Elaborate Relationship Between Bitcoin and Fiat Currency


The perspective of 'money' is gradually changing with digitalization. A few years back, people were using banknotes as a significant way of transaction. But the use of paper money has declined over the past decade. With the adoption of a digital payment system, most people are not visiting banks. Further, the merchants are now also accepting digital payments. So the usage of real money is declining every day.

Besides, the evolution of cryptocurrencies also has a significant impact on the existing financial transaction system. Again, bitcoin has more popularity among all other cryptocurrencies, and it has become the mainstream of transactions for many businesses.

For that reason, it is essential to understand the correlation between traditional fiat currencies and bitcoin. In this article, you will find the relationship between bitcoin and fiat currencies.

Can Bitcoin be considered as Fiat Currency?

Anything that can be backed up by something that has a value can be used as a form of transaction. The value may be a banknote or gold or a currency that we use today as a form of exchange.

We are now using a digital payment system where the transaction tells us that we have sent money. We are ready to accept this form of an operation because the banks approve every purchase, and we trust the banks.

To bring a democratic model to the transaction process, Satoshi Nakamoto introduced bitcoin in 2008. Initially, people did not embrace the transaction process, but slowly gained acceptance. Those who want the financial system to be more liberating have embraced bitcoin. Although a tiny percentage of people only use it, the rate of adoption is growing.

At first, it was primarily used as an investment vehicle, but today it has more utility. Businesses welcome bitcoin payments and are considered to be a currency in certain countries. As the idea of cryptocurrencies and the decentralization nature of blockchain is indeed hard to comprehend for most people out there, so they can't see it as a currency.

In terms of value

Fiat currencies' value cannot be predicted because the government can print more money according to its requirement. As the government has the authority to write as much as money it wants, the government can manipulate and devalue the value of the capital. The supply and demand for fiat currencies cannot be predicted, so as the value.

Whereas the supply of Bitcoin is fixed, and the government has no authority to change the amount. The quantity is set to 21 million units, but the demand is continuously growing. This shows that the value of Bitcoin is more likely to increase.

Well, fiat currencies and bitcoin are similar in terms of their face value. But the actual value of fiat currencies is in the hands of the government, and it is not disclosed to the public. Whereas, bitcoin's real value is more transparent.

In terms of Inflation

During an economic downturn or financial crisis, the value of fiat currencies can be manipulated by the government. And it's doubtful that the fiat currency can recover its value. As a result, fiat currency will inflate over time.

On the other hand, bitcoin is used as a haven asset during the financial crisis by many investors. It is now considered as digital gold because it serves as an alternative investment option during Inflation.

In Terms of Volatility

The value of fiat currencies is somewhat less volatile as compared to bitcoin. There are various reasons for it. First, bitcoin is more used as an investment asset. The value fluctuates because the crypto market is more sentimental, and the value is in the hands of the investors.

Whereas the value of fiat currencies is relatively stable, the government can alter the cost. So investors are more interested in investing in bitcoin. If you want to invest in bitcoin, then market master is a great platform.

Final Words

Finally, it is better to correlate bitcoin with the stock market than with fiat currencies. Because bitcoin is considered a highly volatile asset, and it depends on the public what the value of bitcoin is like in stocks. Now share your thoughts on the correlation between bitcoin and fiat currencies.