The Council of Economic Advisers showed complete disregard for the purported benefits of Bitcoin and other cryptocurrencies in the president’s economic report released on Tuesday.
The report claims that cryptocurrencies have no fundamental value, nor do they “act as effective alternatives to cash.”
Crypto: expectations versus reality
The White House report included two sections dedicated to digital assets: one titled “The Perceived Attractiveness of Crypto Assets” and the other titled “The Reality of Crypto Assets.”
The first section acknowledges some of Bitcoin’s most frequently cited use cases: its potential as an inflation hedge, its ability to enable fast digital payments, and its power to increase financial inclusion. However, this last section disputed all of these claims:
“As inflation rose globally in the second half of 2021 and into 2022, crypto asset prices have crashed, proving they are, at best, an ineffective hedge against inflation,” indicates the report.
Indeed, Bitcoin crashed to its annual low in June 2022 precisely after the BIS announced an inflation peak of 9.1% that month. However, the Federal Reserve has also been hiking its target interest rate throughout the year to stifle said inflation, which has caused a major drop in bonds, stocks and crypto.
The report also challenged Bitcoin’s use case as an alternative currency, criticizing its ability to effectively serve as a store of value, medium of exchange, or unit of account. This was in line with criticism presented by central bankers around the world, of the former Fed Chairman Ben Bernanke at the Swedish central bank.
Additionally, the report doubled down on long-standing criticism of Bitcoin’s proof-of-work, suggesting that power consumption from mining could threaten the stability of the Texas grid. Last July, Texas order miners to shut down to save power during a heat wave that was pushing the power grid to its limits, which the miners complied with.
Even the world of Web3 has come under fire, with the report citing Moxie Marlinspike, founder of Signal. reviews of Ethereum and the decentralized web.
“Web3 is already leaning towards a centralized structure because of the ease and convenience that centralization brings, but in a much clumsier way than if it were traditional. the technology was being used,” the report said, citing Marlinspike.
The central bank alternative
In discussing Bitcoin’s lack of “fundamental value” relative to other currencies (e.g. gold), the report admitted that even sovereign currencies, such as the US dollar, also have no inherent value. However, he argued that sovereign currencies are backed by a “trust institution” in the form of a central bank, which helps stabilize the currency.
In fact, the paper suggests that a Fed-backed central bank digital currency (CBDC) could help “bring America’s financial infrastructure into the digital age…without the risks or irrational exuberance brought by crypto assets”.
The report follows President Biden’s Executive Order on Digital Assets 12 months ago, in which the President directed various agencies to study the digital asset ecosystem, including the potential for a US CBDC.
The White House noted that a CBDC, if implemented, would likely not use distributed ledger technology, but would instead rely “on a trusted central authority – a country’s central bank – to leverage key aspects of the CBDC system”.
Many politicians (especially on the political right) have voiced their opposition to an American CBDC, including the Governor of Florida Ron DeSantis and congressman Tom Emmerbecause of its potential use for financial monitoring.
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