Bitcoin (BTC 1.23%) is not a fiat currency, and that's precisely why it's one of the world's most unique and valuable assets. Governments can't print it to dilute holders, and despite some notable (and repeated) efforts by authoritarian countries like China, it's highly resilient against being banned or attempts to shut it down.
And just this week, President Donald Trump just gave every Bitcoin holder a big new reason to be grateful for the asset's liberty-forward spirit. It's encouraging me to start buying even more of it on a regular basis. Here's why you might want to do the same.
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Central bank credibility is a real asset
On Jan. 11, U.S. Federal Reserve Chairman Jerome Powell said that the Trump administration is threatening him with a criminal indictment as a result of his decisions regarding the country's interest rate policies, and that subpoenas tied to his past congressional testimony regarding renovations of a Fed's headquarters building were merely a pretext aimed at influencing interest rates to be more consistent with Trump's wishes.
This kind of statement is unprecedented to hear from a central banker in the U.S., as they've long been independent of direct political control during their tenure. The point of such independence is to ensure that the best interests of the country can be carried out by the appointed financial experts, rather than being directed by whoever is in office at the moment, as their incentives can be dramatically different from the national interest.
So far, there hasn't been any evidence presented or cited by anyone that would suggest that Powell is actually guilty of what he may soon be formally accused of. It would be highly inconsistent with his reputation for integrity if such evidence were to genuinely exist. Nonetheless, a president is taking direct aim at the independence of the Fed, which, by the way, is also an unprecedented (and ill-advised) move.
The door -- or perhaps it's more apt to say Pandora's box -- is thus now being opened for all manner of politically driven (and destructive) actions affecting the all-important federal funds rate, which would have major impacts on the dollar, as well as dollar-denominated assets. Furthermore, inflation itself, as well as expectations for inflation, can and will drift higher if investors think monetary policy is becoming more political; this is the same trajectory that tends to happen in developing countries when the currency is tampered with for political reasons.
But, there's no need for melodrama, as investors have a simple way to mitigate the negative consequences that might be on the way: Buy assets that the government can't easily tamper with, like Bitcoin.
CRYPTO: BTC
Key Data Points
What Bitcoin can and can't do for you here
Bitcoin is favorable right now because the Federal Reserve has no jurisdiction over it. Still, buying it won't contain every single risk facing investors, and it has plenty of risks of its own.
No coin is immune to politics, and Bitcoin is no exception. It can be taxed more, restricted from exchanges, forced to obey tougher reporting or compliance rules, or custody can be limited in various types of accounts, among other potential issues. Any of those could pressure prices, though no single intervention is likely to crash the coin.
Additionally, Bitcoin is not a substitute for cash. The coin is volatile enough that a bad year can (and sometimes does) leave investors down by 50% or more. And even where it's possible, it's extremely cumbersome to pay for essentials like rent or groceries using the coin. So if you do decide to load up, don't go too overboard, and make sure you don't invest any money that you can't afford to lose.
The smart move is to treat Bitcoin as an asset that confers some insurance against potential monetary indiscretions. And right now, that looks like it's something worth having more of.
