In 2009, Bitcoin (BTC) was launched as a digital currency intended to compete with assets like the dollar and euro. But more than a decade later, the largest cryptocurrency is viewed more as a store of value or “digital gold” than the digital equivalent of cash. A bad for a good? We interviewed Odile Laguerre-Lakomsi, researcher at CRIISEA, to discuss the thorny issue of the status of the queen of cryptocurrencies.
Cryptoast: It is often said that Bitcoin was created on a deflationary model. Is it a reality?
We must already return to the basics of bitcoin. Classic bank money is seen as hierarchical, and that is basically a distorted view. This shows that pro-bitcoins and those who designed digital currencies were and are computer scientists, more than economists or monetary theorists. They stuck to the theories put forward in particular by [l’économiste ndlr] Friedrich Hayek, who criticized bank currencies as inflationary as early as the 1930s.
But in my opinion they didn’t really delve into Hayek’s theory and mostly stayed on the surface. That is, to sum it up: it would be enough to abolish the banking system and the central bank to eliminate inflation. In reality, it’s more complex than that.
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So you think the role of central banks in relation to inflation is measurable?
The main task of central banks in the historical time in which we live, is to do inflation target. That is, their primary goal is to fight inflation by trying to control the money supply in order to contain it at a certain level. Regardless of whether it is the US Federal Reserve or the ECB, the inflation target theoretically allows us to reach an inflation level of less than or equal to 2%. It is therefore not entirely correct to say that classic currencies are inflationary, at least for the present time. I think there is a lot of confusion in the crypto community between the concept of inflation and the concept of monetary value.
How to account for bitcoin in this case?
It’s a currency that retains its value, however [ses créateurs] Designed as a commodity rather than a currency, bitcoin may well be considered like a commodity that increases in value. We see that very clearly. When there is an increasing demand compared to the available supply, this feeds this mechanism.
This happened with the first trading platforms [de cryptomonnaies] opened around 2011, you could already exchange dollars for bitcoin. But this increase in value is always relative to the price of another currency and therefore official currencies. Also note the training effect. We saw it in the “Memes”. which created a lot of volatility once the public took an interest in it.
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So you don’t think Bitcoin is an anti-inflation asset?
The term inflation refers to a currency actually used for transactions. For example, when we talk about inflation for a currency like the dollar, it makes sense because the dollar serves as a means of payment for the American economy. That is, everyone pays in dollars, all prices, debts, receivables, services and salaries are expressed in dollars. The same applies to the euro.
Once you have a currency to transact with, it faces the goods and services you buy with that currency. So when we try to measure inflation in an economy, we use it as a reference consumer price index.
Which may not be the case for Bitcoin for now.
Exactly. For now I’ll say fine, it makes no sense because as long as these currencies don’t allow it to form a payment zone where we would pay for everything in crypto, and where, for example, all prices would be expressed in bitcoin, the notion of inflation does not exist. Bitcoin will only be a bulwark against inflation if it becomes a universal means of payment, enabling the purchase of a range of common goods and services. Bitcoin’s creators actually created a kind of digital gold when trying to establish a currency which has the same rare propertiestea as gold. For other blockchain types, the equivalent would be burning tokens in circulation.
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Bitcoin’s price is highly correlated with stocks: does this mean that the cryptocurrency hasn’t managed to break away from “classic” financing yet?
Unfortunately, Bitcoin has been institutionalized primarily through finance. For the moment, it failed as an alternative monetary project, but on the other hand it has had a lot of success in finance and as a financial investment, so since around 2017. Crypto assets are considered as asset classes in which to invest and thanks to which one can get good return on investment. Since there is very high volatility, there is also a lot of return.
Bitcoin and cryptocurrencies have thus been absorbed by this financial logic, which is very prevalent in our capitalism today and has prevailed since the 1980s. We are therefore dominated by investors who are constantly looking for top performancesince the crisis [des subprimes] from 2008.
With accommodative monetary policies from central banks trying to restart the economic engine to avoid deflation, and a recession that followed the financial crisis, central banks injected a lot of liquidity into the financial system. They have also made many massive purchases of traditional assets, which has resulted in their profitability being reduced or even reduced to zero altogether. Investors were therefore forced turn to alternative asset classes, of which Bitcoin is a part. Especially since since 2017 the Chicago Stock Exchange has sent a very positive signal to the market by opening specialized cryptocurrency trading services. Cryptocurrencies and bitcoin then became financial assets that now obey a speculative logic typical of today’s financial logic.
Why has Bitcoin not fully found its place yet?
I would say that intuitively Unfortunately, Bitcoin may have arrived a little early. I think finance capitalism should have collapsed completely and switched to a different model. Bitcoin would of course have positioned itself with this.
That is, I still think that a ground swell is formed. With the massive development of the internet and digital technology, we are about to move to a different kind of capitalism. But we’re in a phase where financial capitalism isn’t dead yet and bitcoin has sadly arrived if it still works. So it was absorbed as a classic asset for the time being.
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