The recent dramatic surges and plunges in the value of digital cryptocurrencies like Bitcoin and Dogecoin have captured global attention. While these assets currently exhibit strong speculative characteristics and extreme volatility—creating both staggering fortunes and devastating losses—entering the crypto market demands caution. In fact, China’s three major financial industry associations have jointly issued warnings about the risks of cryptocurrency speculation.
Rather than evaluating the investment merits of cryptocurrencies, this article seeks to explore a fundamental question: Why have cryptocurrencies, as a class of assets, garnered increasing attention in recent years? Larry Fink, CEO of BlackRock, the world’s largest asset management company, has suggested that cryptocurrencies could evolve into “a great asset class.” According to NEWSWEEK, at least 46 million Americans—approximately 17% of the adult population—hold Bitcoin.
Multiple factors contribute to the rise of digital cryptocurrencies, including market manipulation, celebrity endorsements, and speculative bubbles. However, a deeper, structural reason also exists: rampant global money printing and the depreciation of sovereign credit in fiat currencies. Cryptocurrencies—especially those with a fixed supply like Bitcoin—are increasingly viewed as "digital gold" for the internet age. They are seen by many as a viable hedge against inflation and the devaluation of traditional money.
The Evolution of the International Monetary System: From Gold Standard to Fiat Money
One of the most significant developments in international finance over the past century has been the move away from the gold standard toward a system based on sovereign credit.
The classical gold standard period (1870–1914) was marked by robust international capital flows and growing monetary reserves among major economies. However, this system had an inherent flaw: the conflict between the limited supply of gold and the infinite growth required in monetary liquidity to support global economic expansion. The Great Depression of 1929 exposed these weaknesses and ultimately led to the collapse of the gold standard.
After World War II, the Bretton Woods system established a new framework where the U.S. dollar was pegged to gold, and other currencies were pegged to the dollar. Often described as a "gold-exchange standard," this system made the U.S. the primary rule-setter in global finance. Yet it contained a critical dilemma known as the "Triffin paradox": if the U.S. ran consistent trade surpluses, global dollar shortages would occur; if it ran deficits, confidence in the dollar would eventually erode.
Severe dollar crises in the 1960s made it impossible to maintain the gold peg. By 1971, the Smithsonian Agreement devalued the dollar, and by 1973, the Bretton Woods system had effectively ended. The Jamaica Agreement of 1976 formalized the transition to a fiat monetary system, where currency values are based on government credit rather than physical commodity backing.
The dominance of the U.S. dollar continued due to America’s economic and geopolitical influence. However, the lack of inherent scarcity in fiat money introduced new vulnerabilities—especially the temptation to over-issue currency.
The 2008 global financial crisis was a watershed moment. In November of that year, an individual or group using the name Satoshi Nakamoto published the Bitcoin whitepaper, which outlined a peer-to-peer electronic cash system. On January 3, 2009, the Bitcoin genesis block was mined, marking the birth of a new era in digital currency.
The Mainstreaming of Cryptocurrencies: A Case Study of Bitcoin
For two years after its creation, Bitcoin remained largely obscure. Its anonymity, decentralization, and cross-border capabilities initially made it attractive for grey and black-market transactions.
Rising demand from these sectors—coupled with the launch of early trading platforms—drove the first major Bitcoin bull run. By June 2011, its price had surged to nearly $30. But increased U.S. regulatory scrutiny and a major exchange hack caused a crash, pushing the price down to around $3 by November 2011.
Over the following year, Bitcoin gradually regained traction. Media coverage increased, and platforms like Wordpress began accepting Bitcoin payments. A key turning point came in November 2012, when Bitcoin underwent its first "halving," reducing new supply per block from 50 to 25 coins.
At around the same time, the European debt crisis—particularly in Cyprus—shook confidence in traditional banks. Some European governments softened their stance on Bitcoin. These factors helped fuel a new rally, with prices breaking previous records and eventually surpassing $1,000 by the end of 2013.
A regulatory crackdown in China led to a prolonged bear market, but by late 2015, Bitcoin began climbing again. A powerful bull market emerged through 2017, taking the price to nearly $20,000. This surge coincided with monetary instability in India and Venezuela, as well as political shocks like the Brexit vote and the election of Donald Trump. Investors increasingly turned to Bitcoin as a potential store of value.
The COVID-19 pandemic triggered unprecedented monetary expansion. The U.S. alone injected over $4 trillion between 2020 and March 2021—equivalent to 30% of the pre-pandemic M2 money supply. This liquidity surge eroded the value of cash and fueled demand for inflation-resistant assets.
Billion investor Paul Tudor Jones announced he was buying Bitcoin as an inflation hedge. Companies like Tesla and PayPal began accepting it. Citi published a report suggesting Bitcoin could reach $300,000. Prices soared past $60,000 in April 2021. Although prices have since pulled back, many institutional players remain optimistic. BlackRock, JPMorgan, and Tesla have all expressed confidence in Bitcoin’s long-term value.
How Monetary Expansion and Eroding Trust Drive Crypto Adoption
Bitcoin’s history suggests that currency devaluation and declining trust in sovereign credit are major drivers of cryptocurrency adoption.
Since the 2008 crisis, major economies have relied heavily on loose monetary policy. Central bank balance sheets ballooned, and money supply growth far exceeded GDP growth. Policy rates in the U.S., Europe, and Japan fell to zero or even negative territory.
When rate cuts were exhausted, quantitative easing took over. During the pandemic, massive fiscal stimulus further increased public debt. This environment popularized Modern Monetary Theory (MMT), which argues that governments can print money to finance deficits without defaulting—so long as the debt is in their own currency.
These policies have profoundly impacted the perceived credibility of sovereign money. If central banks can print without limits, what prevents currency from becoming worthless—as happened in Zimbabwe?
Persistent low interest rates have also driven global debt to record highs, making it harder for central banks to tighten policy without triggering a crisis. In the absence of breakthrough productivity growth, low growth and high debt have become the norm.
Excess liquidity flows either into the real economy (causing inflation) or into financial markets (inflating asset prices). If we consider asset inflation as part of "broad inflation," then inflation since 2008 has been significant. Investors have turned to real estate, gold, and stocks to preserve purchasing power.
Cryptocurrencies represent another vehicle for hedging against fiat devaluation. Compared to gold or property, they offer greater liquidity and align more naturally with digital and mobile payment trends. This may explain why crypto continues to attract interest despite its volatility.
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Frequently Asked Questions
What drives the value of cryptocurrencies like Bitcoin?
Cryptocurrency values are influenced by factors such as supply mechanisms (e.g., Bitcoin’s halving events), adoption rates, regulatory developments, macroeconomic trends, and market sentiment. Limited supply and increasing demand often support prices.
How does money printing affect cryptocurrency adoption?
When central banks expand money supply excessively, fiat currencies lose purchasing power. This erosion of value drives investors toward scarce assets, including cryptocurrencies, which are designed to resist inflationary pressures.
Are cryptocurrencies a safe haven asset?
While some investors treat Bitcoin as "digital gold," its high volatility distinguishes it from traditional safe havens. It can serve as a hedge against specific risks—like currency devaluation—but its price swings make it riskier than stable assets.
What role does regulation play in the crypto market?
Regulatory clarity or restrictions significantly impact crypto markets. Positive regulations can encourage institutional adoption, while bans or strict policies may suppress demand and increase volatility.
Can cryptocurrencies replace traditional money?
Most cryptocurrencies are not yet suitable as widespread mediums of exchange due to volatility and scalability issues. However, stablecoins and central bank digital currencies (CBDCs) may bridge the gap between crypto and traditional finance.
How can individuals start investing in cryptocurrencies?
Interested individuals should research reputable exchanges, secure a digital wallet, and consider dollar-cost averaging to mitigate volatility. It’s essential to understand the risks and only invest what one can afford to lose.