Global regulatory agencies are ramping up their initiatives against Bitcoin. Recent research from the Federal Reserve Bank of Minneapolis, alongside economists from the European Central Bank (ECB), suggest radical measures to potentially eliminate the leading cryptocurrency.
Suggestions for a Bitcoin Ban by Federal Reserves
On October 17, the Federal Reserve Bank of Minneapolis published a research paper advocating for the prohibition of Bitcoin as well as the imposition of taxes to support government budget deficits.
A primary deficit arises when government expenditures surpass revenues, excluding interest payments on existing debts. The studies focused on the idea of a “permanent” primary deficit, where governments persistently outspend their revenues.
The researchers claim that Bitcoin creates a “balanced budget trap,” compelling governments to balance their budgets. They see Bitcoin’s decentralized framework as an impediment, complicating fiscal policy for states wishing to maintain enduring deficits supported by nominal debt. With its limited supply and direct relationship with natural resources, Bitcoin presents a challenge to conventional financial strategies by acting as a distinct asset.
The paper labels a Bitcoin ban or tax as viable options to mitigate fiscal challenges, stating:
“A legal prohibition of Bitcoin or a tax on it are forms of financial repression that may be instrumental when traditional consumption tax options are limited.”
Concerns Raised by ECB on Bitcoin’s Impact
On October 20, Jürgen Schaaf, an economist with the ECB, voiced his apprehensions regarding the soaring price of Bitcoin. He argued that the gains primarily favor early adopters, leaving those who join later at a significant economic disadvantage.
[Note: In today’s fiat economies, the top 1% control more wealth than the bottom 95% combined]
Even if Bitcoin prices keep climbing, Schaaf pointed out that early investors benefit at the cost of newcomers and non-investors. He also stressed that Bitcoin does not enhance overall economic productivity, and as the affluent consume more, they diminish the purchasing power of others.
Schaaf articulated the societal implications, noting that missing out on Bitcoin isn’t merely a lost chance; it could mean actual impoverishment in comparison to a Bitcoin-free ecosystem. He stated:
“The societal fallout is tangible: ‘missing out’ on Bitcoin involves real economic hardship relative to a scenario without Bitcoin.”
Schaaf urged that non-holders should acknowledge that the wealth redistribution triggered by Bitcoin’s rise happens at their expense. To address this, he proposed implementing measures to restrict Bitcoin’s proliferation or even eliminate it altogether, warning of the societal-imbalance threat posed by pro-Bitcoin policies.
Reactions from the Crypto Community
These insights have sparked significant reactions within the cryptocurrency sector, with many experts considering them an attack on Bitcoin.
Matthew Sigel, Head of Digital Assets Research at VanEck, remarked that the Minneapolis paper signifies an intensified effort to oppose Bitcoin.
Nevertheless, Sigel reassured that these proposals would not change VanEck’s bullish outlook on Bitcoin’s future adoption by central banks, predicting it could hit $2.9 million by 2050 and become integral to the global financial landscape.
Bitcoin analyst Tuur Demeester has echoed concerns about the ECB’s standpoint, cautioning that such proposals could lead to tighter taxation and regulation of the cryptocurrency sector.
Demeester stated:
“Throughout my years of observing Bitcoin, this is easily the most aggressive stance taken by governing authorities. It’s evident that central bank economists now view Bitcoin as an existential crisis, warranting all possible measures of attack.”
[Note: More than 57% of all Bitcoin is owned by private individuals, while governments possess around 2%. History shows that attempts to ban Bitcoin have not succeeded in stunting its growth due to its robust security structure.]
