Few observers would have predicted such a rise. At the beginning of December, the price of a bitcoin, a cryptocurrency created in 2008 by the man named Satoshi Nakamoto, exceeded the symbolic milestone of $100,000. One man is no stranger to this situation: Donald Trump. The new President of the United States received numerous signs of support, particularly financial, from the ecosystem throughout his campaign. His promises of tax and regulatory relief have attracted local entrepreneurs. His victory, like that of hundreds of pro-crypto candidates for Congress, coincided with an explosion in the price of bitcoin, gaining more than 50% in a few days. The sector now hopes that Donald Trump will agree to create a “strategic reserve” of bitcoins. Is this credible? Interview with economist Éric Monnet, director of studies at the Paris School of Economics (PSE) and at the School of Advanced Studies in Social Sciences (EHESS), author of several works on central banks.
L’Express: The bitcoin community hopes that Donald Trump will agree to create a “strategic reserve” of this cryptocurrency whose value recently exceeded $100,000 per unit. Is this possible?
Eric Monnet: I have doubts. On the one hand, I find it difficult to see the American Central Bank, the Fed, making such a risky decision regarding an asset with such a volatile price. Bitcoin, like stock markets, reacts strongly to political events, such as the recent election of Donald Trump. The increase in its price is good financial news… for those who already had it. But for a State, linking its long-term finances to an asset whose value will depend on electoral votes, or the investments or withdrawals of “whales” (large investors) who can easily influence its price, is extremely risky.
In the United States, there is certainly the exchange stabilization fund, dependent on the Treasury, which can buy foreign reserves in addition to the Fed. If the objective is to acquire more and more bitcoins [NDLR : c’est le sens d’une proposition de loi de la sénatrice du Wyoming, Cynthia Lummis, prévoyant l’acquisition d’un 1 million de bitcoins au cours des cinq prochaines années]Donald Trump could act more directly through this body. But this would break with all the traditions of this fund and more broadly of all the institutions which have reserves in the world and which wish to have safer assets, such as gold, often used as such in history, or especially of the dollar. It is here that this choice appears most paradoxical. The creation of a strategic reserve serves to guarantee confidence in one’s own currency. However, it is not necessary for the United States to buy bitcoins to guarantee confidence in the dollar: it is already the dominant currency in the world. It would therefore be, in a way, like betting against your own currency…
What are the risks associated with the creation of this reserve, with such an asset?
With a traditional monetary reserve, the United States should logically commit to maintaining the price of the dollar in relation to bitcoin. If the price of bitcoin falls, which happens regularly, it would be necessary for the Fed to commit to purchasing even more bitcoins to maintain the value of this reserve. This is why the operation is difficult to imagine. Who would accept affiliate losses? What’s more, why would the United States take responsibility for maintaining the world price of bitcoin itself? And even if the United States accumulates bitcoins without giving it a monetary value (as some countries do with gold today), it would send a contradictory signal to the world about the value of the dollar. Donald Trump recently threatened the “Brics +” alliance of emerging countries to impose prohibitive customs duties on them if they weakened the dollar by supporting another currency. If the United States itself becomes buyers of bitcoin, it could not blame the Brazilians or the Indians for also obtaining it… and therefore weakening the value of the dollar.
Bitcoin has often been compared to “digital gold,” as if it were promised to become a store of value. Is the parallel still justified?
It is a rare asset, because it is limited to 21 million copies and which does not belong to any state. These are the only valid comparisons with gold in my opinion, at the moment. What confirmed the special status of gold in the history of currency was the commitment of many states to have an official gold exchange rate. This is not the case for bitcoin. And since the 1970s, gold no longer has monetary value even though certain central banks continue to buy or hold it; it is only used as a reserve. So, it is not impossible that bitcoin will one day reach a very high and stable value and that, without particular intervention from States, bitcoin will acquire a role as a reserve asset like gold today. However, countries should consider that its price will never fall. We are far from it. Finally, as with gold today, this would not imply that it has a monetary value recognized by States and that it is used as a means of payment.
It must nevertheless be recognized that bitcoin has no equivalent in history. It is not easy to compare it to older assets, because it is characteristic of our time. It required a certain advancement in technology and it operates in a very financialized world. Often, currencies gradually become financial assets, after establishing themselves as stable currencies. The dollar is the most financialized currency. Bitcoin already is, even though it does not offer the same guarantees of stability, and remains very little used for exchanges.
“There is no need for the United States to buy bitcoins to ensure confidence in the dollar”
Today we have the feeling that bitcoin and the explosion in its price are still very poorly understood by economists.
Economists, in truth, traditionally have little interest in the question of payment systems. And many economists did not initially understand the revolution that bitcoin and cryptocurrencies could bring about in this area. But it is true that there is a lack of information about it and in particular about who owns it and how it is used. The increase in the price still raises a certain number of questions: are there more and more small new entrants, who are buying a little bit? Or is it rather the work of big players who already have a lot of bitcoins, like MicroStrategy, and who use it as leverage to raise funds? Or perhaps it is the enthusiasm of the traditional financial sector, which launches longer-term products? The usual elements of analysis to explain an exchange rate do not work with regard to the price of bitcoin in dollars. It’s not easy, either, to try to study it as an action or an asset. Bitcoin does not provide dividends or interest. At the moment, a simple explanation is the anticipation of future gains. Many hope to reap it due to the political suitability of bitcoin, by nature anti-system, with the new Trump administration.
If the reserve project does not materialize, how can Donald Trump still use cryptos to his advantage?
In his program, Donald Trump intends to keep a very strong dollar. And at the same time, he wants to boost the crypto industry at all costs. The solution could lie in stablecoins [NDLR : des cryptomonnaies au cours stable] backed by the dollar. The advantage with this instrument is that it does not threaten the value of the greenback, and it retains the support of part of the crypto community, in any case, those who are mainly interested in technology and potential profits rather than the anti-State ideology of cryptocurrencies. This is consistent, finally, with its desire not to create a central bank digital currency (CBDC). This would also put pressure on many other countries, particularly in Europe, on the issue of accepting these dollar stablecoins.
There remains a question of trust. Political enthusiasm alone cannot enable the democratization of cryptocurrencies…
Their use as a means of payment will require regulation. Particularly for stablecoins, which do not all have the same level of collateral, i.e. the currency equivalent to which they are backed. But clearly, there is a real growing global demand for international money transfers, mainly through companies like Western Union, which stablecoins can satisfy. Also, crypto makes sense in countries where banks are completely unreliable.
In Western countries the situation is different. Confidence in banks is strong. This is why they have had a virtual monopoly on monetary transactions for several decades. But many forget that this is not inevitable. Historically, populations have often had several forms of currencies and coins. Even today, we coexist with cash currencies, issued by the Central Bank, and bank money, present in our bank account and which we use via our payment card. A stablecoin can be added to the available choices, and consumers will juggle these forms of payment depending on their acceptance, practicality, speed… It is also very possible that traditional banks will try to integrate these cryptocurrencies to their current services.
What about bitcoin, in this case?
It is difficult to predict whether bitcoin, in 10 or 20 years, will appear as an old thing, an outdated pioneer, or if the crypto sector will develop on bitcoin because it would remain its reserve currency. For the moment it is. Today’s major crypto investors were often early buyers of bitcoin. They therefore have an interest in maintaining its course.
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