Bitcoin has progressed from being regarded as a criminal’s currency to being recognized as a store of value, even by institutional investors. However, regulators continue to be skeptical of BTC: while it can be used for money laundering or terrorism financing, there is another issue that concerns governments. States’ monetary sovereignty is jeopardized by the use of an alternative currency. Is this a reasonable suspicion? Can Bitcoin truly devastate the economy?
Is Bitcoin capable of destroying the economy? Yes, indeed.
For quite some time, the debate has raged in the crypto community. Almost indefinitely. Bitcoin’s history speaks for itself: it was created and launched in 2009, at the height of the subprime mortgage crisis, for which Lehman Brothers’ bankruptcy became a symbol.
Bitcoin was created as a peer-to-peer payment system that does not require banks to issue it or governments to authorize it. The market determines its value, not gold reserves.
These few words explain why Bitcoin is so disruptive and why governments fear it.
But there’s more to it. Bitcoin has gotten out of hand precisely because of its decentralization. Banks can track a large transfer of money in the form of dollars. But not if it occurs in Bitcoin. Sure, exchanges have had to adapt to stricter KYC (Know Your Customer) and AML (Anti Money Laundering) regulations over the years, and the blockchain records every step of BTC transactions, but it is still easier to move large sums of money and find alternative methods.
Bitcoin represents financial independence. Take a look at what is going on in Afghanistan. Since the Taliban retook power, there has been a rush to withdraw money from banks and flee. How can it be resolved? Simply by preventing those funds from being withdrawn. This is exactly what is going on. Those who owned cryptocurrencies were not subject to this restriction. To be honest, the lack of an internet connection has only affected a very small portion of the population.
Bitcoin has been viewed as a safer store of value in countries where inflation is rampant. This was the case in Zimbabwe, and it is still the case in Venezuela. Local populations have learned to cope with currency depreciation by converting their savings into cryptocurrencies.
Reality and Utopia
What if it was done by everyone? It is a fantastical, if not dystopian, scenario, but the result would be the loss of the country’s monetary sovereignty. The economy would have to continue regardless, and whatever was done with local currency would simply be done in BTC. To put it another way, it’s business as usual.
However, it is still science fiction for the time being.
The doomsayers’ point of view is well summarized by the words of someone who knows a thing or two about business and government: Donald Trump.
Former US President George H.W. Bush recently stated that cryptocurrencies are a disaster because they have no intrinsic value. Most importantly, he stated that the focus should be on the US dollar rather than cryptocurrency.
Today, the US dollar is regarded as the world’s most powerful currency. What would happen if all USD trades today were replaced with BTC trades? The dollar could fall into a slump, dragging the US economy down with it. And, as a result, the global economy.
This, too, is a fantastical scenario. Governments do not underestimate this risk; otherwise, it would be difficult to understand why BTC and stablecoins are causing concern in the United States.
Why Bitcoin is unlikely to devastate national and global economies
The case of El Salvador may reassure all those who believe BTC is a sham. Bitcoin can coexist with other forms of money without jeopardizing sovereignty.
El Salvador does not have its own currency and is therefore dependent on the US dollar. It will be interesting to see how the general public reacts to the inclusion of Bitcoin in everyday transactions. Bitcoin is now accepted almost everywhere in the country, from shops to tax payments. However, there is no requirement to use it; only to accept it. As a result, you can continue to pay in dollars with confidence.
El Salvador’s president saw Bitcoin as a way to save his people $400 million per year in remittance fees. That’s a lot of money for a country whose economy is based on remittances.
Bitcoin has also evolved into a safe haven asset. It has proven to be tenacious. When the world’s stock exchanges collapsed in the aftermath of Covid on March 13, 2020, Bitcoin fell below $4,000. BTC is now worth 20 times that after a year. No other asset has performed as well.
As a result, it is being referred to as digital gold, and large corporations are beginning to include it as a reserve on their balance sheets. Microstrategy’s path is set to become increasingly popular.
Indeed, the pandemic has given Bitcoin a new lease on life, that of public awareness. When all certainty was shattered, an increasing number of people who were unsure about their future turned to BTC. It happened to small investors in the United States who used apps like Robinhood. However, it also happened to the big players who were looking for a viable alternative to gold and other safe-haven assets.
The apocalyptic vs. the integrated
Umberto Eco, an Italian writer, published a book titled Apocalyptic and Integrated on the subject of mass culture in 1964. It describes the divide between those who are willing to embrace change and those who “were better off when things were worse.”
In Bitcoin, the same opposition can be seen. Despite the enormous opportunities it creates, some people are afraid of it and would prefer not to have it. Then there are those who are ready to accept it.
Bitcoin appears to be irreversible at the moment. And if it’s here to stay, it might be worth burying the hatchet and learning to live with it. With the right trade-offs.