History has shown that every fiat currency has lost almost all its value over time. The U.S. dollar will likely suffer a similar fate, but there is an answer to dollar debasement, said Roy Niederhoffer, president and founder of R. G. Niederhoffer Capital Management.
R. G. Niederhoffer Capital’s flagship fund beat the last two major stock market crashes, growing more than 100% during the tech bubble crash of 2001, and gained 51% in 2008. The firm’s Smart Alpha fund has seen consistent double digit annual returns since 2000.
Speaking to Michelle Makori, editor-in-chief for Kitco News, Niederhoffer said that the biggest risk that investors face today is not a potential stock market crash, but rather, a gradual but certain erosion of one’s purchasing power.
“This is not like a stock market decline. You can weather a stock market decline of 50%, 75%, it’s happened before and it’s going to happen again. It’s happened throughout history. But, what most people can’t weather is having the value of their cash go down 99.99% and that has been the vice of every issuer of fiat currency all the way back to Roman times,” Niederhoffer said.
The tool to combat this currency depreciation is a financial asset that has fixed supply and that is also “fungible that you can trade anywhere in the world,” he noted.
That asset is Bitcoin, and Niederhoffer highlighted several ways in which the world’s largest cryptocurrency is superior to cash in that respect, and also better than gold as a store of value.
Niederhoffer is an early investor in cryptocurrencies, having bought Bitcoin in 2011.
“With Lightning Network, [transaction costs are] literally sub-penny, with transaction capabilities of a million transactions per second coming for Bitcoin. So, this as a financial transaction tool is far superior to cash, far superior to the Visa network, which everyone holds up as a standard,” he said.
Compared with gold, Bitcoin is cheaper to hold, if one were to take into account storage fees for gold, and importantly, Bitcoin has a maximum supply cap, Niederhoffer noted.
Niederhoffer’s thesis is that Bitcoin is the ultimate inflation hedge, and while interest rates may rise this year, a marginal increase in rates by the order of 1% or even 2% is not enough to bring down consumer prices and shift investment behavior.
“My thesis during these dips is that the reason Bitcoin has not achieved the stratospheric levels that it has the potential to achieve is because of all the criticism: the environmental criticisms, the volatility, the potential for regulation, the taxation, all the reasons why you shouldn’t buy Bitcoin. That’s why it’s cheap and not at $100,000, or even $1 million,” he said.
While Bitcoin does have the potential to reach millions of dollars a coin and equal the market cap of an entire fiat currency like the U.S. dollar, that scenario is unlikely in the medium term, Niederhoffer said.
For Niederhoffer’s year-end Bitcoin price forecast and how yield farming can generate profitable returns on Bitcoin even without a substantial price rally, watch the video above.
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