Minneapolis Federal Reserve Describes Bitcoin as “Useless Pieces of Paper” and Claims It Hinders Governments from Sustaining “Permanent Primary Deficits”

byFX Reporter
October 21, 2024

This content does not constitute investment advice. The author does not hold shares in any of the mentioned stocks. Wccftech.com adheres to a disclosure and ethics policy.

When both the Minneapolis Federal Reserve and the European Central Bank (ECB) criticize Bitcoin with striking synchronicity, it likely indicates a coordinated effort. However, some of the defining features of Bitcoin that these monetarists oppose are precisely what Bitcoin maximalists value, highlighting a deep divide that resists any attempts at compromise.

On October 12th, the ECB released a paper claiming that early Bitcoin adopters extract value from “latecomers.” The paper states:

“The new Lamborghini, Rolex, villa, and equity portfolios owned by early Bitcoin investors do not result from an increase in the economy’s production potential; rather, they are funded by the diminished consumption and wealth of those who do not initially hold Bitcoin.”

Furthermore, the ECB’s paper recommends legislation to suppress Bitcoin’s price, attempting to avoid the “division of society.”

As the broader crypto community discusses the merits and demerits of the ECB’s publication, the Minneapolis Federal Reserve has entered the fray with its own provocative take.

Specifically, in a document addressing the government’s potential for running “permanent primary deficits,” the Minneapolis Federal Reserve identifies Bitcoin as a significant barrier:

“But this outcome falls apart if there are additional worthless pieces of paper (bitcoin, in brief) available for trade.”

The paper also advocates for either an outright ban or taxation on Bitcoin to enable governments to maintain ongoing deficits:

“A legal ban on bitcoin could revive the unique implementation of permanent primary deficits, as would a tax on bitcoin at a rate of -(r – g) > 0.”

This discourse comes in light of Minneapolis Federal Reserve President Neel Kashkari raising three significant objections to the leading cryptocurrency during a recent public presentation. He first stated that he has yet to encounter someone who has purchased everyday goods using Bitcoin, questioning its effectiveness as a medium of exchange. Secondly, he referenced the post-pandemic inflationary trends where Bitcoin plummeted alongside other volatile assets, suggesting that it is a “poor hedge against inflation.” Lastly, Kashkari characterized cryptocurrency as merely a speculative tool.

Improving Fundamentals of Cryptocurrency

Notably, these assessments emerge at a time when Bitcoin is nearing its historical price peaks. Additionally, Bitcoin ETFs have garnered an impressive $20 billion in inflows within just a year of their inception.

For perspective, gold ETFs required five years to accumulate such a level of inflows.

Moreover, Bitcoin seems to have surged beyond its trading channel just ahead of the upcoming U.S. presidential elections.

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