Topic: Backing Fiat with Bitcoin...A possibility? (Read 223 times)

ETFs just opened the door for mass accumulation by institutional investors. This, alongside the seizure of BTC from illicit activities (particularly by the US government), tells us that external forces will drive Bitcoin away from its intended purpose. Backing Fiat with BTC should be a no-brainer in the future. We're already seeing pro-Bitcoin politicians (Milei, Bukele, RFK Jr., etc), so anything's possible.

I'm yet to see if central banks are going to like this idea, especially when they use to "print money" to manipulate the economy (something which can't be done with Bitcoin). The future is widely unpredictable, so we can only hope for the best.

Everyone may hope that this revolution will be carried out, but the problem is whether if it is carried out, the price of bitcoin will be as volatile as it is now? Bitcoin is more unique because it is able to stand alone and does not require support from government regulations because instead Bitcoin is trusted by individuals and groups. Of course there are only things that need to be considered, but if the nature does not change then this support could be carried out in the future because we never know what revolution will be carried out in the future.

It is possible that this could happen because the global economy may see bitcoin as an alternative global currency as a way of avoiding the impact of inflation or recession. But this is only my assumption because there is no power of reference that I can provide and maybe it will happen in the future.

This is one thing that I have commented on in other threads as a future possibility: just as central banks have gold reserves, they could have reserves of Bitcoin, which in practice is an enhanced digital gold. But if it happens will take time and also I think it will take a component that they almost have, which is a high degree of control of Bitcoin by the authorities through regulations and KYC obligation.

The thing that stopped them from doing that would be politics, central bank would need other countries to consider Bitcoin as a legitimate thing to backed a fiat, so their currency would be recognized by other countries, which in my opinion will be a very difficult obstacle. Bitcoin is not something that could be controlled by government and many government is not familiar with Bitcoin, and this will discourage them from using it to back a currency. Gold on the other hand, has been around forever and governments around the world know how it works.

Anything is possible but I do not think of this possibility as being very likely, because even if we were to suppose that a massive crisis of confidence struck fiat currencies and governments had no other option but to back them with gold, silver or bitcoin, how long could this last?

On the countries in which this happened, just a few years later governments wanted to go back to their fiat currencies as they cannot live without printing as much money as they want anymore, so at best I could see this scenario lasting a few years tops.

Aside from that, bitcoin is uncertain and stability is too far to happen. We cannot just back up fiat with bitcoin which price is highly volatile that anytime it can plummet or surge high. Unlike gold, it’s value is stable and considered a safe haven asset for a long time.

For now, I don’t see chances to make it possible. But I’m open in the future if there will be major changes concerning bitcoin that will convey the government to back up fiat with bitcoin. We really don’t know actually.

bitcoin for business people in the real world has no price. because the price of bitcoin is only determined by a community of bitcoin users. so if a country backs up its currency with bitcoin it is clear that of course it will not work.
example USTC from tera luna USD from terra luna which is backed up with bitcoin alone the price can be devastated. dollar backed up with bitcoin will make the uncertainty of the dollar currency value

Isn't Gold volatile like Bitcoin (although to a lesser extent)? If central banks backed Fiat currencies with Gold, then there should be no problem backing Fiat currencies with Bitcoin. Especially now when most investors consider it to be "digital Gold". As for the "Internet problem", there's already a solution for that. It's called "cold storage". You can write down the private key or seed tied to your Bitcoin funds on a paper wallet or even a metal wallet for complete peace of mind. Or you can use a tangible bearer asset like OpenDime or Tangem to use BTC as cash.

Thus, governments can make their own BTC reserves without the need for an Internet connection. The only time Internet access is needed is when you need to redeem Bitcoins or verify balance. With El Salvador going all in BTC, I'd say anything's possible. Even US Presidential candidate Robert F. Kennedy Jr. proposed a plan to back the USD with BTC. More info on that here: https://www.nasdaq.com/articles/rfk-jr.-announces-bold-plan-to-back-dollar-with-bitcoin-end-bitcoin-taxes

Hopefully, our dreams would come true as Bitcoin becomes the cornerstone of the mainstream economy. Who knows what surprises we'll find in the future?

First question you need to ask your is that is Gold volatile as bitcoin?
If Yes then fiat will easily be backed by bitcoin but if No then we should know due to its volatility it can't back fiat.
On a norm it would be very hard for a country that has not generally adopt bitcoin as a legal tender to adopt bitcoin and use it as reserved or backend fund due its volatility. The reason while gold mostly prefered is due to its solid nature and price doesn't drop extensively like bitcoin, although we know that bitcoin is a digital gold but can not be seen feel and touched just like Gold.

Volatility. They just can't do that. Backing up fiat with BTC is like we're going to have the UST and Terra Luna 2.0 debacle.

Possibility, yes there is but I don't think that chance might happen. But if this is going to be applied starting with the FED, then we'd definitely going to see the main impact of it. I'll give an example in what way, when they adjust interest rates, the entire world is shaking and affected by it, I mean the entire global economy.

But why? They abandoned the gold standard so they can create infinite amounts of money. Backing it with anything goes directly against their interests.

FIAT is leveraged and BTC is not so it seems an unlikely combination, its already true to some small extent that a nation will have some BTC on its balance sheet.   At present most FIAT is not backed at all by anything solid, the gold reserves are mostly representative and the debt far outweighs the worth of the gold or anything else.

Most of what FIAT represents now is a taxable income from the population and natural reserves of a nation like oil or other assets.   Its become political money rather then commodity like silver or gold as previously, there is no fixed worth given its an appraisal by the market on the stability and ability of a nation to pay highly linked to global trade, the countries trade balance and so on.  USA dollar has a large bias in its favor as the trade balance is negative however Dollars are in demand globally so this demand makes up the short fall and most other nations have nothing similar to rely on and end up quite weak from poor exports vs imports.
   All this I mention as FIAT is so complicated and convoluted in its nature, leveraged uneven non linear and subject to sharp resets on political alterations that none of this is a good combination for Bitcoin.  BTC is non political, globally based not national and cannot back a national currency imo.

There are so many reasons why they won't and its not just limited to the decentralized nature of Bitcoin but the supply is limited resembling the gold then why US president announced the USD is no longer backed up by gold in 1971.

Zero chance of happening in my opinion so I don't see the point of discussing the outcomes if it happens.

Theoretically it's possible, because it's just like backing with gold, but even more convenient because it's easy to prove the ownership publicly. But it's not possible today, because Bitcoin is way too volatile. This volatility hurts Bitcoin's adoption as a currency today and it would be the same with Bitcoin-backed fiat. Another problem is that to establish a fiat currency you'd need millions of BTC at the current price, and obtaining them would be quite costly.

Today Bitcoin price is mostly represented in the U.S Dollar and the currencies of other countries. Bitcoin is also decentralized, has a fixed supply and is quite volatile, and these qualities does not make it suitable for fiat to be backed by it.

I don't think it is possible for fiat currencies to be backed by Bitcoin, just with the number of Bitcoins in circulation now, and also the number when all Bitcoins have been mined, it won't still be possible for their fiat currency to be backed 1:1 with Bitcoin, the government would also not want to lose their "ability" of printing money out of thin air.

There would not be enough bitcoins for different countries to hold in their reserves and back their currencies by. They also cannot regulate it's production or any other part of it cause it is decentralized.

It's a long shot, but they possible can have some in their reserves, just as nations have gold reserves today, but it's not feasible to back their currencies by it.

A possibility? - not really!

I honestly don't see this happening. The gold backed economy didn't work well and that's why it was scrapped long back. Now the economy is backed by debt. That's one tool that gives the power to the central banks to print unlimited money while still holding its value.

Asset back economy has limitations there. As they cannot create Bitcoins or Gold from the thin air, Central banks will never go to that route again. That is easier to create an money can be printed on that. That's the basic difference and the main reason why Bitcoin will never become a reserve currency for the government.

Possible, what's wrong for the government if <1% of fiat backed with Bitcoin? the amount is small and the government can afford to lose, they can print new money without any problem. But if you hope government will use Bitcoin with a good amount to backing the fiat, it won't happen.

Sooner or later it will happen because government is really like to sell buzzwords to get traffic or attention.

Is it possible? Won’t bitcoin be too volatile to back up a fiat currency? Cryptocurrency was made to be an option for another currency not to back up another one. But honestly time is always evolving and things we don’t even expect to happen today could easily happen in the next 10 years. It’s all a matter of how and when, I guess. And we’ll just have to see how it goes.

For sure however some people are already having talks regarding bitcoin or cryptocurrency probably not about reserves or back up yet but we might definitely see the usage of bitcoin in a much wider scale reaching even the general public.

Not possible IMO, since currency means stability. Gold was used because of its stability, just take a look at the gold price chart, and compare it with Bitcoin. It is only up 5x since 20 years ago, and you could argue that the price increase is because of monetary inflation alone, not because supply/demand of gold.

Maybe you mean to use Bitcoin as the foreign exchange reserves? That's possible. No need to go back to the pre-fiat money when money was backed by gold or silver, etc.

It will not be a good one because bitcoin just started to exist for 14yrs now, and nobody can tell what the future holds for bitcoin. However, bitcoin is risky to use as a reserve and back up to fiat, because of its high volatile nature. Gold has already been known to be a safe haven and we know that it has come to stay from generation to generation. Making it more known as a store of value by everyone. Maybe with time, when I mean with time, after a long period of time when bitcoin has survived, some countries can consider using it as a back up to fiat.

How about investing in both assets, I mean, gold and Bitcoin at the same time will create a much better combo of reserves. Diversifying backed up funds in multiple assets makes it very effective for me but yeah for some it is risky but atleast we still has gold on the other hand. Do we really think some countries like Russia, China, North Korea and others are not investing in Bitcoin for their reserves? What do you think?

It's a gamble. Something can easily go wrong with $30billion worth of National bitcoins (that can't be reversed if stolen) hidden somewhere unlike $30billion worth of gold.
Better to backup with natural, tangible, physical & long-lasting resources that nations can control without the internet .

Did you see how tether did it? Just like 5% of USDT is backed by bitcoin. If the government also back just little amount of the reserve in bitcoin, it would be good. The long term outcome would be positive. If bitcoin stayed for many decades, the government of some countries will see it as a viable means to store part of their reserves. Countries like El Salvador that have bought bitcoin earlier will enjoy the benefit.

What if someday central banks like the FED and the ECB decide to back their currencies with Bitcoin? If the FED used to back the USD with Gold, then what's stopping them from doing the same with BTC?

Do you think this is a possibility? If not, why? What will happen to the global economy if major Fiat currencies are tied to the value of Bitcoin? Will it prosper?

Your input would be greatly appreciated. Thank you.