White House Says “Bitcoin Has Not Announced Plans to Adopt Proof-of-Stake” in Wild Economic Report

The Biden administration just released a new economic report that heavily covers Bitcoin and crypto, mentioning the two terms a whopping 305 times in total.

The document is making waves for saying that “crypto-assets to date do not appear to offer investments of any fundamental value” – but that’s just a glimpse of what’s in the report.

Here are some of the highlights.

1. The report traces Ethereum’s transition to a proof-of-stake consensus mechanism, but seems to lack a fundamental understanding of how Bitcoin’s consensus is established, referring to the decentralized network as if it were a company with the ability to come up with official statements.

“Despite Ethereum’s switch to proof-of-stake, Bitcoin has not announced plans to make a similar change.”

2. The report criticizes Bitcoin’s use of energy, but does not compare Bitcoin’s energy consumption to the banking industry, which BTC was designed to replace.

Nor does it mention the fact that miners are incentivized to use renewable energy to save on costs, or that reports estimate that as much as 59.5% of BTC mining already relies on renewable sources.

“Globally, Bitcoin accounts for 0.42% of all electricity consumption.

This means in practice that Bitcoin uses the same amount of electricity as a medium advanced economy.”

3. The report cites Bitcoin’s price volatility at a difficult time, amid a government-induced banking crisis that has forced many Americans to realize that banks are not holding onto their cash, and deposits above $250,000 are not insured by the FDIC.

“The value of one Bitcoin (relative to the US dollar) increased by over 1000% from March 2019 to March 2021, then decreased by over 70% from November 2021 to October 2022.

This volatility means that anyone using Bitcoin to store their savings is exposed to high purchasing power volatility risk.

4. The report also cites BTC’s “run risk” amid the collapse of several US banks, ironically warning that cryptoassets could trigger a “Minsky moment” that represents the end of a prolonged period of economic prosperity.

But despite the criticism, the report also says that the crypto industry is probably here to stay.

“The risk presented by cryptoassets stems from excessive speculation, high leverage, ongoing risk, environmental damage from cryptoasset mining, and fraudulent activities that harm retail investors and companies.

Because cryptoassets appear to be here to stay, policymakers should consider these risks to avoid a ‘Minsky moment’ caused by cryptoassets.”

5. The report cites Bitcoin’s scarcity and its maximum supply of 21 million coins, but declares that paper money is superior due to the existence of central banks, which print cash with impunity.

“In addition to generally being speculative assets, cryptocurrencies are currently not effective alternatives to sovereign money such as the US dollar. As noted above, most cryptocurrencies do not have fundamental value, but that is not a requirement for them to function as money. In fact sovereign money has no fundamental or intrinsic value, yet sovereign money can easily satisfy the demands of money…

The main reason for this is that the value of sovereign money is supported by a reliable institution – the central bank.

You can check out the full report here.

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Featured image: Shutterstock/turtix