“Bitcoin has failed as an alternative currency project” – Interview with Odile Laguerre-Lakomski, CRIISEA researcher

In 2009, Bitcoin (BTC) was launched as a digital currency, competing with assets such as the dollar and the euro. But more than a decade ago, the biggest cryptocurrency tended to be seen as a store of value or “digital gold” rather than a digital equivalent of money. A bad for a good? We interviewed Odile Laguerre-Lakomsi, researcher at CRIISEA, to discuss the thorny question of the status of the queen of cryptocurrencies.

Cryptoast: It is often said that Bitcoin was created on a deflationary model. Is it true?

We need to go back to the basics of Bitcoin. Classic banking money is considered hierarchical, and basically this is already a distorted view. It shows that the pro-Bitcoins and those who designed digital currencies were and still are computer scientists, more than economists or monetary theorists. They cling to the theories put forward especially by [l’économiste ndlr] Friedrich Hayek who already criticized bank money in the 1930s as inflationary.

But in my opinion, they don’t really dig into Hayek’s theory and stay above the main point. In other words, to sum it up: it is enough to eliminate the banking system and the central bank to eliminate inflation. Indeed, it’s even more complicated.

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The role of central banks in the context of inflation will therefore be measured in your opinion?

The main mission of central banks, in the historical period in which we live, is the creation of inflation targeting. This means that their priority goal is to fight against inflation, by trying to control the money supply to bring it to certain levels. Either the American central bank or the ECB, inflation targeting theoretically allows us to have an inflation level lower than or equal to 2%. So it is not entirely correct to say that classical currencies are inflationary, at least in contemporary times. I think there is a lot of confusion in the crypto community between the idea of ​​inflation and the idea of ​​the value of money.

How is Bitcoin considered in this case?

It is a currency that retains its value, however [ses créateurs] designed Bitcoin more of a commodity than a currency: so it can effectively be considered like a commodity that will increase in value. This is something that we observe very clearly. When there is an increase in demand, compared to the available supply, this mechanism is fed.

This is what happened when the first trading platforms [de cryptomonnaies] opened around 2011, you can now exchange dollars for Bitcoin. But this increase in value is always related to the price of another currency, and therefore official currencies. Also note the effect of training. We see it with “memes” which created a lot of volatility when the public was interested.

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So Bitcoin is not an anti-inflation asset in your opinion?

The idea of ​​inflation is conceived in relation to a currency that is actually used for transactions. If, for example, we talk about inflation for a currency like the dollar, that makes sense, because the dollar serves as a means of payment in the American economy. That is, everyone pays in dollars, all prices, debts, claims, services and wages are expressed in dollars. It is the same as the euro.

When you have a currency for transactions, it is dealt with the goods and services you buy with this currency. This is why when we try to measure inflation in an economy, we take as a reference consumer price index.

Which is not possible for Bitcoin, for now.

That’s right. For now, I say that it is good for now, there is no meaning because as long as these currencies do not allow to create a payment zone where we pay everything in crypto, and where all prices are expressed in Bitcoin for example, the idea of ​​inflation does not exist. Bitcoin will be a bulwark against inflation only if it becomes a general means of payment that allows the purchase of a set of common goods and services. The creators of Bitcoin are actually creating a kind of digital gold, as they seek to build a currency which have the same unique propertiestee than gold. For other types of blockchain, the equivalent is burning tokens into circulation.

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The price of Bitcoin is highly correlated with stocks: does this mean that the cryptocurrency has not been able to separate from “classic” finance?

Unfortunately, Bitcoin is mostly institutionalized in finance. Currently, it failed as an alternative currency project, but on the other hand it has a lot of success in finance and as a financial asset, that is to say since around 2017. Crypto-assets are considered asset classes in which a person invests and thank you where can you get a good one. return on investment. As there is a very high volatility, there is also a lot of return.

Bitcoin and cryptocurrencies are thus absorbed by this financial logic that dominates our contemporary capitalism, and that has held since 1980. So we are dominated by investors who are always looking for high performancesince the crisis [des subprimes] in 2008.

With the accommodative monetary policies of the central banks, which tried to restart the economic engine to avoid deflation, as well as a recession that followed the financial crisis, the central banks inject more liquidity into the financial system. They also make many large purchases of traditional assets, which have the effect of reducing their profits, or even making them completely zero. So the investors are forced to turn to alternative asset classes, of which Bitcoin is a part. Especially since 2017, the Chicago Stock Exchange sent a positive signal to the market by opening a special cryptocurrency trading service. Cryptocurrencies and Bitcoin have become financial assets that now follow a speculative logic that is typical of the financial logic that works in the contemporary era.

Why has Bitcoin failed to fully find its place?

I intuitively say that Bitcoin may unfortunately have come too soon. I think financial capitalism must be completely collapsed, and we must move to another type of model. Thus, Bitcoin naturally positions itself.

That said, I still think with soil formation. We are in the process of transitioning to another form of capitalism, with the widespread development of the Internet and digital technology. But we are in a phase where financial capitalism is not dead, and unfortunately Bitcoin came when it was still working. So it’s absorbed as a classic asset, for now.

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