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Most people who are looking to invest in Bitcoin are interested in the "solid" aspects of it, such as figuring out which Bitcoin mining rig will work well for them or which Bitcoin wallet will be best for them. They also may be more interested to hear about other cryptocurrencies that may provide better returns on mining investment, too.
The truth is that they should be paying more attention to the mechanics behind how cryptocurrency values are affected by other issues. For example, the way world fiat money affects Bitcoin values can play a huge role in whether or not it's worth investing in it.
Wondering how the fiat market's affecting digital currencies? Here's what any smart investor should know.
To understand how fiat money affects Bitcoin, you need to understand Bitcoin's structure.
Bitcoin is unlike any other form of currency in the world. It's non-material, and not backed by gold or a government guarantee. The only thing that really backs Bitcoin's value is the value that other people ascribe to it.
Fiat money's value is backed by the guarantee of the government that issues it. Bitcoin does not have a backing by a government, a gold standard, or anything similar. So, to a point, it's meant to be a currency that's somewhat immune to government influence.
While we're at it, let's talk about fiat money's structure.
Since we're talking about how world fiat money affects Bitcoin prices, we might as well talk about fiat's structure as well. Basically, fiat money is issued by a major government—and that government is the one that needs to back it.
Fiat money has been the standard form of currency for decades, with many countries using it for centuries. So, it's got a lot of faith in it on a global scale. It's what we're used to working with.
The problem with fiat money is that its value is unstable.
Fiat money is the global standard, but the problem with it is that it's not really stable. Governments have serious inflation rates from time to time. At times, once-powerful governments may even collapse. That's why many fiat currencies that once were passed back and forth are now worthless.
This also explains why exchange rates fluctuate. People's faith in a government goes up and down based on lots of things—including news, market trends, and economic strength.
So, wait—how does that mean world fiat money affects Bitcoin values?
The primary way this happens is based on a pretty simple thing—trust in fiat currency, and trust in the governments that issue it.
When people trust major governments deeply, Bitcoin will act pretty independently of the trust. People will see it as a speculative way to make even more money, and they may be more likely to just sell or keep the coins they mined than anything else.
On the other hand, if people lose faith in the government or the value of the currency for a major nation plummets, Bitcoin skyrockets. This is because people will feel safer trusting Bitcoin's value than the value of their money.
However, there are some reasons to question whether or not world fiat money affects Bitcoin.
A lot of people believe that Bitcoin is flawed, and to a point, they're right. There's no government backing and no gold value in it. This means that it's literally a token of trust, and that can be dicey as an investment. That means that, if anything, fiat money is a safer bet.
The funny thing is that charts show that Bitcoin's value doesn't always fluctuate according to national news or international currency exchanges. Because different fiat money values will experience different fluctuations, it would be statistically unlikely (if not impossible) to predict Bitcoin's value based on fiat money.
Many people wonder if Bitcoin really gets impacted by fiat money at all—and if you look at it, they may be right to wonder.
Currently, Bitcoin seems to still be developing on its own without any regard to any form of world fiat currency.
Right now, finding correlations in Bitcoin price and the world fiat money stock exchange is hard to do. In the future, the way world fiat money affects Bitcoin's price might be easier to see.
We already know why fiat will affect Bitcoin. It's clear that it will probably become a mainstay as an "international currency" option—and that many people will use it as a way to hedge their worries if their government's fiat money crashes.
Since it's independent, and since world fiat money can range from anything from the dollar to the yen, the actual way world fiat money affects Bitcoin prices will be will be very subtle in most cases.
But, whether world fiat money affects Bitcoin could change.
Bitcoin is only beginning to get widespread recognition as currency. It's only really been taken seriously as an investment in the past couple of years—and many, including Warren Buffet, still do not feel like Bitcoin is a wise investment.
That being said, Goldman Sachs recently admitted that Bitcoin is a legitimate currency. Considering that there's been a strong link between staff members who work in Goldman Sachs and elected officials, this could suggest that Bitcoin could eventually become its own unique decentralized quasi-fiat world currency in the eyes of world government officials.
Basically, the only time world fiat money affects Bitcoin is when it comes to fear-buying.
Right now, it's clear that Bitcoin is pretty independent of the value of fiat currency exchange rates. However, we shouldn't downplay the amount of value that a dip in fiat currencies' values could affect Bitcoin.
Imagine if China's currency started to fail. Chances are, many Chinese nationals would put their money into Bitcoin—and that would make the price shoot through the roof.
However, if world currencies are doing well, that doesn't mean that it's an end to Bitcoin. Bitcoin will still be Bitcoin at the end of the day.
To a point, Bitcoin's structure may also make an it extremely pricey alternative to fiat cash in the future.
Bitcoin has a set amount of coins it will issue out and, to a point, that fixes one of the biggest aspects of the currency's market cap. After all Bitcoins have been released to be traded, that's all that can be traded.
As more people in the world gain interest, the price of Bitcoin will skyrocket. How world fiat money affects Bitcoin's price might not end up being relevant if Bitcoin becomes that popular or important.
If anything, Bitcoin may end up being the standard at which all currency is compared to, simply because of its global nature.
Overall, the current way world fiat money affects Bitcoin is subtle—but still good to know.
Bitcoin's influence still has to be seen in full, but so far, it's safe to say that fiat money's influence on Bitcoin prices are not as powerful as you'd think they are. For investors, that may offer some peace of mind, especially once you see how volatile FOREX trading can be.