Many have gone back and forth regarding how to classify bitcoin. Is it money? Is it simply a speculative asset? How can it be used, and what are most people supposed to do with it when cash and credit cards remain so prominent?
Bitcoin Is Money, According to Fed Sentiment
According to economists at the New York office of the Federal Reserve, bitcoin is like an extension of fiat money. In other words, it’s not a new type of money or even necessarily a new coin. Rather, it’s being described as an “e-change mechanism” that can support money from virtually any region of the world in any form. It can also support other kinds of assets and is likely to take on a form similar with that of gold’s in the coming years.
According to Michael Lee and Antoine Martin of the Federal Reserve Bank of New York, bitcoin is “fiat” money that is both “asset-backed” and “rights-backed.” They state:
Bitcoin, and more generally cryptocurrencies, are often described as a new type of money. In this post, we argue this is a misconception. Bitcoin may be money, but it is not a new type of money… Fiat money corresponds to intrinsically worthless objects that have value based on the belief that they will be accepted in exchange for valued goods and services. A typical example is currency.
These words present an interesting scenario in that one of the largest and most prominent financial institutions in the world sees bitcoin as a type of money. Money, for the most part, is often used to pay for goods and services, yet there are still several businesses and retail outlets in this country and abroad that refuse to accept crypto as such. They are concerned about the volatility and price swings that cryptocurrencies can often be vulnerable to, and thus refuse to accept any form of digital payment in exchange for goods or products.
Perhaps the Federal Reserve can potentially convince American businesses and companies overseas to change their minds and see bitcoin and its altcoin cousins in a different light.
Blockchain Can Further Financial Systems
The two Fed analysts also stated in their post that blockchain technology – the tech behind crypto – is extremely important when it comes to forwarding the financial systems of America and other countries. They write:
The real innovation of cryptocurrencies is that they offer a radically new exchange mechanism. This type of exchange mechanism can support the transfer of different kinds of monies; fiat money is the case of bitcoin, money backed by assets in the case of stable coins, and even future services or products, as in the case of ICO tokens.
At press time, bitcoin is trading for just over $9,300, marking a near $200 drop in its price over the past 48 hours.