History has shown that every paper currency has lost nearly all of its value over time. The US dollar is likely to suffer a similar fate, but there is a solution to the dollar’s decline, said Roy Niederhoffer, president and founder of RG Niederhoffer Capital Management.
RG Niederhoffer Capital’s flagship fund has weathered the last two major stock market crashes, growing more than 100% during the 2001 tech bubble crash, and gaining 51% in 2008. The company’s Smart Alpha fund has seen consistent double-digit annual returns since 2000.
Speaking to Michelle McCurry, editor in chief of Kitco News, Niederhofer said the biggest risk that investors face today is not a potential stock market crash, but rather a gradual but sure erosion of an individual’s purchasing power.
“It’s not the same as a stock market drop. You can withstand a 50% stock market drop, 75%, it’s happened before and it will happen again. It’s happened throughout history. But, what most people can’t stand is their money dropping in value by 99.99%, and this was the vice of every issuer of paper currency throughout the period back to Roman times,” said Niederhofer.
He noted that the anti-devaluation instrument is a financial asset that has a fixed supply and is also “fungible as you can trade anywhere in the world.”
That asset is Bitcoin, and Niederhoffer has highlighted several ways in which the world’s largest cryptocurrency is superior to cash in this regard, and also better than gold as a store of value.
Niederhoffer is an early cryptocurrency investor who bought Bitcoin in 2011.
With the Lightning Network, [transaction costs are] Literally sub-penny, with transaction capabilities of up to 1 million transactions per second for Bitcoin. So, this as a tool for financial transactions is much better than cash, and it is much better than the Visa network, which everyone considers as a standard,” he said.
Niederhofer noted that compared to gold, bitcoin is cheaper to hold, if one takes into account the fees for storing gold, and most importantly, bitcoin has a maximum supply.
Niederhofer’s thesis is that bitcoin is the ultimate hedge against inflation, and while interest rates may rise this year, a marginal price increase of 1% or even 2% isn’t enough to drive down consumer prices and shift investment behaviour.
“My thesis during these declines is that the reason Bitcoin has not reached the stratospheric levels it has the potential to achieve is because of all the criticism: environmental criticism, volatility, potential regulation, taxes, all reasons why you shouldn’t buy Bitcoin. That’s why it’s cheap and not $100,000. Or even a million dollars.”
Niederhofer said that while Bitcoin has the potential to reach millions of dollars for a single currency and equal the market value of an entire fiat currency like the US dollar, this scenario is unlikely in the medium term.
For Niederhoffer’s year-end bitcoin price predictions and how productive farming can generate profitable returns on Bitcoin even without a huge price hike, watch the video above.
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