In 2009, Bitcoin (BTC) was launched as a digital currency, capable of competing with assets such as the dollar and the euro. But more than a decade later, the largest cryptocurrency tends to be viewed as a store of value or “digital gold” rather than a digital equivalent of cash. Bad for good? We interviewed Odile Laguerre-Lakomsi, a researcher at CRIISEA, to discuss the thorny issue of the status of the cryptocurrency queen.
Cryptoast: It is often said that Bitcoin is created on a deflationary model. Is it a reality?
We already have to go back to the basics of Bitcoin. Classic bank money is considered hierarchical and fundamentally this is already a distorted view. This shows that the pro-Bitcoins and those who designed digital currencies were and still are computer scientists, more than economists or money theorists. They clung to the theories put forward in particular by [l’économiste ndlr] Friedrich Hayek who already in the 1930s criticized bank currencies as inflationary.
But in my opinion, they didn’t really delve into Hayek’s theory and stayed on the surface on the main point. That is to say, to summarize: 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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Is the role of central banks in the context of inflation therefore to be measured in your opinion?
The main mission of central banks, in the historical period in which we live, is to aim for inflation. That is to say that their primary objective is to fight inflation, trying to control the money supply to contain it at certain levels. Whether it is the US central bank or the ECB, inflation targeting theoretically allows us to have 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 contemporary period. I think there is a lot of confusion in the cryptocurrency community between the notion of inflation and the notion of the value of money.
How to consider Bitcoin in this case?
It is a currency that holds its value, but [ses créateurs] designed Bitcoin more as a commodity than a currency: it can therefore actually be considered like a commodity that increases in value. This is something we observe very clearly. If there is a growing demand, compared to the available supply, this feeds this mechanism.
This is what happened when the first trading platforms [de cryptomonnaies] opened around 2011, you can already trade dollars with Bitcoin. But this increase in value is always relative to the price of another currency, and therefore of the official currencies. Also note the effect of training. We saw it with “memes” which generated a lot of volatility once the public got interested.
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Isn’t bitcoin an anti-inflation asset in your opinion?
The notion of inflation is conceived in relation to a currency actually used for transactions. If, for example, we talk about inflation for a currency like the dollar, it makes sense, because the dollar is used as a means of payment in the American economy. That is to say that everyone pays in dollars, all prices, debts, credits, services and salaries are expressed in dollars. It is the same for the euro.
As soon as you have a currency for transactions, it is compared to the goods and services you buy with this currency. This is why when we try to measure inflation in an economy, we take it as a reference Consumer price index.
Which cannot be the case with Bitcoin for now.
Exactly. For now, I say well for now, it doesn’t make sense because as long as these currencies don’t allow it to set up a payment zone where we would pay for everything in cryptocurrencies, and where all prices would be expressed for example in Bitcoin, the notion of inflation does not exist. Bitcoin will only be a bulwark against inflation if it becomes a generalized means of payment that allows the purchase of a set of common goods and services. The creators of Bitcoin actually created a type of digital gold, while trying to establish a currency which has the same rare propertiestee that gold. For other types of blockchains, the equivalent would be the burning of tokens in circulation.
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The price of Bitcoin is strongly correlated to the shares: does this mean that the cryptocurrency has not yet managed to break away from “classic” finance?
Unfortunately, Bitcoin has mostly been institutionalized by finance. For the moment, failed as an alternative monetary project, but on the other hand it has been very successful in finance and as a financial asset, i.e. since about 2017. Cryptocurrencies are considered to be asset classes in which you can invest and thanks where you can get a good return on investment. As there is very high volatility, there is also a lot of yield.
Bitcoin and cryptocurrencies have been so absorbed by this financial logic that is very predominant in our contemporary capitalism and which has taken hold since the 1980s. We are therefore dominated by investors who are constantly looking for high performancefrom the crisis [des subprimes] of 2008.
With the accommodative monetary policies of central banks, which tried to restart the economic machine to avoid deflation, as well as with the recession following the financial crisis, central banks have injected a lot of liquidity into the financial system. They have also made many massive purchases of traditional assets, which have had the effect of reducing their profitability, or even completely eliminating it. Investors were therefore forced use alternative asset classes, of which Bitcoin is a part. Especially since the Chicago Stock Exchange has been sending a very positive signal to the market since 2017 by opening specialized cryptocurrency trading services. Cryptocurrencies and Bitcoin have then become financial assets that today obey a speculative logic typical of the financial logic in place in the contemporary period.
Why hasn’t Bitcoin been able to fully find its place yet?
I would say it intuitively bitcoin may have unfortunately arrived a little too soon. I think that financial capitalism should have collapsed completely and we should have switched to another type of model. Therefore, Bitcoin would have positioned itself naturally.
Having said that, I still think that a swelling of the soil is forming. We are moving to another type of capitalism, with the massive development of the Internet and digital technology. But we are in a phase where financial capitalism is not dead yet, and sadly Bitcoin has arrived when it still works. So it’s been absorbed as a classic asset for now.
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