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Bitcoin [BTC] and other cryptocurrencies fail basic financial tests, says Bank of England official

Akash Anand



Bitcoin [BTC] and other cryptocurrencies fail basic financial tests, says Bank of England official
Source: Unsplash

The cryptocurrency market’s volatility and traction have been far-reaching, so much so that even prominent members of established institutions are talking about it. Bitcoin [BTC], the largest cryptocurrency in the world, has captured the attention of several people, including that of Huw van Steenis, the Senior Adviser to Bank of England Governor – Mark Carney.

Speaking to Bloomberg at the ongoing Davos meet, Steenis spoke about the inception of Bitcoin, during the 2008 financial crisis. He stated that the magnitude of the market crash was dumbfounding and was the perfect opportunity for FinTech to rise.

Even Nouriel Roubini, an American economist popularly known as Dr.Doom, was mentioned in the discussion as someone who had called the crisis before it actually happened. Roubini has been a vocal critic of the cryptocurrency industry, even comparing Ethereum co-founder Vitalik Buterin to North Korea’s Kim Jong-un.

Steenis went on to say that the major banking institutions was leading a review of future finance with a lot time being spent on the propagation of the payment and financial system. He stated that globally, banks spend only 25 percent of the total budget for digital transactions. He then focused his discussion on cryptocurrencies such as Bitcoin and explicitly said that he was not a all worried about cryptocurrencies. In his words:

“They fail the basic tests of financial services. They’re not a great unit of exchange, they don’t hold value, and they’re slower. One of the biggest challenges for the BOE will be how to regulate new entrants to the banking system, particularly from technology firms.”

To a question about the similarity between banks and Bitcoin in terms of volatility, Steenis said that customers want cheaper, faster and better services. He also stated:

“What I love when meeting with Fintechs is their obsession with customers. The challenge is will they get customers before the traditional banks can innovate.”

The BoE official stressed the fact that the field of cryptocurrencies was not high on his worry list as they could not compete with the traditional systems.

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Is the scarcity principle a factor in Bitcoin’s valuation or is it just crypto white noise?

Biraajmaan Tamuly



Is Bitcoin being scarce changes the way we put forward its valuation or is it just Crypto white noise?
Source: Pixabay

The aspect of scarcity is fundamental to the Bitcoin community, with its limited availability often seen as a virtue in a world where governments have unlimited power to print fiat currencies. With the value of Bitcoin increasing day by day, the virtual asset is getting close to its saturation point.

At press time, 17,763,712 BTC were in supply, very close to the 21 million Bitcoin supply cap. However, the last BTC will be minted on 7th May 2140. That is almost 100 years from now. So, there is still a significant period of time before Bitcoin’s production halts for good.

Many in the community have suggested that Bitcoin’s scarcity has genuine value because it makes the virtual asset “deflationary.” In light of Facebook’s announcement of “Libra” coin, it has been argued that it will not generate any circumstantial threat to Bitcoin, solely on the fact that Bitcoin was scarce and Libra was not.

A recent Medium article released by Forbes summed up the scenario. It stated,

“It will take time, but Facebook will greatly accelerate the pace of teaching people about cryptocurrencies. And when this happens, more people will turn to bitcoin for one simple reason — bitcoin is scarce, while Facebook’s cryptocurrency is not.”

Another aspect that explains the importance of Bitcoin’s scarcity value is its comparison with Gold, which is also a scarce commodity. A key model that explains Gold’s intrinsic value in the market is the Stock to Flow ratio.

The S2F ratio of a commodity explains the scarcity value as it is the amount of an asset that is available to the amount that is produced annually. Moreover, the higher the S2F value of an asset, the lesser the inflation rate attached to it. At press time, Gold had the highest S2F value, but Bitcoin was close behind and it was stated that by August 2020, Bitcoins S2F’s value would be 55.2 to Gold’s 62.

However, a significant counter-argument against Bitcoin’s scarcity in the community was put forth, with none other than legendary investor, Warren Buffet, claiming that Bitcoin had no “intrinsic value.”

Recently, Peter Schiff, CEO at Euro Pacific Capital, explained that Bitcoin was not scarce due to the availability of other crypto-assets which made Bitcoin’s scarce value quite redundant since crypto assets, with better properties and characteristics, could be created anytime.

The argument was widely opposed by a majority of the community, with certain crypto-enthusiasts deciding to respond to the post. Twitter user, @Sisko8, said,

“The Mona Lisa is not really scarce, as there is an infinite supply of other paintings with identical or superior painting techniques that can be created out of 3$ paint and canvas, including photocopies of the Mona Lisa.”

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