The patterns of history make certain things very clear:
Every single fiat currency has failed, and many, MANY civilizations have gone through the exact patterns we are now going through globally (especially in places like the USA and Great Britain), and the next stage is the collapse of the economic system.
But by taking these patterns and applying them into the future, we can start to develop some likely predictions and trends of what will happen.
One notable pattern involves a sound economic principle called “Gresham’s Law”.
What Is Gresham’s Law?
On a fundamental level, Gresham’s Law describes common human psychology extrapolated out on a more massive scale.
Here’s what it states:
“Gresham’s law is a monetary principle stating that “bad money drives out good”. For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will disappear from circulation.” – from Wikipedia
A good example of this in history was when Greece was at war with Sparta and diluted their gold with copper to essentially “print more money” in a way that was available during their times.
This inflation of course was a big part of what destroyed their economy (along with the war – hmm… inflation and war destroyed their economy… Sound familiar?), but the pattern of Gresham’s Law emerged very quickly.
People began spending the copper coins that were of lesser value and were bad forms of money while stockpiling the good money. Gold went out of circulation and copper coins stayed in.
Gresham’s Law and Public Consensus
The critical point of this definition, however, is the “…which are accepted by law as having similar face value” part.
This is because people inherently know when something has value based on the people’s free market and public consensus, vs when something has value because an authority is decreeing it so.
In the above example, both gold coins and copper coins were said by the government to be worth the same thing, which overvalued the copper coins and undervalued the gold coins.
So if you had ten gold coins that you knew were more valuable based on the public consensus and ten copper coins that were more valuable in use because the government said so, which would you want to spend?
Clearly you would want to hold onto the gold coins that had real market value, and spend the copper coins, because you would get more value than they were actually worth. In other words, you’re incentivized to use the bad money because your government allows you to get more for it than you should, while saving the good money which you would get less for than you should.
Contrast this with what would happen if the government didn’t decree the coins to have the same value.
In this situation, one gold coin might be worth 10 copper coins, and you could freely use both since the actual value of the coins matched the value you could get with them. You would not feel bad spending a gold coin, because you’re getting the value of 10 copper coins, and are therefore encouraged to spend it rather than hoard it.
This same pattern from history is going to play out in a similar way for us and our future, and if we are able to understand it, we can get ahead of the curve and benefit from it.
Gresham’s Law And Bitcoin
In our current times, fiat currency, like the US dollar, are like the bad copper coins (inflated, not based on real market value, bad money), while bitcoin and cryptocurrencies are like the gold coins (deflationary, based only on market demand/consensus, good money).
Once we begin seeing the cracks in the structure of the fiat system (which is already starting to happen), people will begin hoarding their “good money” (aka bitcoin and cryptocurrencies that are based on solid economic principles and will continue to maintain and increase in value after the fiat collapse) and only use the “bad money” because they will be get more for it than it’s actually worth.
Some people theorize that this will “kill” bitcoin and cryptocurrencies, but because there is no law decreeing that bitcoin is worth a certain price of fiat money, this won’t happen.
In that situation, Gresham’s Law would be in full effect, and people would know their bitcoin had a lot of value through public consensus, and would know they’d be getting cheated if they spent it (similar to the gold coins that were falsely decreed to be worth the same as the copper coins). They would choose to use fiat currency, because they would be getting more out of it than it was actually worth.
But bitcoin is “The People’s Money” – it’s not controlled or owned by anyone, and the supply is set (aka it is “un-inflatable”) and its value is therefore dependent only on public consensus – what the collective people in the market decide based on what they will pay for it.
This means there is no artificial price being set by an authority, so the value of a bitcoin will accurately reflect its value in the market, and you can spend it without being cheated.
Predicting The Trends Of Bitcoin And Cryptocurrencies
This pattern will be very similar to how gold currently acts in our system, since gold and bitcoin are both based on the same sound economic principles and are both forms of “good money.”
Their prices are not controlled by the government or some authority, but rather by the free market and what people will actually pay for it, based on its set supply.
“The People’s Money”, if you will.
At the same time, cryptocurrencies are still gaining in use and adoption (and therefore value), while fiat currencies are still given value by the governments, meaning that people are still currently incentivized to use fiat money.
This means we will have a bit of Gresham’s Law going on for a while (aka, I’ll spend my fiat money, because my bitcoin might double or triple in the next few months or year, while fiat will remain the same or go down in value), until all the inflation of the fiat money catches up to it and its value tanks toward its inevitable resting place of “zero”.
What’s likely to happen is that bitcoin will remain a good investment for some time, like gold currently is, rather than being used as an active currency.
Businesses will begin accepting it, but not too many people will use it, knowing it will continue to increase in value over the coming years.
Then, when the “big crash” comes (which is becoming more and more inevitable as we continue printing more fiat money), the only money that will be worth anything will be precious metals, like gold and silver, and cryptocurrencies, like bitcoin.
The “way” we will begin using these currencies is likely to come through the complete devaluing of our current fiat money as these economic changes take place.
The question is, will you still be using mostly fiat money when the crash happens? Or will you have exited the system and begun using actual good money?
And here’s one to really get you thinking: If bitcoin were accepted everywhere, wouldn’t it make sense to just use it completely exclusive of fiat currency? If all of your money were in cryptocurrencies, then spending it wouldn’t be losing on a future investment, because the alternative is simply to not hold that cryptocurrency as you hold bogus fiat currency instead.
There are a lot of questions we’ll face in the coming years, but these patterns are playing out exactly as they have throughout history, and the current fiat system is doomed to fail in exactly the same way that every fiat system of the thousands throughout history have failed and returned to zero value, along with the collapse of the corresponding civilization.
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