White House blasts Bitcoin for having ‘no fundamental value’, praises CBDCs

The Council for Economic Advisors showed outright disregard for the purported benefits of Bitcoin and other cryptocurrencies in the president’s economic report released Tuesday.

The report argued that cryptocurrencies lack fundamental value, nor do they “serve as effective alternatives to money.”

Crypto: Expectations VS Reality

The White House report including two dedicated sections related to digital assets: one titled “The Perceived Appeal of Crypto Assets,” and the other titled “The Reality of Crypto Assets.”

The first part acknowledges some of the most cited use cases of Bitcoin: its potential as an inflation hedge, its ability to enable fast digital payments, and its power to increase financial inclusion. However, the final part disputed all these claims:

“As inflation rose globally in the second half of 2021 and into 2022, crypto-asset prices collapsed, demonstrating that they were, at best, an ineffective hedge against inflation,” the report said.

In fact, Bitcoin collapsed to that year’s low in June 2022, exactly after the BIS announced peak inflation figures of 9.1% that month. However, so was the Federal Reserve hiking the target interest rate throughout the year to curb inflation, which led to a significant decline in both bonds, stocks and crypto.

The report also challenged Bitcoin’s use case as an alternative money, criticizing its ability to effectively serve as a store of value, medium of exchange or unit of account. This was in line with the criticism presented by central bankers worldwide, from former Fed chair Ben Bernanke to Sweden’s central bank.

Furthermore, the report doubled down on longstanding criticism of Bitcoin’s proof of work, suggesting that power consumption from mining could threaten the stability of the Texas grid. In July in Texas ordered miners to shut down to conserve energy during a heat wave that strained the power grid to its limits, which miners complied with.

Even the Web3 world was subject to criticism, with the report citing Signal founder Moxie Marlinspikes criticism of Ethereum and the decentralized web.

“Web3 is already moving towards a centralized structure due to the ease and convenience of centralization, but in a much more clumsy way than if traditional technology was used, the report said, citing Marlinspike.

The central bank option

Discussing Bitcoin’s lack of “fundamental value”, compared to other money (eg gold), the report admitted that even sovereign currencies, such as the US dollar, also lack some intrinsic value. However, it argued that sovereign currencies are backed by a “trusted institution” in the form of a central bank, which helps stabilize the currency.

In fact, the document suggests that a Fed-backed central bank digital currency (CBDC) could help “bring America’s financial infrastructure into the digital era … without the risk or irrational exuberance that cryptoassets bring.”

The report is a follow-up to President Biden’s Digital Asset Executive Order 12 months ago, in which the president ordered various agencies to study the digital asset ecosystem – including the potential of a US CBDC.

The White House noted that a CBDC, if implemented, would likely not use distributed ledger technology, but instead rely on “a trusted central authority — a country’s central bank — to operate key aspects of the CBDC system.”

Numerous politicians (especially from the political right) have voiced opposition to a US CBDC, including Florida Gov. Ron DeSantis and congressman Tom Emmerbecause of its potential use for financial surveillance.