When one discusses the possibility of using digital tokens like Bitcoin as actual currency, the word volatility will almost certainly enter the conversation – especially when talking with a crypto naysayer.
Critics will often point out that cryptocurrencies, such as Bitcoin, for example, are simply too volatile ever to be used in a manner similar to fiat currency.
Take the Deputy Governor of the Swedish Central Bank, Cecilia Skingsley for instance. Skingsley has gone on record with the following statement regarding Bitcoin: “It’s too volatile to be used as money,” she said, adding that digital currencies “don’t store value, they fluctuate, and they’re not at a stable rate of exchange.”
After all, last December a Bitcoin was worth around $19,000, and now, roughly ten months later, a single BTC is going for $6,470.
It’s true – even the most passionate crypto enthusiast must concede – the price of digital currencies change rapidly. Of course, there are plenty of fiat currencies that have also experienced their fair share of volatility in recent years.
Readers may remember Black Wednesday and the British pound crisis of 1992 – an event that saw the value of the UK’s native currency take a nose dive. Places like Mexico, East Asia, and Brazil also faced their own versions of a currency crisis during the 1990s.
Of course, everyone remembers the 2000s, when we saw countries likes the United States and Greece deal with their monetary issues.
More recently, as those who read our “Blockchain In Action” piece know, the Venezuelan bolivar has been struggling to maintain value. The bolivar has taken such a hit, that person making minimum wage in Venezuela is bringing in the “equivalent to just a handful of U.S. dollars a month.”
However, the bolivar isn’t alone. As the money gods would have it, Turkey’s national currency, the lira, has also fallen on hard times as of late.
Among the causes for the recent currency crisis are the Turkish economy’s excessive current account deficit, foreign-currency debt, and the nation’s president, Recep Tayyip Erdogan’s unorthodox ideas on interest rate policies. As a result, as of mid-August, the lira was down 40 percent against the US dollar in 2018.
At one point, Aly-Khan Satchu, a financial analyst and CEO of Rich Management, feared that if Turkey did not raise interest rates to help stabilize the lira, things would get a bit out of hand. In his own words: “We are looking at a scenario where the currency totally collapses, the inflation takes off, and Turks will be wandering around with wheelbarrows of lira trying to buy a loaf of bread.”
While Turkey did end up raising interest rates, the crisis is still ongoing. At press time, a single Lira is worth about 17 cents.
As the previous cases clearly illustrate, fiat currencies, like digital ones, can also fluctuate a great deal.
Cryptocurrencies such as Bitcoin aren’t highly volatile because they are some sort of fad. They’re highly volatile because they’re – well – currencies.