Tuesday, November 17, 2015

Central banks need to hold bitcoins to prevent "A Bitcoin Speculative Attack"

What is a Bitcoin Speculative Attack?

Take for instance there is a rush to purchase bitcoins in Venezuela. This increase in demand will result in a premium for bitcoin in venezuela say $100 above the US market. The result will be speculators rushing in to sell the Bolivars for US dollars to purchase bitcoins. This selloff of the Bolivar will need a response from the government to defend the currency by increasing the interest rate, capital controls or worse.

To fight such speculation the government could sell bitcoins in the market to drive the price down but this would neccessitate the government having access to bitcoins in the first place. The IMF have already discuss contingencies if this scenario should ever eventuate.

At the bottom of it, bitcoin is just Perfect Money. It is accepted all over the world and it can move between borders effortlessly and cheaply. It is a good store of value and over time it's value will always increase secured by the hard limit of 21 million bitcoin to ever exist.

As good money it will always drive out bad. If for any reason the citizens of a country suddenly lose confidence in heir currency perhaps because of hyperinflation through excess money printing, we may get a rush to purchase bicoins to preserve purchasing value.

IMF 'unable' to supply the currency needed to counter speculative attack using bitcoin
Bitcoin Speculative Attack

Central Bank Of Barbados Advised To Holds Bitcoins (Updated 29/11/2015)

Economist Dr Winstone Moore and Jeremy Stephens have produced a report for the Central Bank of Barbados advising the central bank to holds a small amount of bitcoin in their reserve portfolio. Precisely against speculative attacks and mitigate against depreciation of other reserve currencies such as the USD and Euro in their portfolio.

This is an indication of the current climate of thinking all round the world. There is only going to be 21 million bitcoins, ever. If only some of these small nation acted on such advise bitcoin price will escalate exponentially. Only a matter of time when some will make the move.

Singapore's prime minister advises banks and regulators to heed bitcoin and blockchain technology.

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