Despite the strides that have been made towards making Bitcoin and other cryptocurrencies a viable means of payment in today’s ever-changing world, most mainstream economists and investors see this asset class as anything but their namesake. In fact, they continue to rail that the sentiment that this asset class is offering alternative currencies is nonsensical.
Cryptocurrencies Are Anything But Currencies?
According to Portuguese industry outlet Portal Do Bitcoin, the President of the Brazilian Banking Federation, Murilo Portugal, remarked that cryptocurrencies “do not fulfill any of the classic functions of currency.” He made this comment at an event outlining the importance of digital technology, such as blockchain and artificial intelligence, to financial services.
Portugal further elaborated:
“They are actually called coins but they are not coins, which is why it is called cryptocurrency. They do not fulfill any of the classic functions of the currency, which is to serve as an account unit, where people can express prices. They do not serve as a means of payment or as a store of value because the volatility is very high.”
This comment is eerily reminiscent of the sentiment Ray Dalio, co-founder of hedge fund Bridgewater Associates and a prominent gold buyer, has of Bitcoin.
Speaking to CNBC at Davos for the World Economic Forum, the noted Wall Street fund manager explained to the outlet that he currently believes Bitcoin doesn’t have the two hallmarks of any good or viable currency: a store of value and medium of exchange.
If you want to want to buy Bitcoin, be prepared to lose all your money. If you want to buy it, fine, but understand that what you’ve got has no intrinsic value. It might have extrinsic value, but no intrinsic value.
Bitcoin Is Slowly Becoming Usable
The thing is, moves are being made to make Bitcoin a proper currency.
Just recently, fintech giant Square’s in-house cryptocurrency division released the Lightning Development Kit (LDK). This kit will allow developers of Bitcoin software to more easily integrate the Lightning Network, a second-layer scaling solution that effectively migrates some transactions off the main chain to allow for lightning-fast, effectively free, and cross-chain transfers.
And on Thursday, Binance revealed a debit card that will allow its clients in supported regions to deposit Bitcoin or Binance Coin into an application, then spend it in brick and mortar stores as a means of fiat payment. While the merchant doesn’t receive Bitcoin on the other end, many are hoping this is the start of an uptick in cryptocurrency use in the real world.
The thing is, even if the infrastructure exists, we’re left with an underlying problem: volatility.
As Charlie Lee, founder of Litecoin, explained to me in an interview last year in response to a question about crypto’s biggest issue:
Because crypto prices are so volatile, it’s hard for people to actually use it, meaning adoption is hampered. Volatility is kind of a chicken and the egg type scenario. Once there is adoption, volatility will decrease, meaning more adoption. So it’s a slow process for that to work for us to overcome that.
Indeed, on March 12th, as Blockonomi chronicled, Bitcoin fell by 50% within a day’s time span due to a series of bearish factors. Many online were quick to write off the cryptocurrency and fold out of the industry after this move, as it showed that even in a developed state, Bitcoin was susceptible to extreme volatility that would make almost any investor run for the hills.