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It’s no secret among economists that fiat currencies are facing an uphill battle. From nightmare scenarios like hyperinflation in Venezuela to creeping emergencies like the pending debt crisis in the United States, the stability of fiat economies is tenuous at best. Given the uncertainty facing investments tied to fiat-driven instruments, everyone, from those suffering from economic upheaval like in Venezuela to high-net-worth individuals seeking to diversify their portfolios, should be paying a lot more attention to Bitcoin.
While fiat markets are dramatically impacted by decisions made by centrally-controlled governments, Bitcoin is impervious to such political actions and should be a key component of individual and institutional portfolio allocations for those seeking true diversification and risk mitigation.
Fiat-driven economies are stumbling
The dereliction of fiat-driven economies has been on full display as of late. Hyperinflation of Venezuela’s bolivar is the most dramatic example of market chaos. When there’s no way to trust that money earned will hold the same value the next day, or even the next minute, people will exchange those bills into other assets as quickly as possible. This is exactly what is happening in Venezuela. Though, problematically, if anyone is caught using a currency other than the government-mandated bolivar, they could be subject to stiff enforcement. No Venezuelan wants to risk potential confiscation of their assets. However, at the same time, holding value in bolivars is no recipe for long-term financial security.
Interestingly, Bitcoin is somewhat of a gray area when it comes to enforcement. Because the Venezuelan government issued their own cryptocurrency, the oil-backed Petro, they cannot pronounce all cryptos to be illegal. Furthermore, Bitcoin’s borderlessness and the fact that it is not tied to any nation’s government means it poses no political threat to Maduro.