bubbles from forming in the market, shaking out ‘weak hands’ and further stabilizing the market.
Hence, the term bubble is more applicable to the long-term trend of the US dollar, the US Treasury, and the global fiat currency system, rather than bitcoin itself.