Former New York Fed President: The establishment of Bitcoin reserves in the United States is not a good thing for the government and people who do not hold BTC

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According to data from CoinGecko, since Trump won the US election, Bit coin has soared 31.6% in nearly 1 month, reaching a high of $104,056 on December 5, surpassing the market capitalization of Saudi Aramco, the world's seventh largest asset.

Bit coin trend. Source: CoinGecko

Former Federal Reserve Chairman: Establishing a Bit coin Reserve Has No Benefits

However, Bill Dudley, the former President of the Federal Reserve Bank of New York and former Vice Chairman of the Federal Open Market Committee, responded in a report in Bloomberg yesterday (6th) that part of the reason for the recent rise in Bit coin is the prospect that the US may establish a Bit coin reserve under Trump, but he believes that the US establishing a Bit coin reserve actually has no benefits.

Advantages of Bit coin

First, Dudley affirmed the positive attributes of Bit coin. He believes that Bit coin has convenience, as holders can carry it with just a USB drive, regardless of the price of Bit coin.

Secondly, Bit coin also has semi-anonymity. Holders can transfer and use it for transactions without revealing any identity information, without relying on any third-party institutions.

In addition, Bit coin itself can also hedge against inflation. Because the issuance of Bit coin is designed to be 21 million, higher prices will not bring more supply, and greater demand will drive Bit coin to higher prices.

Establishing a Bit coin Reserve Has No Benefits

However, even though Bit coin has the above advantages, Dudley believes that establishing a Bit coin reserve has no benefits for the government or those who do not hold Bit coin:

There is no exit strategy, as its purpose is to drive up inflation, not create value for the government. The government will be forced to hold a volatile token that will not generate any income. To provide the purchase funds, the Treasury must either borrow (which will increase debt costs) or the Fed needs to print more dollars (which will exacerbate inflation). The latter is almost indistinguishable from the Fed monetizing the government's debt.

Further Reading: The US will hold 1 million BTC for at least 20 years》 Senator Lummis' Bit coin Reserve Bill is out, where will the funds come from?

Trump Should Establish Safe Regulations

However, in the end, Dudley still suggests that if Trump really wants to support the development of the crypto currency industry, what he needs is to formulate a set of laws and regulations to allow crypto currencies to develop and operate safely. Dudley said:

For example, ensure that stablecoins are fully backed by Fed deposits or short-term Treasuries. Legislate to define tokens as currency or securities, and who should regulate them. Establish rules to protect consumers and prohibit their use for terrorist financing or illegal drug sales activities.

Crypto technology has the potential to improve the financial system, such as making it easier and cheaper for people to conduct financial transactions. However, without strong safeguards, fraud and abuse will continue to exist, which will undermine the trust needed to establish these benefits.

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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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