How Stable is Bankcoin Reserve? An Investigation through Quantity Theory of Money Lens
23 Oct 2020
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Bankcoin Reserve (BCR) is a unique currency that filters and combines the new decentralised blockchain and cryptocurrency technology with those of traditional financial institutions. It has the ability to mint up to 10% per annum and offers stability in a financial market that can sometimes be very volatile. While it is based on Bitcoin’s blockchain system, there are many features that distinguish this cryptocurrency from the rest. Bankcoin Reserve is tethered to the ceiling market price of one troy ounce of gold which makes it stable and apparently immune to price volatility. It does not lose value over time and remains stable in face of high inflation, even when other cryptocurrencies are fluctuating.
A Stable Digital Currency
Bankcoin Reserve’s stability in many ways can be explained through the lens of a theory, well known in monetary economics. The Quantity Theory of Money can provide access to why BCR has remained such an involatile crypto asset in light of the uncertainty of the market, especially now, because of the novel coronavirus pandemic.
Quantity Theory of Money states that the value and demand of a commodity increases when the supply is low. So, this means the unit price of an asset will go up when it is scarce. Scarcity is a huge driver for why Gold is such a valuable asset. With a limited supply of Gold that exists in the world, every day the availability of Gold decreases as it is mined more and more. The value of gold is a kind of a numéraire for all other prices, and because BCR is linked to it, its value remains either stable or high.
Thus, BCR has been touted as a safe-haven asset, and the safest choice for investors. The international gold price is not volatile, and large probability of expected returns can be achieved. With its unique economic design and stability, BCR value is market predictable and future returns may be determined as well. We can also perhaps use the Fischer equation (MV=PT) to predict BCR value to a certain extent by linking it to the value of Gold.
To Invest or Not to Invest?
Investing in BCR is a safe choice for seasoned investors or beginners. With the price of gold skyrocketing every year, a large probability of expected returns can be achieved. You can definitely expect your returns to be higher than your initial investment on this gold-backed stable coin. With interest rates up to 10% per year, BCR is supported by many mainstream banks, financial institutions, traders and businesses to have a store of value. Cryptocurrency market is a volatile one, but BCR remains an oddity in it because of its stability.