Over the past week, multiple U.S. government officials have expressed concerns regarding cryptocurrencies, including Bitcoin and Facebook's Libra. Among those officials are Fed Chairman Jerome Powell, Secretary of Treasury Steven Mnuchin and President Donald Trump himself.
The dominant narrative in the media is that these comments, which started July 10, are the cause of the about 30% decline in value Bitcoin has suffered in the week following the remarks.
But the high-level comments on Bitcoin, even though negative, also bring legitimacy to the crypto and raises its profile.
Powell spoke on cryptocurrencies while testifying before the Senate Banking Committee. Powell’s testimony was primarily on the topic of Facebook’s Libra. During the testimony, he said, “Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability”.
But Powell also had specific Bitcoin comments, including mentioning how the crypto is often used as an alternative to gold and calling it “a speculative store of value.”
For Bitcoin, Powell’s acknowledgment of it as an alternative store of value should be seen in a positive light, even though he called Bitcoin “speculative.” An asset becomes a store of value once it is recognized as such by enough people until it becomes ingrained in society. Powell bringing up Bitcoin as an alternative to gold is nothing but a positive step in that direction.
Unsurprisingly, Trump jumped in on the topic and made his feelings about Bitcoin and Libra clear in a series of tweets. On July 12, the president tweeted that he isn’t “a fan of Bitcoin and other cryptocurrencies ... whose value is based on thin air.” He added that “crypto-assets can facilitate unlawful behavior including drug trade.”
The president’s words have the potential to negatively impact the public’s perception of Bitcoin by linking it to the drug trade. This is an escalation of the rhetoric that could lead to increased enforcement against cryptocurrencies. Turning public opinion against Bitcoin is certainly a way to weaken cryptocurrencies’ base demand. But as long as no concrete steps are taken to curb Bitcoin adoption, putting it in the spotlight may help the cryptocurrency more than it hurts it. Any publicity is good publicity and it doesn’t get better than a tweet by the president himself.
On July 15, Treasury Secretary Mnuchin held a special press conference to address Bitcoin and Libra. Mnuchin was even more aggressive than his boss, calling Bitcoin “a national security issue” and saying that cryptocurrencies “could be misused by terrorists.”
While this is just another rhetorical escalation without immediate consequences, categorizing anything as a “national security issue” and associating it with “terrorists” is often how governments legitimize an otherwise illegitimate course of action. We’ve seen in the past how governments are able to restrict freedoms for the sake of security, by labeling issues as a matter of national security.
This week's comments on Bitcoin by government officials, while mostly negative, are in no way an indication that the U.S is planning any drastic steps involving actual cryptocurrencies, unlike Libra. Bitcoin is enjoying another 15 minutes of fame, courtesy of the U.S government.
Going forward, it is worth paying attention to any government association of Bitcoin with terrorist or national security since it negatively affects public opinion. But Bitcoin’s decentralized nature ensures there is no “Bitcoin CEO” to grill in Congress, unlike Libra. Bitcoin’s decentralization is one of its strengths as a store of value.
Lastly, it is worth noting that the majority of skepticism and antagonism this week were directed towards Facebook (NASDAQ:FB) and Libra, not Bitcoin. Bitcoin occupied only a fragment of the screen time when Powell and Mnuchin explained their Libra concerns. While developments on the cryptocurrency regulation front do need to be followed carefully, there was nothing to take off some 30% of Bitcoin's value.
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