Experts warn it could be a sign of a bubble.
Crypto Vs Cash
Cryptocurrency has hit a significant milestone: It’s now worth more than all US dollars currently in circulation.
Cryptocurrencies hit a valuation of $2 trillion on April 29, according to The Wall Street Journal. That’s about the same valuation as all US dollars in circulation. However, it has since hit as high as $2.25 trillion — and in the process actually exceeding dollars in circulation.
— Christopher Mims (@mims) May 8, 2021
While the stat is incredibly fascinating and a solid indicator of cryptocurrencies growing popularity, it’s also a little misleading.
That’s because US dollars in circulation isn’t all US dollars. After all, circulation refers to just physical cash and coins.
It’s the same way that the cash in your pocket doesn’t represent all of the money you have (hopefully). Most of your cash — like the US dollar — isn’t liquid. It exists in banks, investments, and other intangible assets.
So while cryptocurrencies might be worth more than all the physical dollars and coins out there, it definitely is not worth more than all the money out there.
Is It a Bubble?
Crypto’s boom is a part of a trend across numerous investment classes and categories such as real estate and green energy, according to the WSJ. Much of it is fueled by rock bottom interest rates from the Federal Reserve.
However, the Fed is indicating that we might well be in bubble territory, saying that "valuations are generally high" and are "vulnerable to significant declines should investor risk appetite fall, progress on containing the virus disappoint, or the recovery stall" in a May 2021 stability report.
So as with all things finance related, hope for the best and prepare for the worst. Also take heed from one of Elon Musk’s more measured takes: Don’t go investing your life savings in assets like crypto. If you do, you’re going to be in for a rough time if (and when) the bubble finally pops.
READ MORE: What Happens to Stocks and Cryptocurrencies When the Fed Stops Raining Money? [The Wall Street Journal]
More on cryptocurrencies: Bitcoin Crashes, Wiping Over $200 Billion Off Crypto Market