<h2>The fiat system crisis of developed countries</h2>The British Pound, Japanese Yen, Euro, and the majority of other currencies have been sharply falling against the US dollar during the past several weeks. What is causing this, though? Several things are at work in this situation.The FED's aggressive interest rate hikes are generally bolstering the US currency since central banks in Europe and Japan are operating considerably more cautiously.Additional factors include the ongoing energy crisis in Europe, which undermines its competitiveness and, hence, the foundation for the (previous) strength of the Euro. Japan experiences the same issues, albeit not to the same degree as Europe. This is due to two major factors:<h3>Energy Scarcity</h3>Energy is required to build and sustain a country's economy. Without adequate and affordable energy, the economy decelerates and eventually declines.Most Western countries ceased being net energy producers in the early 2000s. As a result, companies must import more energy from elsewhere, increasing their energy bill. In order to import oil, countries need to swap their native currency for USD since USD is the preferred payment currency for oil trading. This causes their currencies to lose value while the USD stays firm.The mentioned situation corresponds with the stagnant growth experienced in Western countries during the previous two decades. Growth in Western countries has remained stagnant since the early 2000s, as shown in the figure below. The increase is due to the rebound from the COVID crisis. Current figures, which are catastrophic, are not mentioned.<img src="https://cdn.builder.news/news/11ed4dd1aa7bac3aa8e6023f659fee92.jpg" alt="GDP growth by countries" title="GDP growth by countries" width="600" height="455">GDP growth by countries. Source: World BankWestern governments attempted to maintain growth by pouring ever-increasing quantities of money into the economy. This has been compounded when governments distribute money to their people to compensate for rising energy prices. The issue is that stagnant or decreasing economies cannot absorb all of the freshly minted money. As a consequence, bubbles formed all over the place.<img src="https://cdn.builder.news/news/11ed4dd1aa7bb309a8e6023f659fee92.jpg" alt="US CPI" title="US CPI" width="600" height="480"><h3>Globalization comes to an end</h3>In the middle of the 2010s, globalization reached its apex. The promise of globalization was that by shifting manufacturing to less expensive nations, western nations would still have access to affordable commodities that they could purchase with their strong currencies, sustaining their quality of life. The issue is that the hyper-globalization that made this possible is gradually coming apart. Simply said, the planet is presently split into three sections:<ul><li>The western nations want to preserve the status quo and defend their territory.</li><li>The coalition of China, Russia, and Iran seeks to limit western influence and control over current structures.</li><li>Unaligned or weakly aligned nations like India, Brazil, Indonesia, and Nigeria trade with the other 2 while keeping an eye on events from a distance.</li></ul>It's a long narrative of how we got to this point but here is a summary.Power comes from having access to affordable energy. When most Western nations began to become net energy importers in the early 2000s, they steadily lost their dominance over other parts of the world. As a result, emerging nations like China have questioned the West's claim to leadership. Conflicts erupted and intensified (see for example the Russia-Ukraine war and tensions in Taiwan).We are now witnessing unmistakable efforts by the Western bloc and its rival to isolate themselves socially, politically, as well as economically from one another. All of this is taking place as the effects of the COVID pandemic on the global economy are still being felt. Western governments once again attempted to fix these issues by printing more money. And all of this money creation had one apparent result: inflation.<img src="https://cdn.builder.news/news/11ed4dd1aa7bb758a8e6023f659fee92.jpg" alt="US Dollar -The last one standing" title="US Dollar -The last one standing" width="600" height="335">US Dollar -The last one standingInflation is another term for currency depreciation. This has had an impact on the majority of countries. The Russian ruble and the US dollar are notable outliers. Russia has a (relatively) strong industrial foundation and is a net energy exporter. The United States has the most powerful economy on the globe, the USD is the world's reserve currency, and there are still plenty of inexpensive fossil energy supplies available.But what has changed for the Eurozone, Japan, and the United Kingdom? Why are both of their currencies collapsing at the same time? Loss of trust is a significant element. When purchasers lose faith in a currency's purchasing power, they cease purchasing government and company bonds, which are government and company debt.After all, the only thing that fiat currencies are backed by is the governments that issue them. The prognosis for many firms' economies has also substantially declined at the same time.Trust in governments and the conviction that the economy will continue to develop unabatedly were sufficient to keep the system afloat throughout the previous decades. But now that the economy is spiraling out of control, market players are realizing that good faith alone won't be enough to support fiat currencies like the EUR, YEN, and GBP.<ul><li>Due to a shortage of inexpensive high-density energy, the Euro region (Germany) is currently going through a deindustrialization process. Businesses in Germany are ceasing operations and leaving the nation.</li><li>Japan is likewise affected by energy scarcity, albeit not to the same extent as the Europeans. However, the country has its own set of issues that contribute to the YEN's decline.</li><li>Globalization caused the United Kingdom to lose its manufacturing foundation a long time ago. So it doesn't have anything to back up the GBP. It is also a net importer of energy.</li></ul>We are confronting a new challenge as faith in various western currencies falls at the same time.<h2>The governments need to step in</h2>Credit Default Swap (CDS) prices have risen in a number of nations in recent weeks. This implies that bondholders and dealers see a greater danger of default.For example, when US investors sell UK bonds, they receive GBP in return. The investors then sell GBP for USD, putting more pressure on the GBP and leading it to depreciate. What can the United Kingdom - or, more specifically, the Bank of England - do about it?If the market dysfunction continues or worsens, the UK's financial stability will be jeopardized. This would result in an unjustified tightening of financial conditions and a decrease in credit flow to the actual economy.In accordance with its financial stability goal, the Bank of England is prepared to restore market functioning and minimize any risks of contagion to lending conditions for UK families and companies. To do this, the Bank will begin making temporary purchases of long-term UK government bonds on September 28.In other words, the Bank of England acted as a last-resort buyer of UK bonds. Simultaneously, liquidity shortages are emerging everywhere as a result of quantitative tightening, which central banks are addressing by injecting additional money.All Europe governments and central banks are affected by these issues. This is due to the global financial sector's interconnectedness. That is, once anything starts to crash in one location, it impacts the entire system. Indeed, what is happening now recalls many investors of 2008, when the economy began to collapse swiftly.<h2>Quantitative Easing over Quantitative Tightening?</h2>The procedure that is now in motion is upsetting the financial markets. And it presents a serious threat to the entire system. The Great Financial Crisis of a decade ago put the world economy and financial system in danger of collapsing. The same issues are once again facing governments.Governments and central banks will choose the only remaining option, which is to create more money, in order to keep the system functioning, which includes preventing the demise of their own currencies. It is better to depreciate your currency than to completely lose it. Yes, it is ironic, but it is also extremely clear. Because inflation makes it possible for them to repay their debt. After all, they are not utilizing their own money.But we have 10% inflation and haven't governments and central banks stated that they wish to combat inflation? Yes. But they'd rather live with higher inflation than risk the system imploding.&nbsp; As a result, while inflation remains high, we will soon witness the reintroduction of quantitative easing under a different guise. Germany has announced a 200 billion EUR "relief package" to address inflation. This is only the start. To keep the system from crumbling this time, they will have to spend enormous sums of money. Here is where Bitcoin enters the picture.<h2>The bull case for Bitcoin</h2>Many people have lauded Bitcoin as a hedge against inflation. And we were correct from March 2020 to late 2021, when Bitcoin rose from $4K to $69K as central banks throughout the world flooded the planet with currency.Central banks raised interest rates to reduce inflation, and Bitcoin followed suit. When governments and central banks are forced to intervene to preserve the economy from implosion, the floodgates will reopen. And Bitcoin will skyrocket.&nbsp; Because something essential is about to change.It takes time for markets to alter their thinking, but once it happens, there is no coming back. When investors recognize that central banks have no option except to depreciate currencies, their investment attitudes will shift.Bonds and equities have been the preferred investment vehicles for decades. When there is high inflation and a weakening economy (also known as stagflation), bonds are crushed and equities perform substantially worse than they used to. In this type of situation, you need something that rises in value. Something connects Bitcoin.The fixed quantity of Bitcoin provides an alternative to panicking central banks that continue to devalue fiat currency. In other words, Bitcoin will become a life raft for many people in Western countries, keeping them financially upright while everyone else drowns in cheap currency.And, as it turns out, there are plenty of role models for this already.<img src="https://cdn.builder.news/news/11ed4dd1aa7bbc83a8e6023f659fee92.jpg" alt="positivity towards crypto" title="positivity towards crypto" width="600" height="463">Source: trustnode.comThe graph above depicts the level of positive attitudes toward crypto investments in various nations. Have you noticed anything?The majority of nations where there is a lot of enthusiasm for cryptocurrencies have weak fiat currencies.Argentina, Nigeria, Indonesia, and other nations have had decades of experience with depreciating domestic currencies. And one solution is to purchase Bitcoin. Because it is limited in availability, divisible, and digitally portable.Until recently, most westerners couldn't understand these circumstances. Those used to having a hard currency, on the other hand, will be surprised by double-digit inflation.While the majority of westerners are still unaware of what is going on, we can see that some are taking precautions. The below Messari trend shows a rapid increase in investors selling their EUR and GBP for Bitcoin.<img src="https://cdn.builder.news/news/11ed4dd1aa7bc0c4a8e6023f659fee92.jpg" alt="sell fiat for btc" title="sell fiat for btc" width="600" height="299">Source: MessariAnd that’s the bull case for Bitcoin.<div class="pr-block-special">Disclaimer: This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div>

The world, especially developed countries are witnessing a fiat system crisis. But it's not that bad for Bitcoin!

Fiat system break: A bull case for Bitcoin