Letters to the Editors—Legal Tender: El Salvador Bets on Bitcoin

As the Dispatch recognizes, much of the discussion of cryptocurrencies is obscured by the fact that people do not understand what they are. Monetary theory tells us that currency – fiat, crypto, or otherwise – must perform as three functions: medium of exchange, store of value, and unit of account. As speculative assets, cryptocurrencies fall flat when viewed through this lens. El Salvador adopting Bitcoin is hardly awe-inspiring given that the small nation abolished its central bank currency in 2001 in favor of the dollar.

Similarly, if the crypto evangelist-in-chief’s car company only accepted Bitcoin for mere months before backpedaling, what does that portend for its currency prospects? Cryptocurrencies’ volatility also jeopardizes their utility as a store of value. Perhaps most tellingly, cryptocurrencies’ denomination in dollars – and investors’ desires for the liquidity to easily exchange crypto for dollars – eliminate any illusions as to their true nature.

They are an attractive investment, but they face an impossible uphill climb towards widespread adoption as currencies against the incumbency of the dollar and other fiat currencies underwritten by the vast political and economic power of the world’s governments. For the foreseeable future, Bitcoin may go “to the moon,” but won’t get anywhere near King Dollar’s throne.

– Austin Dahmer, DC Professional Chapter

Related Posts