Crypto assets are worth nothing… and then she woke up
It looks like Christine Lagarde, the President of the European Central Bank, has lost her sleep and is having nightmares over crypto.
On a recent episode of the Dutch television show “College Tour,” when speaking about cryptocurrencies Lagarde said that “my very humble assessment is that it’s worth nothing”, and continued “it’s based on nothing, there is no underlying asset to act as an anchor of safety.”
You can watch the entire video here. If you want to go to the part when she starts talking about crypto go to 12:10.
Lagarde also said that she’s concerned about people “who have no understanding of the risks, who will lose it all, and who will be disappointed, which is why I believe that that should be regulated.”
If crypto is worthless, why does Christine Lagarde want to regulate cryptocurrencies? Well, she might want to protect consumers by preventing people from buying crypto. On the other hand, she and other central bankers may know that they are not worthless and since they can’t shut them down, they want to regulate them in order to have some level of control over crypto.
I think the latter is more likely. I mean, saying something is worthless and then talking about regulating it, doesn’t make a lot of sense. If cryptocurrencies are worthless, then people will stop using them, and eventually, they will die.
Lagarde also compared crypto with the ECB’s digital euro, a project that may come to fruition in the next four years: “The day that we have the central bank digital currency out, any digital euro I will guarantee. So the central bank will be behind it and I think that’s vastly different from any one of those things.”
So will the digital euro have a different monetary policy? Not. The ECB will still be able to mint new digital euros when it wants to.
When asked about the expansion of the ECB balance sheet and the gigantic bubble it represents – it’s over 8 trillion euros – she said “what I can tell you is that there are zero crypto assets on the balance sheet.” When the host asked how she planned to get it back down, she replied “it will come, it will come in due course. Yeah. In due course, it will come down.”
That’s an answer if I’ve ever heard one… now I am reassured. Talk about answering without actually saying anything.
Does this mean that the digital euro and other CBDCs will be the end of bitcoin?
No. They are just a speed bump on the rocky road to creating decentralized finance (DeFi).
The beauty of Bitcoin is that every one of us can be our own bank. That means that we have sovereignty over our wealth instead of a third party, which can decide to create money out of thin air when it decides.
But the issue that still remains is that too many people believe cryptocurrencies are all about HODLing (holding them as an investment) rather than what they are truly intended for, which is to exchange value in order to buy and sell goods and services.
Some traditional payment service providers, such as PayPal, Square, and even Mastercard and Visa, are beginning to provide payment methods for customers that want to use cryptocurrencies and for merchants to accept them.
Clearly, while ease of access is increasing, the consumer still bears the risk of converting the cryptocurrency to fiat at the time of purchase. Customers that use cryptocurrencies to pay for goods and services face some exchange rate risk. This risk arises because all merchants accepting cryptocurrencies quote their goods and services in a fiat unit of account and not in the cryptocurrencies they accept.
Also, everything is happening through established payment companies with an interest in maintaining compliance and sound risk management practices used in their traditional fiat currency businesses.
The reality is that crypto allows us to move hundreds of thousands of dollars across borders, without any problems, and nearly in real-time. This is freedom. The idea of doing the same thing through the traditional financial system, digital or not, that takes days to process, costs a fortune, and punishes us for moving our funds across borders, just seems archaic.
That’s why crypto has value and will continue to grow. At the end of 2021, global crypto users were close to 300 million and they’re expected to hit 1 billion strong by the end of 2022. Central banks know full well that’s not worthless, regardless of what they may say.
The end-game will be an ecosystem of cryptocurrencies, stablecoins, and CBDCs and the user will have a range of options to choose from. That is what free-market economies are all about, available choices.
by Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet.
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