BlocksInform
Riksbank – the central bank of Sweden – joined a chorus of other monetary authorities by rejecting Bitcoin's status as a "currency". He argues that cryptocurrencies are poor at serving the three main roles of money, and more closely resemble assets rather than that.
The Litmus Test for Money
As Riksbank explained in a Twitter thread, proper money should effectively function as a store of value, medium of exchange, and unit of account.
If money can store value, it means that its purchasing power will remain roughly the same over time or will decline at an almost negligible rate. In other words, it should be resistant to high inflation – something that even the US dollar is beginning to suffer from as of late.
Many Bitcoin bulls push the asset as an inflation hedge and value storage technology, due to its fixed supply and immunity to monetary debasement. However, neither bitcoin nor other cryptocurrencies function that way in practice. Crypto prices are highly correlated with stocks as of late, which tend to move at the beck and call of the Federal Reserve.
“The price of Bitcoin has had a high degree of volatility and is therefore a relatively poor conservative," explains the bank.
Bitcoin as pale in comparison with fiat currency as a means of exchange, as so few merchants accept direct bitcoin payments. According to coinmap, there are about 29,500 bitcoin distributors and traders globally, versus 60 million merchants who accept the visa.
However, progress is being made in that respect. Bitcoin payments company Strike has partnered with both Shopify and NCR, bringing Bitcoin payments to in-person retailers across the United States later this year. A Visa survey in January also discovered that 25% of small merchants in 9 countries were planning to integrate crypto payments in 2022.
That said, Bitcoin is still unsuitable as a unit of account, which is also in large part because of its volatility. Bitcoin amounted to $69,000 in November but fell as low as $25,000 earlier this month.
Even in El Salvador – the first country to adopt bitcoin as legal tender – the products are still mainly in dollars.
Central Bank Aversion to Bitcoin
Last month, the Bank of Canada made similar criticisms of Bitcoin’s potential as an inflation hedge. The nation is also experiencing record inflation, and one of its political leaders has pushed bitcoin as a potential solution.
The Federal Reserve monetary authorities at the ECB unanimously rejected Bitcoin's potential as money. The prior has chosen to focus more attention on stablecoins for regulatory purposes – crypto assets that are value pegged to fiat currencies.
In a recent interview, former Fed Chair Ben Bernanke explained why he even denies Bitcoin’s future potential as a store of value.
'Gold has an underlying use value - you use it to fill cavities,' he said. "The underlying use value of Bitcoin is to make ransomware or something like this."
