The latest report from the Biden Administration lists the benefits of Bitcoin while ignoring the fundamentals and economic activities that give it value.
The White House has released an extensive “Economic Report of the President,” which includes a section titled “Digital Assets: Relearning Economic Principles.” This section details Bitcoin, its functions and various “possible benefits that proponents claim for the popularity of this crypto asset.”
The claim of the supporters of the report that they want to address varies from crypto assets that are investment vehicles and enable fast digital payments, to improving the financial technology infrastructure of the United States today. The report then addressed the “Reality of Crypto Assets,” as the section titled, setting the record straight in the eyes of the Administration.
“Compared to many other types of assets, crypto assets are highly volatile, and, therefore, highly risky,” the report begins. “Because they are very volatile, crypto assets can be used for speculation, an investment strategy that seeks to profit from short-term trading. One of the reasons why many crypto assets are volatile is that many of them have no fundamental value. Then provide examples of stocks and debt, comparing them with ” unsupported crypto assets [that] traded without an underlying anchor, which suggests that market prices only reflect speculative demand, or market sentiment, not claims about cash flow.
Between this and the next statement, there is an interjection “Box 8-2” which details “How Bitcoin Work?” This box, coincidentally, could be the answer to the question, “What is the fundamental value of Bitcoin?” in the description of the main working of Bitcoin.
Straw manning bitcoin’s supporters, the report went on to state that “one of the perceived benefits of a crypto asset like bitcoin is to hedge against inflation, meaning that its value does not erode when inflation rises. But when inflation rises globally in the second half of 2021 and in 2022, the price of crypto assets collapsed, proving, at best, an ineffective inflation hedge. While the inflationary narrative surrounding the 2020-2021 bull market proved disturbing, the price of bitcoin still rose during the pandemic, reaching a high of $69,000. In addition, bitcoin still remains the store value for those who live in countries with highly inflationary currencies, and it can be done for all countries with inflation on a long enough time scale due to the fundamental lack of bitcoin.
The next section, “Cryptocurrencies Generally Do Not Perform All the Functions of Money as Effectively as National Money, Such as the US Dollar,” reflects the Administration’s belief that bitcoin will never be able to fulfill the three functions of money – the ability to act. as a store of value, medium of exchange and unit of account – as effectively as the dollar.
“Cryptocurrencies now serve each of these functions, [but] they only do it in a limited way in the United States, so that they do not serve, from an economic perspective, as an effective alternative to the US dollar,” the state report. But this is a short-term conclusion, because Bitcoin is still in its infancy, and has now proven in other markets that it can perform its functions effectively – the US and its citizens only enjoy the economic privilege of being able to use it. makes the need for bitcoin seem distant.
The White House described how, due to the smaller number of entities that accept bitcoin as payment, it is not a proper medium of exchange and therefore a unit of account.
But this is, once again, short that every day, markets, products and further businesses are built around the bitcoin ecosystem. Indeed, El Salvador made headlines for making bitcoin legal tender, and has now succeeded in choosing to use it.
“The strength of the US dollar comes from several important factors, such as faith in government institutions and the legal system, but cryptocurrencies lack these factors,” the report stated. But this faith has been shaken as the world watches the banking system repeatedly fall back in need of federal action. You shouldn’t mistake this for encouraging faith in the system, but it does highlight the need to continue saving a system that was designed entirely to depend on the debt cycle bubble.
There is also a fundamental misunderstanding in the report. Highlighting the difference in energy requirements between proof-of-work and proof-of-stake, the report explains how “Although Ethereum switched to proof-of-stake, Bitcoin has not announced plans to make the same change.”
However, as the Director of Public Policy Foundry Kyle Schneps said in the recent “The Atlantic” hit piece on the use of Bitcoin’s energy, “It is impossible for Bitcoin to switch to proof-of-stake, because the Bitcoin network is completely decentralized. No government body can make such a decision.
Not only is the Bitcoin network fundamentally averse to moving away from proof-of-work, there is no “Bitcoin” to announce plans in any sense that the White House report suggests.
“In places like Texas, which expects to add 27 gigawatts of additional cryptomining demand in the next four years – equivalent to roughly 30 percent of the generation capacity of the entire Texas grid – cryptomining could increase the likelihood of an electricity crisis, where demand exceeds the grid’s ability to provide sufficient generation ,” the report said. But this conclusion ignores the potential of generating energy to the grid during peak load times in return for subsidies from energy companies, making energy demand increases less impact on the grid, not more.
The report also focuses on the potential for US CBDCs and how they can improve the financial system. “A US CBDC – the digital form of the US dollar – has the potential to provide significant benefits. It can enable a more efficient payment system, provide the foundation for further technological innovation, facilitate faster cross-border transactions, and be environmentally sustainable.
“For example, a potential US CBDC could help ensure that the payment system is in line with the principles of human rights, democratic values, and privacy,” the report said, all values highlighted as potentially compromised by the CBDC by Bitcoin. Policy Institute.
The report concludes with the conclusion that cryptocurrencies “cannot challenge basic economic principles, such as what makes an asset effective as money and the incentives that cause risk. Although the basic technology is a smart solution to the problem
in terms of how to conduct transactions without a trusted authority, crypto assets do not currently offer widespread economic benefits. It is a speculative investment vehicle and not an effective alternative to fiat currency.
This conclusion has also proven to be incorrect in other markets, as the widespread economic benefits of bitcoin use have been seen in various local economies that are developing around the world.