Thursday, 25 February 2021

Bitcoin Rally Sends 3 Signals to Governments

Bitcoin’s price has tripled in just three months, bringing the last 12-month appreciation to more than 400%. Analyzing this rally from the perspective of investors is a good way to understand what has driven this impressive rally and what it says about global finance and money. It also has important messages for governments and central banks, particularly in Europe and the United States, where several officials have warned about the Bitcoin phenomenon.

The widely covered announcements by Tesla and Square that they were buying Bitcoins highlight a broadening process of adoption. More companies are having to consider the possibility that Bitcoin is evolving into a more widely used form of payment and store of value, two key characteristics of money. With that comes a clear message to the public sector, especially in countries with currencies that are used worldwide such as the dollar and the euro: Take a lot more seriously both the technology underpinning cryptocurrencies and, on the more worrisome side, the potential of a growing migration away from traditional money and its implications for the effectiveness of monetary policy and the ability to profit from issuing currency (“seigniorage”).

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