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“Money is the bubble that never pops”, says angel investor and bitcoin enthusiast, Naval Ravikant. If a “bubble” is defined as a self-reinforcing belief that an asset will retain market value that far exceeds its expected usefulness in consumption, production or generating income, then this is the right way to think about money—and as it rallies to new highs, the right way to think about bitcoin. If the world’s favorite cyrptocurrency keeps gaining acceptance as a medium of exchange, its usefulness and value will continue to rise. If not, the bubble will pop.
Governments and central banks around the world are certainly giving users of fiat money reason to consider alternative mediums of exchange and stores of value. It is no coincidence that bitcoin broke above its 2017 peak late last year after the Federal Reserve promised to keep interest rates near zero and its printing presses running, while the US Congress penned a US$900bn stimulus package—which nowadays qualifies as a “skinny” deal (see A “Little” Stimulus For Christmas). Regulated entities excepted, holding money that a central bank is explicitly trying to devalue, while lending money to a highly indebted government at negative real yields is not for everyone.
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