Digital currencies issued from US Fed and ECB could break bitcoin, analyst said

23 Mar, 2021 01:35
source: Singularity Financial

Singularity Financial Hong Kong March 23, 2020 – Despite bitcoin’s recent success, some fear that central bank digital currencies (CBDCs) could be “kryptonite” for bitcoin and similar cryptocurrencies—while ethereum apps and upgrades help it to stay ahead.

Speaking at a Bank for International Settlements event, the US Federal Reserve (Fed) Chairman Jerome Powell said that the Fed is not in a rush to adopt a digital currency, but the central bank is currently exploring and discussing the technology behind it.

Powell said that it needs to be “on the cutting edge of understanding the technological challenges as well as the potential costs and benefits of issuing a CBDC” (central bank digital currency).

He added that bitcoin (BTC) is too volatile to be money, and that it’s “backed by nothing.” Crypto assets are “more of an asset for speculation, so they’re not particularly in use as a means of payment. It’s more a speculative asset. It’s essentially a substitute for gold rather than for the dollar.” This is similar to what Powel said back in 2019, comparing BTC to gold then as well.

“Bitcoin has become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism,” the researchers wrote, adding there’s “no good reason to own bitcoin unless you see prices going up.” Bank of America analysts wrote in a report this week, titled Bitcoin’s Dirty Little Secrets.

The report went on to call CBDCs “kryptonite for crypto” but said the rise of decentralized finance (DeFi)—designed to replace the role of banks with blockchain-based protocols that are mostly built on top of ethereum’s blockchain—is “intriguing.”

The European Central Bank (ECB) is currently weighing whether to create a digital euro while U.S. Federal Reserve Chair Jerome Powell has said 2021 will be a pivotal year in consulting the public on a future digital dollar.

DeFi is “potentially more disruptive than bitcoin,” according to Bank of America analysts, who found the growth of DeFi “shows the strength of ethereum; its computational ability is vital to DeFi applications.”