Last Friday (January 15), Steve Forbes, a former U.S. presidential candidate and the current Chairman and Editor-in-Chief of Forbes Media, acknowledged that Bitcoin is “booming”, but cautioned that this “doesn’t make it an alternative to the dollar yet.”
First, Forbes talked about the increasing popularity of Bitcoin and the resulting rise in its price:
“Bitcoin is the new darling of investors. It has rocketed since March from $5,000 to over $40,000 before pulling back a bit. Fans are predicting the rise will resume and that this cryptocurrency is headed for $100,000 or higher.
“People are piling in because of a lack of faith in government currencies. The Federal Reserve and other central banks have crushed interest rates and are printing unimaginable amounts of money to pay for Covid relief measures and to stimulate damage to economies. Bitcoin and other cryptocurrencies are now seen as a respectable investment class and financial institutions are adding it to their portfolios.
“Enthusiasts say Bitcoin is the new gold, and it will eventually replace the dollar.“
However, he disagrees with this last sentiment, and goes on to explain why Bitcoin is not money:
“We use money to buy products and services. The dollar, for instance, is like a claim check for a car or a coat or a ticket to an event. Only in its case you can use it to purchase or sell just about anything. Money works best when it has a stable value. While there are stories of vendors willing to accept a cryptocurrency like Bitcoin, these will remain curiosities until they are stable in value.
“Contracts are essential for an economy, whether it is buying a house with a mortgage, leasing a car, purchasing insurance, and countless other activities. Who in the right mind would sign a long-term contract based on Bitcoin? So you took out a mortgage in March [2020] for $250,000. Today, you owe the bank almost $2 million. With Bitcoin, it’s steak one, day dog food the next, and caviar the day after.
“Another problem with Bitcoin is that has a fixed supply. The amount of it cannot be increased. By contrast, the supply of money must be able to expand to meet the growing needs of a growing economy… For cryptocurrencies to seriously challenge existing money, they must be as easy as money is today. They must be fixed in value, preferably to gold or something like the Swiss Franc, so they can use them for contracts.“
In summary, what Forbes seems to be saying is that the only cryptocurrencies that could be considered money are stablecoins (pegged to gold or a strong fiat currency such as the Swiss Franc).
