The Biden Administration just released a new economic report that extensively covers Bitcoin and crypto, mentioning the two terms a whopping 305 times in total.
The document is catching waves for stating that “crypto assets to date do not appear to offer investments with any fundamental value” – but that’s just a glimpse of what’s in the report.
Here are some of the highlights.
1. The report tracks Ethereum’s switch to a proof-of-stake consensus mechanism, but appears to lack a fundamental understanding of how Bitcoin’s consensus is established, referring to the decentralized network as if it were a company with the ability to make official statements.
“Despite Ethereum’s switch to proof-of-stake, Bitcoin has not announced plans to make a similar change.”
2. The report criticizes Bitcoin’s use of energy, but does not compare Bitcoin’s energy consumption to the banking industry, which BTC was designed to replace.
It also does not mention the fact that miners are incentivized to use renewable energy to save on costs, or that reports estimate as much as 59.5% of BTC mining already relies on renewable sources.
“Globally, Bitcoin accounts for 0.42% of all electricity usage.
This effectively means that Bitcoin is using the same amount of electricity as a medium-sized advanced economy.”
3. The report cites Bitcoin’s price volatility at an awkward time, amid a government-induced banking crisis that has forced many Americans to realize that banks do not hold onto their cash, and deposits above $250,000 are not insured by the FDIC.
“The value of a Bitcoin (relative to the U.S. dollar) increased by over 1,000% from March 2019 to March 2021, and then decreased by over 70% from November 2021 to October 2022.
This volatility means that anyone who is using Bitcoin to store their savings is subject to high-volatility risk in their purchasing power.”
4. The report also cites BTC’s “run risk” amid the collapse of several US banks, ironically warning that crypto assets could trigger a “Minsky moment” representing the end of a prolonged period of economic prosperity.
But despite the criticism, the report also says the crypto industry is likely here to stay.
“The risks presented by crypto assets stem from excessive speculation, high leverage, run risk, environmental harm from crypto asset mining, and fraudulent activities that harm retail investors and corporations.
Because crypto assets appear to be here to stay, policymakers should consider these risks to avoid a ‘Minsky moment’ caused by crypto assets.”
5. The report cites Bitcoin’s scarcity and its maximum supply of 21 million coins, but declares paper money is superior due to the existence of central banks, which print cash with impunity.
“In addition to generally being speculative assets, cryptocurrencies currently are not effective alternatives to sovereign money such as the U.S. dollar. As mentioned above, most cryptocurrencies do not have fundamental value, but that is not a requirement for them to function as money. In fact, sovereign money does not have a fundamental or intrinsic value. Even so, sovereign money can easily satisfy money’s requirements…
The main reason for this is that the value of sovereign money is backed by a trusted institution—the central bank.
