Bitcoin has been hovering above $30,000 for some time now, unable to bounce from or break through support. Investors keep pouring money into crypto startups, while some macro developments in the crypto world are obvious.
The recent economic activity report issued by the Bank for International Settlement (BIS) reflects the ongoing efforts by policymakers to move into private digital currencies. As cash use falls and digital payments rise, various central banks around the world have started projects in the Central Bank Digital Currencies (CBDC) space.
The aim is to make the financial system more efficient, and the research and development effort on CBDCs is growing by the day. The idea is that if well supervised, digital currencies could raise financial efficiency. In other words, what started with Bitcoin and the current cryptocurrencies may continue with CBDCs as central banks cannot ignore the rise in digital payments.
Bitcoin as a Digital Asset
Bitcoin is the largest cryptocurrency by market capitalisation and thus responsible for most of the movements seen in the crypto market. In the first six months of this year alone investors have poured close to $9 billion into crypto startups, by far the most in the last six years.
Central bankers argue that Bitcoin is not a form of money, while investors in the crypto space argue just the opposite. One argument against Bitcoin is that it is close to gold rather than money in the 21st century.
In a speech by Mark Carney, the former Bank of England’s Governor, he argued that stable money requires trust. Just like in the case of gold, Bitcoin’s availability is completely beyond the control of political authorities.
Another resemblance is that both gold and Bitcoin are scarce. The predictability of Bitcoin’s supply curve makes it even more valuable than gold. But the problem with Bitcoin and other private digital currencies is that they are imperfect stores of value.
Because of that, Bitcoin is treated as a commodity in the United States, at least if we look at how the Commodity Futures Trading Commission (CFTC) categorises it. Indeed, the finite quantity of the product makes Bitcoin resembling a commodity rather than a private digital currency.
To sum up, the efforts in the digital space reveal tremendous investments and research into CBDCs. Only that CBDCs are not Bitcoins, and yet investors pour impressive amounts of money in crypto startups centered around Bitcoin.
Anyone interested in the crypto space should pay attention to the progress made on CBDCs. The lack of regulation of the current cryptocurrency market may turn investors’ attention to successful CBDC projects further down the road.