In 2009, Bitcoin (BTC) was launched as a digital currency, which would compete with assets such as the dollar and the euro. But more than a decade later, the largest cryptocurrency tends to be seen as a store of value or “digital gold” rather than a digital equivalent of cash. An evil for a good? We interviewed Odile Laguerre-Lakomsi, a researcher at CRIISEA, to talk about the thorny question of the status of the queen of cryptocurrencies.
Cryptoast: Bitcoin is often said to be created on a deflationary model. Is a reality?
We must now return 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 criticized bank currencies in the 1930s for being inflationary.
But in my opinion, they didn’t really delve into Hayek’s theory and just scratched the surface of the main point. That is, to summarize: it would be enough to abolish the banking system and the central bank to eliminate inflation. In the reality, it is more complex than that.
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The role of central banks in the context of inflation, therefore, should be measured in your opinion?
The main mission of central banks, in the historical period in which we live, is to make inflation goals. In other words, its priority objective is the fight against inflation, trying to control the money supply to contain it at certain levels. Whether it is the US central bank or the ECB, the inflation target theoretically allows us to have an inflation level of less than or equal to 2%. Therefore, it is not entirely correct to say that classical currencies are inflationary, at least for the contemporary period. I think there is a lot of confusion in the crypto community. between the notion of inflation and the notion of value of money.
How to consider Bitcoin in this case?
It is a currency that retains its value, but [ses créateurs] designed Bitcoin more as a commodity than a currency: therefore, it can be considered effectively like a commodity that increases in value. This is something that we see 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 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 consider the training effect. We saw it with the “memes” which created a lot of volatility once the public got interested.
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Bitcoin, therefore, is not an anti-inflationary asset in your opinion?
The notion of inflation is conceived in relation to a currency that is actually used for transactions. If, for example, we talk about inflation for a currency like the dollar, that makes sense, because the dollar is used as a means of payment in the US economy. That is to say that everyone pays in dollars, all prices, debts, claims, services and salaries are expressed in dollars. It’s the same for the euro.
As soon as you have a currency for transactions, you are faced with the goods and services that you buy with this currency. This is why when we try to measure inflation in an economy, we take as a reference consumer’s price index.
Which may not be the case for Bitcoin, for now.
Exactly. For now I say good for now, it doesn’t make sense because as long as these coins don’t allow constitute a payment zone in which we would pay everything in crypto, and where all prices would be expressed in Bitcoin, for example, the notion of inflation does not exist. Bitcoin will be a bulwark against inflation only if it becomes a widespread 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 as they sought to establish a currency. which has the same weird propertiestee that gold. For other types of blockchain, the equivalent would be the burning of tokens in circulation.
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The price of Bitcoin is highly correlated with stocks: does this mean that the cryptocurrency has not yet managed to break away from “classical” finance?
Unfortunately, Bitcoin has been institutionalized primarily for finance. For now, 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 around 2017. Crypto assets are considered as asset classes where one can invest and thanks where one can get a good ROI. As there is a very high volatility, there is also a lot of return.
Bitcoin and cryptocurrencies have thus been absorbed by this very predominant financial logic in our contemporary capitalism, and which took root from the 1980s. Therefore, we are dominated by investors. constantly seeking high performancesince the crisis [des subprimes] from 2008.
With the accommodative monetary policies of the central banks, which tried to restart the economic machinery to avoid deflation, as well as a recession that followed the financial crisis, the central banks injected a lot of liquidity into the financial system. They have also carried out many massive purchases of traditional assets, which has had the effect of reducing their profitability, or even making it completely null. Therefore, investors were forced resort to alternative asset classes, of which Bitcoin is a part. Especially since starting in 2017, the Chicago Stock Exchange 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 the financial logic that works in the contemporary period.
Why has Bitcoin not been able to fully find its place yet?
I would intuitively say that Unfortunately, Bitcoin may have come too soon.. I think finance capitalism should have completely collapsed and we should have switched to another type of model. Therefore, Bitcoin would have positioned itself naturally.
That said, I’m still thinking that a swell is forming. We are in the process of changing 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 unfortunately, Bitcoin has arrived when it still works. So it was absorbed as a classic asset, for now.
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