“A speculation for the poor that they are the first to pay the price for”

Panic in the crypto market. These virtual currencies, which are not controlled by a central bank or a government, are exchanged on the Internet and can be used as a means of payment. They are particularly sensitive to speculation because their value is based only on the confidence of those who invest in them. Since the existence of these financial assets, prices have been up and down. The most famous of them, bitcoin, has experienced a spectacular decline over the past six months. While a bitcoin in November 2021 was worth around 58,000 euros, it is only worth more than 29,000 euros this Thursday, May 19th. That is a decrease of 50%. To MarianneEconomist Nicolas Dufrêne, senior official and director of the Rousseau Institute, returns to this crack.

Marianne: How do you analyze this brutal decline of bitcoin and cryptocurrencies in general?

Nicolas Dufrene: It is neither the first nor the last. The price of bitcoin has undergone several ups and downs. Nevertheless, we now see that more and more people, also in the crypto-asset ecosystem, are realizing that bitcoin is not and will never be a means of payment.

Why can they not be means of payment in the same way as money?

There are several obstacles that prevent bitcoin from having a system that can simultaneously handle hundreds of thousands of transactions in the same way as Visa or MasterCard. The energy consumption of this asset has been exponential over the years. It is clearly not desirable for society to continue on this path when all the transition scenarios towards 0 carbon are based on the idea of ​​energy sustainability.

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In addition to these technical elements, there are others that relate to the societal model promoted by bitcoin. With cryptoassets, it is clear that money is not seen as a commons, which I think is desirable, but as a commodity like any other. Anyone can issue them without rules, restrictions or controls. This puts competition currencies in where there is no guarantee. In the event of a financial crisis, no one can inject money to calm things down. When bitcoin loses two-thirds of its value, there is no deposit guarantee as with the traditional banking system. In short, it is not in anyone’s interest to invest their savings in this type of assets in order to use it as a means of payment, as holding it primarily has a speculative interest. It can not be used as a monetary alternative because no state or central bank can provide a guarantee. The price fluctuates according to the mood of the markets, without any protection.

Does bitcoin really only have speculative interest?

Basically yes. Now I can play the devil’s advocate by elaborating on two points where cryptocurrencies can meet legitimate needs. First, they can help with anything related to money transfers between abroad. Today, these exchanges are still complicated and expensive. This is one of the real problems in the international monetary system. Bitcoin overcomes these complications, but other assets, such as Ripple, were created solely for this.

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Second point, the emergence of autonomous societies of investment and exchange. A kind of economy that would be decentralized. We are already seeing the creation of this type of group today, which makes it possible to control investments, to choose their character by a vote and to share the profits equally. This would avoid going through traditional financial intermediaries such as investment, management or pension funds.

So everything should not be thrown out?

In fact, the two examples that I have described in detail may also be the result of a digital currency that would be controlled by central banks and states. This will even overcome the problems with cryptocurrencies explained before.

What is the difference between the two?

Establishing digital currencies would be a real monetary revolution. One can imagine central banks opening digital currency accounts and giving companies and individuals direct access to them. So far, only banks have access to central bank money. This situation has consequences. As soon as a central bank wants to buy assets or inject liquidity into the economy, it must go through private banks. If the currency is available to citizens and businesses, this dissemination is eliminated. Thus, the central bank itself can manage the rates without going through the private sector and injecting money.

You pointed out the lack of protection of cryptocurrencies, what are the dangers of this totally deregulated system?

The US Court of Auditors has already warned about the multiplication of illegal transactions using cryptocurrencies. They are used for human trafficking, drug trafficking and money laundering. More and more ransomware, this malicious software that blocks a computer and then asks for a ransom to be able to regain control of the machine, asks for bitcoins or something. Some explain that the blockchain system makes it possible to track and therefore avoid these problems. But this is completely false. We can track a bitcoin as such, but it is very complicated to know who is the natural person behind the exchange. It is very easy to split payments to slip under the police radar.

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In addition to these real risks for society and citizens, there is also the issue of economic risk. In less than a month, the total valuation of the cryptocurrency market dropped from $ 3 trillion to less than $ 1.5 trillion. Many small investors have lost colossal sums. Surveys show that some of the biggest owners are manipulating these markets up and down. They have sufficient liquidity to withstand when there is slack in the markets. But this is not the case for small savers who invest in hopes of quick gains. We can see cryptocurrencies as speculation for the poor, for whom they are the first to pay the price.

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