The latest Biden Administration report dismisses the benefits of Bitcoin while ignoring the fundamentals and economic activity that give it value.
The White House has released the lengthy “President’s Economic Report,” which includes a section titled “Digital Assets: Relearning Economic Principles.” This section details Bitcoin, its functionality, and various “potential benefits advocates claim for this popularity of crypto assets.”
The proponent’s claims that the report purports to address range from crypto assets serving as investment vehicles and enabling fast digital payments, to improving the current fintech infrastructure of the United States. The report then addresses the “Reality of Crypto Assets,” as the section is titled, setting the record straight in the eyes of the Administration.
“Compared to many other types of assets, crypto assets are very volatile and therefore very risky.” The report starts with. “Because they are so volatile, crypto assets can be used for speculation, an investment strategy that seeks to make a short-term profit from trading. One of the reasons many crypto assets are highly volatile is that many of them have no fundamental value.” He then goes on to provide the example of stocks and debt, comparing them to “unbacked crypto assets (that) trade without fundamental anchors , suggesting that their market prices only reflect speculative demand or market sentiment, not cash flow claims.”
Between this statement and the next is an interjection “Table 8-2” detailing “How does Bitcoin work?” This box, coincidentally, can serve as an answer to the question “what is the fundamental value of Bitcoin?” in his description of the inner workings of Bitcoin.
Contrary to bitcoin proponents, the report goes on to state that “one of the purported benefits of crypto assets like bitcoin was to be hedged against inflation, meaning that their value does not erode as inflation rises. But as inflation rose globally in the second half of 2021 and into 2022, crypto asset prices collapsed, proving that they are an ineffective inflation hedge at best.” While the narrative Although inflation around the 2020-2021 bull market proved to be a distraction, the bitcoin price has still skyrocketed during the pandemic, reaching all-time highs of $69,000 On top of that, bitcoin continues to serve as a store of value for those who live in countries with highly inflationary currencies, and it is incredibly likely to do so for all countries with inflation on a long enough time scale given bitcoin’s fundamental scarcity.
The next section, “Cryptocurrencies generally do not perform all the functions of money as effectively as sovereign money such as the US dollar,” demonstrates the Administration’s belief that Bitcoin will never be able to fulfill all three functions of money: the ability Act. as a store of value, a medium of exchange, and a unit of account, just as effectively as the dollar.
“Cryptocurrencies currently serve each of these functions, (but) only do so to a limited extent in the United States, thus failing to serve, from an economic perspective, as an effective alternative to the US dollar,” the report states. But this is a short-sighted conclusion, as Bitcoin is still in its relative infancy, and has even now shown in other markets that it can fulfill these functions very effectively: the US and its citizens simply enjoy the privileges of a running economy that makes the need for bitcoin seem distant.
The White House describes how, due to fewer entities accepting bitcoin as payment, it does not serve as a proper medium of exchange, and therefore a unit of account.
But this is, once again, myopic as more markets, products and businesses are being built around the bitcoin ecosystem every day. In fact, El Salvador made headlines when it made Bitcoin legal tender, and is now succeeding in its choice to adopt it.
“The strength of the US dollar stems from several important factors, such as faith in government institutions and the legal system, but cryptocurrencies lack these factors,” the report states. But this faith has been shaken in tangible ways as the world watches the banking system repeatedly appeal to the need for federal action. It should not be mistaken that this fosters faith in the system, but rather highlights the need to continually salvage a system entirely designed to depend on a debt cycle bubble.
There are also fundamental misunderstandings within the report. Highlighting the differences in power requirements between proof-of-work and proof-of-stake, the report describes how “Despite Ethereum’s switch to proof-of-stake, Bitcoin has not announced plans to make a similar switch.”
But, as Foundry director of public policy Kyle Schneps said said in a recent “The Atlantic” hit article on Bitcoin power usage, “It is impossible for Bitcoin to go proof-of-stake, because the Bitcoin network is completely decentralized. There is no governing body that can make such a decision.”
Not only is the Bitcoin network fundamentally reluctant to move away from proof-of-work, but there is no “Bitcoin” to announce plans in any sense the White House report suggests.
“In places like Texas, which expects to add 27 gigawatts of additional crypto mining demand over the next four years, equivalent to about 30 percent of the generating capacity of the entire Texas grid, crypto mining could increase the likelihood of energy crises. , where demand exceeds the grid’s capacity to provide enough generation,” the report says. But this conclusion ignores the potential for return power to the grid during peak charging hours in exchange for utility company subsidies, making surges in power demand less of an impact on the grid, not more.
The report also focuses on the potential of a US CBDC and how it could improve the financial system. “A US CBDC, a digital form of the US dollar, would have the potential to offer significant benefits. It could enable a payment system that is more efficient, provide a foundation for further technological innovation, facilitate faster cross-border transactions, and be environmentally sustainable.”
“For example, a potential US CBDC could help ensure that such payment systems are aligned with the principles of human rights, democratic values, and privacy,” the report says, all values highlighted as potentially compromised by a CBDC. by the Bitcoin Policy Institute.
The report ends with the conclusion that cryptocurrencies “cannot challenge basic economic principles, such as what makes an asset effective as money and the incentives that give rise to risk taking. Although the underlying technologies are a clever solution to the problem
how to execute transactions without a trusted authority, crypto assets currently do not offer widespread economic benefits. They are largely speculative investment vehicles and are not an effective alternative to fiat currency.”
These conclusions have proven incorrect in other markets as well, as the widespread economic benefits of bitcoin use have become visible in the various local economies thriving around the world.
