Bitcoin hits highest in 13 months as 2020 rally gathers steam

The pump before the dump?

This current market rally is more calm and steady of a rise than previous ones. I think this is a good sign for investors.

It's not so much that Bitcoin is rising, it's that fiat currencies are falling in value. Whereas governments or central banks can create currency out of nothing with the press of a button, creating Bitcoins actually takes effort in the form of energy through processing power of the computers that "mine" them. The same principle applies to gold and other precious metals - someone has to dig them up and refine them.

While these resources themselves still only have an abstract value that people ascribe to them, there is effort expended to produce them, and people tend to value something that requires effort more highly than something that doesn't. Of course, this is an over-simplified explanation for the sake of time, but does help to explain why people flock to stores of value in times when the currency goes haywire even if those stores of value don't actually generate ongoing returns.

In related news, Warren Buffet has reversed his nonchalance towards gold and invested heavily in a major gold miner. Now that really says something about his confidence in fiat currency.

Whatever you have in your pocket is losing value-why is that?

I’m not a financial professional, but I have an MBA. Not an elite program, but I did well.

For the life of me, I cannot see the benefit of a currency not regulated by a central bank unless one is a gangster, a money launderer, a drug dealer, a currency speculator or a cyber-extortionist.

For the life of me, I cannot see the benefit of a currency not regulated by a central bank unless one is a gangster, a money launderer, a drug dealer, a currency speculator or a cyber-extortionist.

It appeals to two groups that I see. One are people who reject government involvement in any aspect of their lives and want a money that has no connection to government. It is a symbolic poke in the eye to traditional government backed currencies. The second group are those who wish to conduct transactions they think (hope) are secret and untraceable. Remember Pirates Bay? While the site might be banned in some nations the customers haven't gone away. They are still out there wanting to buy stuff that isn't legal to have in their country and want a way to pay for it they hope their police cannot trace.

It's not so much that Bitcoin is rising, it's that fiat currencies are falling in value. Whereas governments or central banks can create currency out of nothing with the press of a button, creating Bitcoins actually takes effort in the form of energy through processing power of the computers that "mine" them. The same principle applies to gold and other precious metals - someone has to dig them up and refine them.

Governments don't create money "at the push of a button". Banks do. Every loan a bank makes is mostly money out of thin air. A 4% reserve requirement means the bank has to have 4 cents on deposit in the nation's central bank for every dollar, Euro, Yen or what have you they lend. The remaining 96 cents is money out of thin air. The bank makes an entry into a ledger (old school, anyone remember the days when customers carried a passbook in which the teller recorded transactions?) or data field. Your account registers the amount of the loan and that immediately becomes spendable money. Governments regulate bank lending and thus regulate the growth in the money supply through a variety of means i won't go into here (that's an undergraduate semester course in Money and Banking). The short story is central banks use their discount rate (rate they lend money to banks who have lent more than they have reserves to cover) and reserve requirements (the latter is a very big club seldom used). Yes government organizations print the national currency but paper or coin is a very small proportion of the total money supply. Most of it is entries in bank data bases and changes hands electronically.

Whatever you have in your pocket is losing value-why is that?

Central banks all over the world aim for very low but steady inflation? Why? Businesses want a predictable store of value in their currency for one thing. They need to be able to plan and if your currency is something like gold or silver that have commercial and industrial uses (gold is the best conductor because, never corrodes and is used in all kinds of high end / military / aviation electronics) so their value rises and falls sometimes rapidly and dramatically in response to forces outside of their use as a currency. You also can't mine the stuff fast enough to support investment in a growing economy.

Now imagine the value of the currency was rising? Each unit of currency can now buy more. That would mean wages and prices would fall in unison. Sounds ok so far, doesn't it? Here's the rub. Outstanding debt would not likewise fall in nominal value. The Dollar/Euro/Yen or whatever nominal value of the loan would be unchanged. But if the value of the currency were rising your debt would effectively grow as your income shrank. Yes costs would shrink too but at some point during a period of falling prices and wages (called deflation) your income falls below your debt payment and you are driven into bankruptcy. When that happens across an economy you have a disaster with real human suffering, and no economist really knows where the bottom is in a fully developed deflationary spiral. It's this dark gaping maw nobody can see the bottom of and it makes economists and central bankers recoil in horror. Rightly so too. This is why central banks work very hard to have a situation where there is low but constant and predictable inflation. Not high inflation, just a slow steady increase around 2% per year. A nation's money supply has to grow to accommodate the loans that permit investments that grow businesses, add new jobs and increase economic output. If your currency is rising in value, nobody will borrow for the reasons stated above and no economic growth takes place. Plus, nobody buys today because they know if they wait, prices will fall and what they want will be cheaper. Deflation is bad on many levels. Low predictable inflation is what grows economies.

@Graham DeShazo

Start by studying some economic history. Then pay attention to what is currently happening around the world with central banks/governments. That will give you some ideas on the benefits of holding some of your wealth in vehicles that are not regulated by the central authorities.

@Desert Tortoise

For the first group, I think it is much more than symbolic. The second group are actually better off in good old fashioned cash dollars. And, you forgot a third group.... speculators!