After the governor of the Bank of France, it is the turn of Jérôme Powell to put water in his wine regarding bitcoin.
“Bitcoin, digital gold”
Jérôme Powell responded this Wednesday to questions from journalist Andrew Ross Sorkin, the same person who attracted ridicule by refusing bitcoin the status of a store of value.
The president of the Fed agreed with him during a conference organized by the NY Times:
“People use bitcoin as a speculative asset. It's like gold, but virtual, it's digital. People don't use it as a means of payment or a store of value. It is very volatile. It does not compete with the dollar, but with gold. This is how I see things. »
These statements are consistent with those of Governor James Bullard who made the same analysis in 2021. The president of the Federal Reserve Bank of St. Louis had declared than bitcoin “is a rival for gold”.
Rational analysis, or denial of reality? A bit of both. The first sticking point concerns the definition of what a store of value is.
One thing is certain, the dollar is not a store of value. Inflation was 25% in the last four years alone. In other words, the greenback buys 20% less things than in 2020. At the same time, bitcoin has appreciated by more than 400%, multiplying its purchasing power by five.
Bitcoin is a technological breakthrough. For the first time in history, humanity has a liquid asset that exists in absolutely finite quantity. It is difficult to imagine that such a currency could not be qualified as a store of value stricto sensu.
Bitcoin vs Dollar
Where Jérôme Powell is not wrong is that bitcoin is not designed to oil 100% of transactions. It can only handle a handful of thousands of transactions every 10 minutes. Compare with the 13 million transactions of the traditional monetary system.
Certainly, the Lightning Network (LN) allows us to scale up, but slowly. With 4,000 block transactions, it would take 40 years for every human to connect to the LN. This bottleneck prevents the sudden emergence of bitcoin as a universal means of payment.
Furthermore, the exchange platforms take their tithe from each purchase of bitcoins. These fees make BTC transactions uncompetitive against Mastercard or Visa. In Europe and the United States, these fees amount to 0.3% and are also paid by the seller.
Furthermore, bitcoin exists in a fixed quantity, which means that a bank could not make loans ex nihilo. Loans would be much rarer and more expensive. Clearly, the fractional reserve system is a ponzi which has its advantages. It is even essential to a complex (capital intensive) society.
If bitcoin cannot replace the fiat system, it could however replace it in global foreign exchange reserves. These are equivalent to 12.5 trillion dollars, not counting gold. Bitcoin is undeniably a robust payment system and more than sufficient for daily reconciliations between countries.
It is a store of value as well as an uncensorable payment system, two-in-one. This aspect resonates with countries wishing to reduce their dollar reserves. Vladimir Putin also declared this week: “Who can ban bitcoin? Person “.
The creation of a strategic bitcoin reserve by the United States also goes in this direction, whatever the central bankers think.
Don’t miss our article: “Trump between the Dollar and Bitcoin”.
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