How Can Bitcoin Affect Macroeconomics?

In recent times, we’ve noticed a continuous development of cryptocurrencies, which have an assigned market value and can be used as a medium of exchange. Cryptocurrencies have existed since 2009 when the Bitcoin network was created (on the heels of the economic recession), but it took quite some time before the public showed signs of interest. Various types of digital assets have been added to the market, including Ethereum, Tether, XRP, Cardano, Dogecoin, Solana, etc. Many existing models of cryptocurrency are built with a focus on feasibility and security, considerations largely ignored by critics. Often, they serve a specific purpose. Ethereum is used for smart contracts, while Ripple works with banks to eliminate percentage cuts with international payments. 

At present, Bitcoin is considered one of the most valuable assets. With Bitcoin, it’s possible to buy anything, make investments, put money in the stock market, and the list can go on. Bitcoin is more than a financial innovation – it’s a social, cultural, and technological kind of progress. Since anyone can buy bitcoin P2P using different payment methods, Bitcoin has the potential to disrupt the economy tremendously. For Bitcoin to affect financial markets, it must be a substitute for the official currency. Up to this time, El Salvador and the Central African Republic are the only countries to allow cryptocurrency to be used as a transaction item, but speculations abound that many others are likely to follow. 

These Are the Likely Macroeconomic Effects of Bitcoin 

The economy rises and falls on account of factors both inside and outside the control of a government and its citizens. The variables are referred to as macroeconomic factors and have the power to change the financial outlook of a country. Bitcoin is affected by the macroeconomic events of every nation in the world, of which examples can be made of political instability and unemployment rates. Too little is known about the outcomes Bitcoin can have in a given regulatory scenario, so we’ll attempt to briefly paint the picture. 

Financial Stability 

There is stability when the financial system, which includes intermediaries, markets, and market infrastructures, is able to deal with shocks and financial imbalances. It goes without saying that central authorities are concerned with financial stability given that Bitcoin’s price fluctuates because it’s influenced by supply and demand. Backed crypto assets can have financial stability implications for wealth, confidence, and so forth, so it’s necessary to strengthen the regulation of crypto assets and global stablecoins. Wrapped Bitcoin, has a token value that is pegged one-to-one to the value of the asset it represents. 

Equity 

The world is marked by a high level of inequality, meaning individuals don’t have access to a means to earn, store, receive, and invest their money. Bitcoin can help solve this pressing issue, but it’s important to keep in mind it’s highly correlated with equities. If that connection is removed in the years to come, Bitcoin will evolve into a store of value, so it will be worth the same or more. Instead of trying to protect the population from exploitation, authorities should ask themselves how people can benefit from decentralization. Anyone would be able to use financial services no matter who or where they are.  

Safety 

Even if Bitcoin is a decentralized currency, transactions on the blockchain network are very secure. Each new block connects to another one via cryptographic validation, so it’s impossible to tamper with the system – each transaction is true and correct. Roughly 1% of cryptocurrency transactions are malicious. Users don’t take much-needed precautions, such as avoiding public Wi-Fi, using two-factor authentication, or checking if websites are secure. Law enforcement agencies’ ability to investigate crimes is limited, especially in countries where Bitcoin is unregulated. Absolute ownership comes with absolute responsibility. 

Innovation 

Bitcoin will always be the king of cryptocurrency, but groundbreaking developments occur in DAOs, NFTs, and emerging metaverses, to name a few. New and exciting developments are already on the horizon. The spread of NFTs will most certainly lead to the growth of Web 3.0, where content will be discoverable through a cryptographic signature. Internet users will be able to control their data and assets. Bitcoin is mainly built for payments and settlements, but there’s a thriving community of NFT builders and owners; as projects progress, the community gradually becomes exclusive. Many believe that Web 3.0 will change the way Bitcoin and other cryptocurrencies will have altered the final paradigm. 

According to macroeconomists, adopting Bitcoin as a legal tender isn’t the ideal way to promote cryptocurrency adoption or secure financial stability. Perhaps it would be better to let Bitcoin play a regulated role to advocate for innovation and diminish the potential downsides. 

Bitcoin Hasn’t Witnessed a Recession Since It Was Launched 

As we can all remember, Bitcoin emerged during the economic downturn of 2007-09, introducing a new way to transact without depending on third parties, such as banks. Its anonymous founder aimed to create a currency that individuals could trust. The question now is: Can Bitcoin survive a global economic crisis? One-third of the global economy might slip into recession this year, and there are different ways to prepare for it. Bitcoin won’t be spared during the recession period, but despite poor conditions, it can survive. After all, it’s not subject to the economy’s gain or loss, so trading volume doesn’t change if a country undergoes an economic crisis. 

Bitcoin has the potential to survive tough times, as it can be exchanged outside of central bank policies and inflationary responses. It has been regularly compared to gold, which is less affected by recessions – when the economy weakens, gold’s price tends to increase. Nevertheless, there’s a good chance that Bitcoin could underperform, but only time will tell whether this actually happens. Even the world’s most valuable and popular cryptocurrency has its flaws. What is sure is that Bitcoin will change from a short-term profit investment to a steadier industry, especially if technology becomes more accessible. To sum up, Bitcoin may or may not be the future of finance, but we’re heading towards a more secure crypto space.