"Bitcoin will not replace the dollar." What hinders the spread of cryptocurrency

Posted 13 June, 2022

Brian Armstrong, CEO of crypto exchange Coinbase, said that he envisions bitcoin becoming the gold standard and potentially becoming the world's new reserve currency. According to him, there are about 200 million people in the world who already interact with cryptocurrencies. He believes that so far this is incomparable with the influence of the dollar on the world community.

Armstrong drew attention to the fact that the world order is still seen as an order, which should be headed by any one country, if not the United States, then China. He argues that in fact, everything can be different: Bitcoin has introduced a new gold standard.

The CEO of Coinbase says the dollar's potential loss of dominance is not unique. He explained that fiat currencies have a limited life span from the moment they are no longer backed by a commodity.

“Most people in the world would consider this crazy, a wrong point of view or something else. But I think there is a chance that bitcoin will become the new global reserve currency, ”Armstrong is convinced.

The world reserve currency is a national currency generally recognized in the world, which is accumulated in the reserves of the Central Banks of other countries. It performs the function of an investment asset and serves as a way to determine currency parity. It is also used, if necessary, as a means of conducting foreign exchange interventions and for international payments.

Will the first cryptocurrency be able to perform all these functions? The experts discussed the opinion of the CEO of Coinbase and named the reasons why it will be difficult for bitcoin to claim the status of a reserve currency.

 

Bitcoin is not a currency

 

Bitcoin will become more and more popular, by 2025 1 billion wallet owners are predicted, says Bitnalog CEO Dmitry Machikhin. Nevertheless, the expert believes that bitcoin with a low degree of probability can become something like a reserve currency.

“It wouldn’t occur to you to pay off in gold, would it? First of all, bitcoin is not a currency at all, but rather a special, fundamentally new type of digital asset, more like digital gold,” Machikhin explained.

It is unlikely that bitcoin or another cryptocurrency can become a reserve in the foreseeable future, according to Artem Deev, head of the analytical department at AMarkets. The expert explained how currencies get into the IMF's reserve basket.

It includes the currencies of developed countries that have the most stable economies or show strong GDP growth over a long period (as was the case with China in the last 20 years). Deev added that the IMF also takes into account the stability of the financial system of the country, whose currency is included in the reserve list.

“Now the basket includes the dollar, euro, pound sterling, Japanese yen, Swiss franc, Chinese yuan,” the analyst listed.

Deev noted that this valuation system is not suitable for bitcoin - the currency is not supported by indicators of the real economy (GDP), it is too unstable for a long period (everyone knows the rise and fall in the value of the coin over the years).

If only after a long time the volatility of bitcoin does not decrease to such a level that the coin will resemble the dollar in terms of stability, then the cryptocurrency will have a chance to become a reserve currency, the expert suggested. But not to replace the dollar or the euro, but as one of the currencies, in addition to them, Deev specified.

 

“There are a lot of questions about bitcoin”

 

“I cannot agree that bitcoin can act as a world reserve currency. At least as a means of payment, there are a lot of questions about bitcoin, ”said Victor Pershikov, a leading analyst at 8848 Invest.

The specialist said that in addition to this, the legal norms adopted at the international level to regulate the circulation of BTC seem to be a utopia. He drew attention to the fact that countries cannot decide within themselves how to regulate the CFA, and it is completely impossible to talk about this at the level of the world reserve asset.

The expert noted that taking into account the functions of bitcoin as a reserve currency, one can only assume that the "investment" function can be applied to it. This is due to the growth in the value of cryptocurrencies that are deflationary in nature against the background of the depreciation of fiat, according to Pershikov.

“Given technological imperfection, weak scaling, high volatility, and low capitalization, neither as a tool for intervention nor as a tool for international settlements, bitcoin cannot be used,” the analyst concluded.

 

“Bitcoin is a supranational means of payment”

 

The status of a reserve currency for bitcoin is quite achievable in the future, according to Vitaly Kirpichev, director of development of the TradingView platform in Russia. The expert explained that the reserve currency is bought by countries' central banks for savings purposes.

“At the same time, such a conditional “deposit” bears the risks of the issuing country. For example, by investing in euros, the central bank assumes all the risks associated with the eurozone,” Kirpichev specified.

The specialist believes that the advantage of bitcoin is that it is a supranational means of payment: bitcoin belongs to the whole world and not to any country in particular. On the other hand, Kirpichev noted that the existing volatility of the digital currency does not allow applying the epithet “stable” to it.

“The solution to this problem directly depends on the adoption of bitcoin as the main means of settlement in international trade. When this happens, there will be no such volatility and the Central banks of many countries will be able to take it on the balance sheet,” the interlocutor suggested.

Back in March 2020, Bloomberg analysts stated that bitcoin is gradually ceasing to be a speculative asset and turning into a digital version of gold. They cited a number of factors that speak in favor of the development of the digital money industry, such as a decrease in volatility and an increase in the volume of trading in bitcoin futures.


 

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