The Council fo Economic Advisors showed outright disregard for the purported benefits of Bitcoin and other cryptocurrencies in the President’s Economic Report released on Tuesday.
The report claimed that cryptocurrencies lack fundamental value, and also do not “act as effective alternatives to money.”
Crypto: Expectations VS Reality
The White House report included two dedicated sections pertaining to digital assets: one titled “The Perceived Appeal of Crypto Assets,” and the other titled “The Reality of Crypto Assets.”
The first section acknowledges some of the most commonly cited use cases of Bitcoin: its potential as an inflation hedge, ability to enable fast digital payments, and power to increase financial inclusion. However, the latter section disputed all of those claims:
“As inflation increased globally in the second half of 2021 and in 2022, the prices of crypto assets collapsed, proving them to be, at best, an ineffective inflation hedge,” stated the report.
Indeed, Bitcoin collapsed to then yearly lows in June 2022 precisely after the BIS announced peak inflation figures of 9.1% that month. However, the Federal Reserve was also hiking its target interest rate throughout the year to quell said inflation, which caused a significant drawdown in bonds, stocks, and crypto alike.
The report also challenged Bitcoin’s use case as an alternative money, criticizing its ability to effectively serve as a store of value, medium of exchange, or unit of account. This was in line with criticisms presented by central bankers across the world, from former Fed chair Ben Bernanke to Sweden’s central bank.
Furthermore, the report doubled down on long-standing criticisms of Bitcoin’s proof of work, suggesting that power consumption from mining could threaten the stability of the Texas grid. Last July, Texas ordered miners to power down to conserve energy during a heatwave that was straining the electricity grid to its limits, with which miners complied.
Even the world of Web3 was subject to criticism, with the report citing Signal founder Moxie Marlinspike’s critiques of Ethereum and the decentralized web.
“Web3 is already trending toward a centralized structure because of the ease and convenience that centralization brings, but in a much clunkier way than if traditional technology were being used,” the report said, citing Marlinspike.
The Central Bank Alternative
When discussing Bitcoin’s lack of “fundamental value,” compared to other monies (ex. gold), the report admitted that even sovereign currencies, such as the U.S. dollar, also lack any inherent value. However, it argued that sovereign currencies are backed by a “trusted institution” in the form of a central bank, which helps stabilize the currency.
In fact, the document suggests that a Fed-backed Central Bank Digital Currency (CBDC) could help “bring the U.S. financial infrastructure into the digital era… without the risks or irrational exuberance brought by crypto assets.”
The report stands as a follow-up to President Biden’s Digital Asset Executive Order 12 months ago, in which the President ordered various agencies to study the digital asset ecosystem – including the potential of a U.S. CBDC.
The White House noted that a CBDC, if implemented, likely wouldn’t use distributed ledger technology, but instead rely “on a trusted central authority—a country’s central bank—to operate key aspects of the CBDC system.”
Numerous politicians (particularly from the political right) have voiced opposition to a US CBDC, including Florida Governor Ron DeSantis and Congressman Tom Emmer, due to its potential use for financial surveillance.
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