How Cryptocurrency is Impacting the US Economy - Kavan Choksi

How Cryptocurrency is Impacting the US Economy – Kavan Choksi

You may have heard about Bitcoin, Ethereum, or Litecoin, but what are they really, and how are they impacting the US economy? Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and control the creation of new units. Cryptocurrencies are decentralized and not subject to government or financial institution control. In the wake of the 2008 financial crisis, Bitcoin was created as an alternative to traditional fiat currencies. There are over 5,000 cryptocurrencies with a total market capitalization of over $360 billion. This blog post will explore how cryptocurrency impacts the US economy, according to finance professionals such as Kavan Choksi.

US Dollar Dominance at Risk

The US dollar has been the world’s reserve currency since the Bretton Woods Agreement in 1944. This agreement pegged the US dollar to gold, and other major currencies were pegged to the US dollar. The agreement collapsed in 1971, and since then, the US dollar has been backed by faith and trust. As a result, the US dollar has been dominant in international trade. However, with the rise of cryptocurrency, this dominance is at risk.

Bitcoin, Ethereum, and Litecoin are all cryptocurrencies not subject to government control or manipulation. This is appealing to investors because it takes away the risk of inflationary policy by central banks. In addition, cryptocurrency can be used to circumvent capital controls imposed by governments. For these reasons, cryptocurrency is a viable alternative to traditional fiat currencies like the US dollar. As more people invest in cryptocurrency, the demand for US dollars will decrease, and its status as the world’s reserve currency will be at risk.

Reduced Demand for US Debt

The United States relies on foreign investment to finance its budget and trade deficits. Foreigners who buy US debt instruments like Treasury bonds effectively lend money to the US government. The demand for US debt has kept interest rates low despite large budget deficits in recent years. If foreigners begin investing in cryptocurrency instead of US debt, it could lead to higher interest rates and reduced demand for USD-denominated assets.

Tax Revenues at Risk

The IRS currently treats cryptocurrency as property for tax purposes rather than currency. This means capital gains taxes must be paid on any profits from buying and selling cryptocurrency. However, many people who own cryptocurrency do not declare their gains on their taxes because tracking all of their transactions is difficult. If cryptocurrencies become more widely used as a form of payment instead of just an investment asset, it would become easier for people to evade paying taxes on their gains. This would lead to a reduction in tax revenue for local and federal governments.

Job Losses in Traditional Financial Institutions

Cryptocurrency is slowly but surely eating away at traditional financial institutions’ market share. For example, Coinbase is a digital asset exchange where you can buy and sell Bitcoin, Ethereum, and Litecoin using USD. Coinbase has been growing rapidly since its launch in 2012 and has over 20 million customers worldwide.

Closing Thoughts

Cryptocurrency is a new and disruptive technology that is slowly but surely impacting the US economy. The most significant impact has been on the US dollar’s dominance as the world’s reserve currency. As more people invest in cryptocurrency, the demand for US dollars will decrease, and its status as the world’s reserve currency will be at risk. 

Latest article

More article