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Bitcoin’s ultimate rug-pull against the US dollar

Bitcoin has pulled the largest heist the financial sector has ever known.

Judging bitcoin’s success by the dollar – the quintessential symbol of what the grandfather of all cryptocurrencies was created to rebel against – is flawed logic.

Bitcoin began as the rebel child protesting against a system that caused nearly 10 million Americans to lose their homes after the 2008 financial collapse.

Initially, Bitcoin needed a dollar-value representation simply because it cost a certain amount of dollars to mine it. But the emergence of Bitcoin Market, Mt. Gox, and other exchanges where users could trade with each other created the artificial supply-demand paradigm which gives all things value.

Back then, the only measure of that value was the US dollar.

Today, bitcoin (BTC) naysayers point fingers at the plummeting BTC-USD price and laugh, assuring themselves and others, as they did from the start, that BTC was never worth anything.

But BTC was not created to match the dollar. It was created to empower people to become financially free of a centralized banking system that had let the world down.

Bitcoin is well on its way to achieving a complete disassociation from the USD or any other fiat currency, establishing an existence in its own right as a means of exchange containing its own intrinsic value.

That’s terrifying to central governments and banks.

Bitcoin’s wide acceptance

The Italian-speaking city of Lugano in Switzerland leads the way in bitcoin adoption, with its ‘Plan B’ initiative. Plan B is a joint initiative between the city and Tether to transform Lugano’s financial infrastructure through the use of bitcoin.

Soon, Lugano’s citizens will be able to use bitcoin at 200 local establishments, as well as pay their taxes, and other public services, using cryptocurrency.

If Joe can buy eggs from Jack using bitcoin, and Jack can pay Mary bitcoin for bread, and Mary can pay her taxes with BTC, no fiat currency is needed anywhere.

El Salvador adopted bitcoin as official legal tender over a year ago. Part of the reason for this adoption was to empower the 80% unbanked Salvadorians to gain access to digital funds. And the country managed to get 70% of those people to do just that within only four months.

The country bought $103.9 million worth of BTC after September 2021 and the USD value of BTC dropped to just over $40 million a year later. The naysayers thumped their chests in glee.

But here we’re exercising that flawed logic again.

If countries exchange with other countries solely using BTC, who cares what the USD value of that BTC is? The value of USD becomes irrelevant.

In October 2022, El Salvador signed a memorandum of understanding with the City of Lugano to spread the adoption of bitcoin. Although bitcoin is not the de jure currency in Lugano – the city does not have the power to declare legal tender in Switzerland – it is becoming a de facto tender.

What if El Salvador and Lugano start paying each other in bitcoin?

Panama once floated the idea of ​​making BTC legal tender. And the Central African Republic (CAR), one of the poorest countries in the world despite its wealth of mineral reserves, has also adopted the cryptocurrency as a legal tender.

A third of small businesses in the US were already accepting bitcoin as valid payment in 2020. Major companies that accept bitcoin include AT&T, Wikipedia, Microsoft, and Norwegian Air.

Bitcoin seems to be everywhere.

De facto currencies and government panic

De facto currencies terrify central governments. Speaking at the Fourth Nordic Blockchain Conference in Copenhagen, Denmark, in December, attorney Payam Samarghandi revealed that the EU’s bloc-wide cryptocurrency regulations began initially as an effort to prevent Facebook from creating a de facto currency to compete with the euro. After Facebook nuked its Libra currency, the regulations grew to what they are now – Markets in Crypto-Assets Regulation (MiCA).

Controlled by no government on earth, the idealistic cryptocurrency of bitcoin can now be used to buy goods in many places in the world.

If bitcoin can be used to buy goods – such as the quartz, copper, uranium, iron ore and many other minerals available in the CAR – the value of bitcoin becomes the value of the supply and demand of the goods it represents.

It was the dollar itself that sowed this germ of its own destruction.

A fiat currency is one that is not backed by reserves but by the confidence of the issuer.

The dollar used to be backed by gold reserves. In 1933, the US government passed the Emergency Banking Act that stopped US citizens from exchanging their dollars into gold. Then, in 1971, the US stopped issuing gold to foreign countries in exchange for their dollars. The fiat currency of the US dollar was born.

By this same pattern, bitcoin is now also becoming a fiat currency. But the issuer in its case is not a central government – ​​it is the bitcoin blockchain, a decentralized and independent entity whose trust has been earned several times over.

What makes a currency?

Emeritus Professor of Accounting at Brigham Young University Earl Kay Stice defines the three necessary characteristics of a reliable currency as:

  • Reasonable limit on supply
  • verification
  • Broad acceptance.

There will never be more than 21 million bitcoins. Every transaction is verifiable. And it is now achieving broad acceptance.

In attaining that broad acceptance, bitcoin pulled the rug from under the US dollar’s feet. It first said: “Hey, check out how many dollars I’m worth!” Investors piled in. Bitcoin’s value soared against the dollar. So did bitcoin adoption.

But the real value was in the adoption, never the dollar value. So bitcoin finally said: “Who needs dollars?”

* R Paulo Delgado is a crypto writer with an eye for the bizarre and the human stories behind the always fascinating leaps and stumbles of this new asset class.

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