The total market cap of Bitcoin is now so big that it can make serious damage. Small currencies can be completely crushed if enough people using that currency catch onto the mania.
A case in point would be the Norwegian Krone. It has displayed much weakness over the last year, and with the Norwegian housing bubble having just burst, people are looking for safe havens.
Having for all practical purposes outlawed gold, the Norwegian government has made the gamble that Norwegians would keep their cash in Norwegian Krone. The alternative would be to move money into Euro or Dollars, which are only marginally better stores of value.
However, Norwegians looking to safeguard their cash are now increasingly drawn towards Bitcoin. A run from the Norwegian Krone could easily be directed towards Bitcoin.
If this should happen, Bitcoin would soar even further, and the Norwegian Krone would crash.
To buy Bitcoin, requires Dollars or Euro. A flight into Bitcoin from Norwegian Krone would therefore devalue the Krone, not only against Bitcoin, but against the big fiat currencies as well.
Norwegians without Bitcoin would see their Kroner loose value at an alarming pace. The main transfer of wealth would therefore be from the majority of Norwegians into the hands of the small group who own Bitcoin.
This would trigger enormous sufferings and chaos. The central bank would have to move. It would have to send interest rates higher, or somehow tie the Norwegian Krone to a relatively steady asset, such as gold. Alternatively, the central bank would have to abandon its monopoly on the issuing of money.
If the Krone is not saved, it will go to zero, which would mean that people would have to turn to alternative currencies.
Bitcoin would then be set to the test. Having been chosen as the safe haven asset, the natural next step would be to actually use it.
However, it is already known that Bitcoin cannot actually be used in everyday commerce. The rush into Bitcoin would reverse. Holders of Bitcoin would want to sell it for something that can be used, such as Dollars or Euro.
This would be the moment when Bitcoin collapses.
Norwegians would all suffer as those who stayed with the Krone got wiped out by the ones who rushed to Bitcoin, and those who rushed to Bitcoin got wiped out by the fact that Bitcoin is virtually useless.
In retrospect, it will be clear to most that Bitcoin gained popularity due to the outlawing of gold. The one asset that could have saved the Norwegians was what the central planners barred them from owning.
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By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link
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