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Ben Bernanke – former chairman of the U.S. Federal Reserve – does not believe Bitcoin or other cryptocurrencies can succeed as an alternative money. He claims their prices are too volatile to serve as a practical means of exchange and lack the underlying use cases to serve as stores of value.
Bitcoin is for Criminals, Says Bernanke
In a recent interview with CNBC’s Andrew Sorkin, Bernanke claimed that cryptocurrencies have been successful as a “speculative asset”. However, as substitutes for fiat currency, they haven’t lived up to the hype.
“If Bitcoin were a substitute for fiat money, you could use it to go buy your groceries,” he argued. “Nobody buys groceries with Bitcoin because its too expensive, and too inconvenient to do that.”
He added that the price of groceries also regularly fluctuates against Bitcoin, further impeding its adoption as a medium of exchange. Indeed, Bitcoin’s price has seen major volatility to the downside over the past 7 weeks, breaking an all-time record for its longest weekly bearish trend on Monday.
In fact, Bernanke believes Bitcoin’s “main use” is within underground economies for facilitating illegal activity.
Though a popular theory, on-chain data fails to corroborate this. Chainalysis’s latest crypto crime report shows that illegal activity takes up a smaller share of Bitcoin trading activity over time. Even the Treasury Department has admitted that fiat is still the go-to currency for criminals – not crypto.
Sorkin also asked whether Bitcoin at least held value as a non-transactional store of value or “digital gold”. Bernanke rejected this comparison as well:
“Gold has an underlying use value – you use it to fill cavities,” he explained. “The underlying use-value of Bitcoin is to do ransomware or something like that.”
The Inflation Picture
Bernanke predicted that current US inflation – which is trending at its highest level in 40 years – will come down without direct intervention from the Federal Reserve with time, as supply chain issues continue to recover. However, if the Fed is forced to continue tightening interest rates, there’s a higher chance of nationwide recession.
This month, the Fed raised rates by 50 basis points – the first hike of such a size in 22 years. The markets reacted negatively only days later – including Bitcoin, which has since traded close to $30,000.
Nevertheless, the former chairman stated that such conditions are difficult to predict. “The thing people should watch most closely is inflation expectations,” he said, claiming that a rise in expectations will signal that the market has lost confidence in the credibility of the Fed.