Speculation in bitcoin is akin to “tulipomania”, according to the Banque de France

At first glance, it is difficult to see the relationship between bitcoin, the oldest cryptocurrency created in 2009 in the aftermath of the financial crisis, and Dutch tulips. It is however with them that the governor of the Banque de France compared the first cryptocurrency. Bitcoin “does not constitute (…) a store of value, but rather a speculative asset, somewhat akin to tulip bulbs in the Netherlands in the 17th century”, said François Villeroy de Galhau during an innovation forum organized by the Bank for International Settlements (BIS) on Tuesday March 22.

This comparison with the phenomenon of hyper-speculation of tulips is not the first. Before him, Nassim Nicolas Taleb, author of Black Swans had done it.

Explanations: “tulipomania” in the Netherlands is the first economic and financial speculative bubble in modern history. Speculation was based on the trade in tulip bulbs, the prices of which reached peaks, before collapsing in 1637. In 1642, after the crash, the price of the tulip was only one tenth of its value. and a hundred years later to two hundredths. The future will show if bitcoin will meet such a fate.

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The charge against stablecoins

Criminal bankers are accustomed to accusations against cryptocurrencies because of their strong desire, their possible use for profit activities and more generally their opacity. They are also wary of stablecoins, these means of payment which use certain technologies developed by free cryptocurrencies, such as bitcoin, but whose issuers ensure that they are backed by a currency. stablecoins “create a certain fragmentation and are attached to regulatory and operational uncertainties”, affirmed François Villeroy de Galhau during his speech.

This charge comes a few days after the vote of the Economic Affairs Committee of the European Parliament which adopted on Monday March 14 the draft regulation “Crypto Asset Market” (MiCA). Its aim is to harmonize national regulations on crypto-assets in Europe and to create a regulatory framework for this market. The stated aim is to support innovation and take advantage of the potential of crypto- assets in a manner that preserves financial stability and protects investors.

Regulation of crypto-assets (MiCA): “The European Union is shooting itself in the foot” (Pierre Person, LaREM deputy)

Central banks want their own e-currencies

The Governor of the Banque de France nevertheless specified: “Resisting innovation is not part of our DNA, quite the contrary”. Central banks are indeed multiplying experiments around digital currencies. The Banque de France has been working on a digital euro project since the end of 2019-beginning of 2020. On December 16, 2021, it announced that it had succeeded in validating the interoperability between different platforms, an essential step for the operation of the central bank digital currency. (MNBC) for interbank transactions.

More recently, at the beginning of March, US President Joe Biden signed an executive order to cautiously launch work on a potential digital dollar, asking the Ministry of the Economy to submit a report to him within six months on “the future of money”. It would be a digital currency developed on a private and state-controlled blockchain.

The war in Ukraine accelerates the development of the digital dollar and the regulation of cryptocurrencies

According to the latest census of the Bank for International Settlements (BIS), dating from June 2021, around nine out of ten central banks indicated that they had launched studies around an MNBC. Last October, only two retail MNBCs had already been deployed (the Sand Dollar in the Bahamas and the DCash for the Organization of Eastern Caribbean States) but more than twenty pilot projects were underway in the world.

At the forefront is the e-yuan, controlled by the central bank of China and already used in purchases during the Beijing Olympics in 2022. The central bank of Russia is also experimenting with a digital ruble with certain banks.

Cryptocurrencies have meanwhile been seen in pieces since Russia invaded Ukraine, with many observers worrying about their possible use to ease heavy financial sanctions on Moscow.

Sanctions Against Russia: Cryptocurrency Exchanges Under Pressure

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ZOOM: WHEN CRYPTOCURRENCY ENCOURAGES SOLIDARITY

Cryptocurrencies have recently taken on a role never seen before. Since the start of the war in Ukraine, they have enabled the Ukrainian government to raise millions of dollars to finance its response to the Russian invasion. More than $100 million, including by the “Crypto Fund for Ukraine”, created by the main Ukrainian platform of the Kuna sector and since merged with the government fund. “We’re still collecting cryptocurrency, and spending it to buy rations” for soldiers, “bulletproof vests or helmets”explains to AFP Michael Chobanian, boss of the platform.

From bitcoins to the central bank: a Ukrainian government site offers cryptocurrency donations

The amounts recorded in cryptocurrencies are minimal compared to the billions of aid released by the United States, European Union countries or major international organizations, but allow individuals to get involved. The American NGO “The Giving Block”, which raises cryptocurrencies around the world to send them to Ukraine, believes that it is “an option that younger donors are increasingly using to support multiple causes”. . On the other hand, Ukrainians have turned to these decentralized devices to protect themselves from the decline of their device.

If for the moment, the Ukrainian central bank has managed to stop the collapse of its course, the consequences of the invasion could cause the local hryvnia to lose its value. By using stablecoins, these dollar-backed cryptocurrencies, they avoid fluctuations in the foreign exchange market as much as possible.

Another advantage of cryptocurrency donations is the speed of transfers. Where a bank transaction can take up to 24 hours to be validated between two countries, sending cryptocurrencies is almost instantaneous and free of charge. However, encouraging the use of cryptocurrencies could backfire on the government in the long run, encouraging Ukrainians to use a parallel monetary system.

The war in Ukraine, an already colossal cost for the world economy

(With AFP)