Bitcoin is strong and Booming institutional acceptance has driven the world’s largest cryptocurrency to new all-time highs this year, but bitcoin’s core technology has also piqued the attention of central banks seeking to build their own digital currencies–a development that Bank of America warned Wednesday would be bad for the cryptocurrency sector.
Bitcoin is Trong Central bank digital currencies are kryptonite for crypto,” Bank of America analysts say
According to the Bank for International Settlements, an increasing number of central banks (about 86 percent) are aggressively pursuing the growth of central bank digital currencies (CBDCs) in an attempt to “defend their territories from cryptocurrencies,” according to Bank of America analysts in a Wednesday note to clients. CBDCs essentially combines the reliability of cryptocurrency transfers with the protections of a central-bank-backed commodity (such as cash), and their introduction, though “highly radical,” will also make it easier for policymakers to enforce the monetary policy steps that have helped keep the economy afloat during the pandemic.
According to the experts, this is bad news for private cryptocurrencies such as bitcoin: CBDCs sponsored by the government are expected to displace cash and other cryptocurrencies in the long run, reducing demand for each. That’s especially bad for bitcoin, whose soaring prices have been “exclusively” dependent on increased demand that has outpaced the token’s fixed supply, according to Bank of America, pointing out that bitcoin’s volatility makes it unsuitable as a store of wealth or payment mechanism, in contrast to the allure of a CBDC. The European Central Bank has been a leader in the CBDC movement, advocating for a digital euro
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