Bitcoin has gone from being considered the currency of criminals to being recognized as a store of value even by institutional investors. However, there is still some suspicion about BTC on the part of regulators: while it can be used for money laundering, or to finance terrorism, there is another issue that agitates governments. An alternative currency implies a loss of monetary sovereignty for states. Is this a well-founded suspicion? Can Bitcoin really destroy the economy?
Can Bitcoin destroy the economy? Why yes
The debate has been raging in the crypto community for some time now. Practically forever. Bitcoin’s history speaks for itself: it was created and launched in 2009, at the height of the subprime mortgage crisis of which the bankruptcy of Lehman Brothers became a symbol.
Bitcoin was created as a form of peer-to-peer money, which does not need banks to issue it or governments to authorize it. Its value is determined by the market and not by gold reserves.
These few words are enough to understand why Bitcoin is so disruptive and why governments fear it.
But there is more. Bitcoin is out of control precisely because of its decentralization. A massive transfer of money in the form of dollars can be tracked by banks. But not if this happens in Bitcoin. Sure, over the years exchanges have had to adapt to stricter KYC (Know Your Customer) and AML (Anti Money Laundering) regulations, and the blockchain records every single step of BTC transactions, but it is still easier to move large amounts of money and find alternative methods.
Bitcoin is financial autonomy. Just look at what is happening in Afghanistan. Since the Taliban returned to power, there has been a rush to banks to withdraw their money and flee. How to solve it? Simply by preventing people from withdrawing that money. This is what is happening. Those who had cryptocurrencies did not experience this limitation. To tell the truth, it is a very small segment of the population, which has been affected by the lack of an internet connection.
In countries where inflation is rampant, Bitcoin has been seen as a safer store of value. This was the case in Zimbabwe but is still the case in Venezuela, for example. Local populations have learned to live with the devaluation of money by converting their savings into cryptocurrencies.
Between reality and utopia
What if everyone did it? It is a utopian, not to say dystopian, scenario, but the consequence would be the end of the monetary sovereignty of the country in question. The economy would then have to continue anyway and what was done with local money would simply be done in BTC. As to say, business as usual.
But at the moment it is still science fiction.
The point of view of the doomsayers can be well summed up by the words of someone who knows something about business and government: Donald Trump.
The former US president recently reiterated that cryptocurrencies are a disaster because they have no intrinsic value. Most importantly, he said that focus should be placed on the US dollar rather than crypto.
Today the US dollar is considered the strongest currency in the world. What would happen if all the trades made with USD today were made with BTC? The dollar could experience a period of weakness that would drag down the US economy. And as a cascade, the world economy.
This too is a utopian scenario. Governments do not underestimate this risk, otherwise it would not be clear why BTC, as well as stablecoins, are causing fear in the US.
Why Bitcoin will not destroy national and global economies
The case of El Salvador should perhaps reassure all those who see BTC as smoke and mirrors. Bitcoin can safely coexist with other forms of money without threatening any sovereignty.
El Salvador does not have its own currency and is currently only tied to the US dollar. It will be interesting to see how the population will react to the integration of BTC into everyday transactions. Bitcoin is now accepted everywhere here: from shops to tax payments. But there is no obligation to use it, only to accept it. Which means you can safely continue to pay in dollars.
The president of El Salvador saw an opportunity in Bitcoin to save his people $400 million a year in remittance fees. That’s a lot for a country whose economy relies on remittances.
Bitcoin has also become a safe haven asset. It has demonstrated its resilience. When the world’s stock exchanges collapsed following Covid on 13 March 2020, Bitcoin also fell to below $4,000. One year on, BTC is now worth 20 times that. No other asset has reacted better.
That is why it is being credited as digital gold, and big companies are starting to include it as a reserve on their balance sheets. The path paved by Microstrategy is set to become more and more popular.
Indeed, the pandemic has given Bitcoin a second life, that of awareness. When all certainties were shattered, more and more people who did not know what would happen to their future turned to BTC. It happened to small investors in the US who turned to apps like Robinhood. But it also happened to the big guys who looked for a viable alternative to gold and other safe-haven assets.
Apocalyptic vs integrated
The Italian writer Umberto Eco, on the subject of mass culture, published a book in 1964 with the famous title: Apocalyptic and Integrated. It tells of the division between those who are ready to embrace change and those who “were better off when it was worse”.
The same opposition can be seen in Bitcoin. Despite the enormous opportunities it generates, there are those who fear it and would gladly do without it. And then there are those who are ready to embrace it.
To date, Bitcoin seems irreversible. And if it’s meant to stay, it might be worth putting down the hatchet and starting to coexist with it. With the right compromises.
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