This blog post was not written by Michael Berookim and it does not reflect the opinions of Michael Berookim.
Digital currency is new to the currency market. The well-known names include Ethereum, Bitcoin, and more than 30 others and counting. Today, the world economies have a Fiat Currency regime. Fiat currency is money that a government declares by its laws to be good and legal tender, and it is not backed by a promise to deliver gold or some other hard currency or precious metal.
Fiat money then is like a commodity, and we can discuss money supply. Inflation is an excess of money. It is more than just higher prices which is a symptom and not a cause. Nations require acceptance of their currency. Bitcoin has no government guarantees. It is a creature of a peer-to-peer system, not law or bank agreements.
While Bitcoin has a definite supply limit, the Internet currency has uncontrolled volatility, and it cannot be a reliable unit of account. Bitcoin rises and falls with demand; during 2017, the value increased more than 40-fold. The simple reason for this pattern appears to be that Bitcoin behaves like money supply. It responds to demand but with enough lag time for Bitcoin earnings and returns that attract new investors.
The main driver is in China, and Beijing is the leading digital marketplace. Going back to 2015, China accounted for more than 75 percent of Bitcoin trades. Currently, the top 25 percent of the exchanges trade cryptocurrency primarily in yuan.
The Yuan and Bitcoin move in opposite directions. Many China residents take profits in Bitcoin to avoid government controls. As the Yuan depreciates because of capital flight, the Bitcoin is a frequent method for conversion of the Yuan. Based on all the circumstances, there is a question. Is the use of e-currency a type of attack on the China economy.