There are hordes of bitcoin supporters, but that also means there are its detractors: from political officials to members of the business and finance community. Indeed, there are plenty of skeptics, including economics and finance writer Daniel Ben-Ami, who published an op-ed piece Tuesday arguing that bitcoin is not money.
At the beginning of his article on FundWeb, Ben-Ami explained the purpose of bitcoin and how it gives libertarians and the anti-government crowd an ability to circumvent the government and using a decentralized peer-to-peer digital currency like bitcoin.
He noted that both supporters and critics have points: the former says central banks have devalued the nation’s currency with loose and easy monetary policies, while the latter argues that fiat money needs the backing of government.
“There are indeed considerable problems with fiat money but the support of government institutions is far from meaningless. It provides official recognition that money represents a share in real economic activity,” wrote Ben-Ami. “To resolve this debate it is necessary to recall that money has more than one function. It is both a medium of exchange and a store of value.”
Therefore, according to the author, bitcoin can play an important role as a payments system, but not as a genuine store of value because it does not maintain any of its own values and does not come with a guarantee from the state.
“But it is not a store of value. To the extent it holds wealth it is only with reference to conventional currencies such as the dollar, euro or yen. It embodies no value of its own as it is not underpinned by even an implicit guarantee from a national state,” added Ben-Ami. “For that reason it should not be considered money in the true sense.”
Similar Opinions Held by Others
Numerous financial minds have reiterated the same ideas, including billionaire Warren Buffett, who espoused that bitcoin is nothing but a speculative bet and all of the features associated with bitcoin are not dependable stores of value. According to Buffett, bitcoin’s price is tied to the U.S. dollar and therefore is not a legitimate currency. This means, says Buffett, that the virtual currency would cease to exist within the next decade.
CNBC’s Larry Kudlow, meanwhile, made a similar case and concluded that “bitcoin is not real money.”
“Hundreds of bitcoin supporters have tweeted attacks at me for arguing that it is not real money. But historically, money must be a reliable medium of exchange and a reliable store of value. Bitcoin meets neither of these definitions,” wrote Kudlow. “How can you transact using so-called digital money when prices fluctuate by hundreds of dollars in the space of an hour, or less? You might think you bought something for $500. But by the time the retailer processes payment, the so-called digital-currency price drops to $100. “
Despite Wall Street starting to embrace bitcoin, some financial firms are declaring that bitcoin is not money, including Goldman Sachs, which published a report in March opining that bitcoin cannot work as a currency. However, it did highlight its ledger-based technology as holding tremendous promise for payments systems.
Goldman Sachs stated that a cryptocurrency needs a fixed exchange rate and needs to implement a real store of value in order to overcome some of the obstacles that are being placed in front of it.
“We would argue that Bitcoin, and other digital currencies, lie somewhere on the boundary between currency, commodity and financial asset,” wrote Dominic Wilson, chief markets economist at Goldman Sachs, and Jose Ursua, a global economist with the firm. “Our best definition would be that it is currently a speculative financial asset that can be used as a medium of exchange.”
There have even been some prominent libertarians that have opposed bitcoin by calling it a Ponzi scheme or a pump and dump scheme.
Nevertheless, bitcoin has still survived despite the collapses of bitcoin exchanges, DDoS attacks and negative mainstream press. Although bitcoin is substantially down from its November highs, the digital currency is still trading at around the $450 mark.
