Unlike trusts, the total supply of Bitcoin (BTC) is not infinite or dictated by the monetary policy of a government or Central Bank. Although it has been in constant evolution since 2009, it is set at 21 million units with issuance dictated by the halving process. If the idea that there will one day be no more new Bitcoins in circulation contributes to the value of cryptography, many analysts believe that this feature would eventually backfire. This is the case of Chi Lo, senior strategist at BNP Paribas Asset Management, who sees it as the cause of the collapse of the cryptos.
Bitcoin’s limited offer does not make it a legal tender or a store of value.
It was through a blog post on the official BNP Paribas website that Mr. Lo let go of his many criticisms of Bitcoin and crypto-currencies. In particular, he attacked the role as a store of value that proponents of the asset attribute to Bitcoin, believing it to be a totally erroneous view. « Contrary to the conventional wisdom that the limited supply of Bitcoin and cryptos is an advantage and protects value, it is actually a big problem for them to be considered money, » he said. Continuing his line of reasoning, he added that the mother of all crypto-currencies was only a « vehicle for speculators ».
With the total supply of Bitcoin set at 21 million units in particular, Mr. Lo said in the blog post that this limitation effectively makes cryptography unsuitable as legal tender. Taking the example of trusts, he explained that they cannot be issued on a static offer, as this would prevent central banks from implementing counter-cyclical policies. To this end, he added that governments would soon take steps to protect the traditional monetary system against cryptomoney. « The more people believe that crypto-currency is money, the greater the risk of government intervention in this market, » he warned.
The CBDC as the primary weapon of governments
On this last point it is difficult to prove Mr Lo wrong even if his theory on the question of the value reserve remains to be discussed. While the players in the cryptographic space are facing tighter regulation in many countries, another threat is looming. The confrontation between the cryptomoney industry and the CBDC is already shaping up to be explosive with a government-backed currency on one side.
Although there is currently no consensus among governments on how CBDCs should operate and be managed, it is clear that they will all use the CBDC as a weapon against cryptomoney. Since central banks will have to implement the monetary policy behind these assets, there will de facto be competition between limited and unlimited supply digital currencies.
In spite of the criticisms and views expressed by Mr. Lo, it is important to recall that several traditional banks are already affirming their support for Bitcoin. Such a position therefore suggests that they adhere to its limited offer principle, something which does not seem to be the case with BNP Paribas.