Over the past several weeks Ether (ETH) and Bitcoin (BTC) have been experiencing record new highs. ETH has run from from $13.34 United States Dollars (USD) to $184.44. BTC has gone from $443.22 to $2225.38. Effectively, ETH has had an increase of 1,282% while BTC has risen 402%.
These gains are based on a comparison to the USD. Another way of interpreting these gains, is that the USD has been crashing against ETH and BTC. This is because the USD is subject to limitless printing. The Federal Reserve Bank, can print trillions of digital dollars with the click of a button. Concurrently, the money supply of ETH and BTC is far more limited.
So the USD is experiencing inflation, while ETC and BTC are experiencing deflation (yes, they can be mined to increase the money supply, but this process is very slow). This contrast is colossal. Normally, the central banks of the world inflate all their currencies at the same time. It’s as if you have two cars driving down the highway in the same direction. One car is going 60 miles per hour(MPH) while the other is going 70MPH. There’s only a 10 MPH difference in speed. So when the Chinese Yuan Renminbi (CNY) is inflated against USD, the difference is nominal.
However, ETH and BTC are effectively deflationary. So it’s as if ETH, and BTC are traveling 70MPH north on the highway, while the USD is traveling 60MPH south on the highway. The difference is 130MPH. It’s colossal.
To further exacerbate the problem, we’ve recently seen a loss of confidence in the currency of India and other nations. There’s also talk of negative interest rates on the deposits of fiat money. These significant trends support the organic need for an independent and honest currency.
As of today, the total market capitalization of ETH, BTC and other crypto currencies is around $78 billion USD. The world wide M2 (this is basically all the cash and bank deposits in the world) money supply is estimated to be around $80 trillion. It seems likely to me, that in time we will see cryptocurrencies replace a significant part of the M2 supply. Even if it’s just 1% of the $80 trillion, the growth in cryptocurrencies could be significant. So while the returns on ETH and BTC are huge, I think there is still more room for growth.
Full disclosure, I am invested in ETH. Investing in cryptocurrencies is extremely risky and you can lose of all of your investment.I am NOT an investment professional. This blog is NOT intended to offer financial advice.