Do CBDCs (Central Bank Digital Currencies) Threaten Bitcoin

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The invention of Bitcoin was a technological breakthrough that disrupted the status quo. When Bitcoin was first created, central banks thought they could safely ignore it.

As Bitcoin adoption gained momentum, central banks were forced to pay attention and try to understand what Bitcoin means for the roles of central banks and the technology they use.

In recent years, central banks have converged on the point of view that there are aspects of Bitcoin that they can and should incorporate into their processes and underlying software.

CBDC (central bank digital currency) is a catch-all term for a central bank-issued currency that incorporates elements of cryptocurrencies into its operating model.

Since money is already digital, why are governments considering CDBCs

Central bankers and government officials claim CBDCs promote financial inclusion by offering the unbanked easy access to safe money.

They also state that CBDCs will increase payment efficiencies, lower transaction costs and make it easier for governments to enact monetary and fiscal policy.

In addition to these claims, CBDCs offer governments two benefits that should not be ignored CBDCs increase the state’s financial power over citizens, and they serve as a surface-level competitor for private sector innovations like Bitcoin.

Implementing a CBDC risks destabilizing large sectors of the economy, which explains why people are uneasy about the idea in countries like the United States.

Further, they represent a mild technological upgrade to fiat money not a breakthrough in monetary technology like Bitcoin.

CBDCs are still the same inflationary fiat currencies as before, albeit fully digital and less private.

In contrast, consumers are drawn to Bitcoin because of its unique monetary qualities and its censorship resistance.

Fortunately, CBDCs are not a threat to Bitcoin. In fact, CBDCs may even hasten Bitcoin’s adoption.

What are CBDCs

In the United States, the Federal Reserve creates dollars. These dollars consist of a mix of physical cash and reserve balances held by banks at the Fed.

Consumers use a combination of physical cash and digital dollars represented as deposits in their bank accounts.

However, digital dollars held in consumer bank accounts differ from those held by banks at the Federal Reserve.

Digital dollars in consumer bank accounts actually represent claims to dollars banks hold with the Fed.

Consumers cannot directly use these dollars because only financial institutions can access them.

We do not notice the difference between digital dollars claims to reserve balances and actual dollars because the US banking system is currently solvent and secure enough that the distinction has no day-to-day consequences for now.

Pre-CBDC banking model in the US

CBDCs differ from digital dollars because they are actual dollars produced by the Fed, not claims to dollars held by banks at the Federal Reserve.

There are two avenues for central banks when implementing CBDCs wholesale and retail.

Under a wholesale model, CBDCs emulate bank reserves. The CBDC would be the monetary good that is deposited in the accounts that banks and other financial institutions hold at the Federal Reserve.

Banks would then provide a representation of those dollars, likely rehypothecated, in consumer bank accounts.

Wholesale CDBC model

As Nik Bhatia describes in ‘Layered Money,’

“Central banks could issue a digital currency in the form of wholesale reserves, which would only be accessible to banks… The digital reserves option has the potential to modernize financial infrastructure for the banking system, but it won’t impact how society interacts with money.”

In contrast, retail CBDCs would serve as digital cash for consumers. Think of a FedWallet app that lets you spend CBDCs just like any other cryptocurrency.

While the wholesale model would not significantly change the status quo, the retail route would upend the mechanics of the current banking system.

Retail CBDC model

Differences between the retail and wholesale models matter. As illustrated above, with a retail CBDC, Americans would have a direct bank account with the Fed without commercial intermediaries.

Given the unpredictable impact a retail CBDC would have on the American banking system, the Federal Reserve is focused on developing a wholesale CBDC instead.

Contrasting with that approach, however, the Biden-Harris administration reported on the feasibility of a CBDC system in the US and suggested there may be a growing political appetite for retail CBDCs.

The report states that “all should be able to use the CBDC system” and “the CBDC system should expand equitable access to the financial system.”

Since the wholesale model does not expand access to the financial system, the Biden-Harris report signals that politicians intend to explore the retail option.

CBDCs face problems

Business lending

CBDCs face competing goals. An important function of commercial banks is directing funds toward investment projects through loans.

If CBDCs successfully divert funds from the private financial system, entrepreneurs risk losing access to capital as CBDCs crowd out traditional banks.

Therefore, CBDCs would either compel governments to assume the lending role of commercial banks or reduce businesses’ access to capital.

Further, governments are ill-equipped to make investment decisions. When they do, the economy is impeded at best and severely damaged at worst.

Academics provide a solution to this problem of directing investment in an economy run on a retail CBDC, namely, to offer low CBDC interest rates to disincentivize large-scale CBDC accumulation.

However, this raises a question – if citizens must be disincentivized from using CBDCs for one of the key use cases for money, why introduce them? The answer is unclear.

This inherent contradiction might explain why over two-thirds of public comment letters in response to the Federal Reserve’s proposal for a CBDC view the idea negatively.


By removing commercial banks as financial mediators, CBDCs offer governments exclusive control over each citizen’s bank account.

Government officials no longer have to work with commercial banks they can limit, censor or stop financial transactions for any reason.

This is why CBDCs raise red flags for privacy-minded individuals.

Today, in China, DCEP (Digital Currency/Electronic Payments) allows the People’s Bank of China to surveil citizens’ everyday transactions.

Combining the DCEP with China’s social credit system gives the government the power to interact directly with consumer bank accounts based on political preference.

Even in Canada, which is not overtly authoritarian, Prime Minister Justin Trudeau froze the bank accounts of people who participated in or even financially supported protests against mandated COVID-19 vaccinations.

The programmability of CBDCs is also concerning. They allow central bankers to program monetary policy directly into the money people use every day.

For example, facing an economic crisis, central banks could decide to change the code for dollars so that they expire if they aren’t spent within an allotted time frame, forcing people to spend them on consumption to ‘stimulate’ the economy.

Government officials seem to be unaware of these risks or at least unwilling to discuss them. Instead, CBDC proponents praise their potential for programmability and surveillance.

Even putting aside privacy drawbacks, the consumer case for CBDCs is unclear. They do not alleviate financial problems, such as inflation, nor do they promote financial inclusion.

They also do not represent a technological breakthrough because the mix of technologies that they rely upon is already utilized by the Bitcoin network.

As William Luther and Andrew Bailey note,

“The standard case for a CBDC rests on the mistaken idea that we need new digital money for our new digital world. Much of our money is already digital though commercial bank deposits and transfers are recorded on computers, not paper ledgers.”

Bitcoin –still better, not going away

In ‘American Banker,’ Rob Blackwell describes the threat this way,

“If bankers are not careful, they may find themselves on the losing end as they watch the Fed create an alternative to federally insured deposits.”

One can assume the commercial banking lobby will oppose CBDCs in full force, introducing another hurdle.

Further, while commercial banks are generally unpopular with consumers, it is questionable whether consumers would prefer interacting with central banks distant monolithic institutions that are all but guaranteed to have even worse customer service.

While central bankers write papers and pontificate about digital currency consumers do not want, Bitcoin adoption will continue for one reason it is simply the best form of money ever invented.

CBDCs do not threaten Bitcoin. In fact, insofar as they introduce additional risk, uncertainty and privacy concerns to the current financial system, the advent of CBDCs may even fuel further adoption of Bitcoin.

David Waugh is a business development and communications specialist at Coinbits. He previously served as the managing editor at the American Institute for Economic Research.


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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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Exploring the Value of Bitcoin

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A common argument against Bitcoin’s long-term viability is that it doesn’t have any real value.

This response is reasonable when you consider that Bitcoin is a technology that is so innovative, it feels unfamiliar to most people when they first encounter it.

It’s not like fiat currency, which is issued by a central bank associated with a powerful government.

It is unlike a stock, which gives the holder partial ownership of a company. It’s not like an altcoin, which is primarily used to speculate on the viability of new tech projects.

It’s not like a bond, which provides the holder with a claim on an amount of debt that will be repaid when the bond matures.

It does not generate cash flows, like rent on real estate or interest on a loan. It is not a precious metal used in industry and jewelry, like gold.

And yet, a single Bitcoin is valued in the tens of thousands of US dollars. People buy, sell and use it all over the planet. Why?

Types of value

According to monetary theory, some forms of money have intrinsic value meaning that they are useful for something besides transactions.

For example, salt, which has been used as money in the past, has intrinsic value because it can be used to season food.

Similarly, gold has intrinsic value because it has non-monetary uses in industry and jewelry.

Money that cannot be used for anything besides a medium of exchange or a store of value is deemed to have no intrinsic value.

Fiat currencies, such as US dollars, have no intrinsic value. They are useless for anything besides serving as money.

Alternatively, there is a financial concept known as fundamental value. The fundamental value of an asset is the value of the future cash flows that the asset generates, discounted to the present.

Real estate has fundamental value because it generates returns. Gold does not generate future cash flows and therefore has no fundamental value.

Where does Bitcoin fit in

From a monetary perspective, Bitcoin has no intrinsic value, and from a financial perspective, it has no fundamental value.

Bitcoin offers nothing besides utility as money. Warren Buffett attacked it for this reason, calling Bitcoin, “rat poison squared.”

However, many of the smartest investors from the world of legacy finance fail to grasp that Bitcoin is extremely valuable as money precisely because it is so good at being money and because that is its only job.

If Bitcoin has no intrinsic or fundamental value, why does it nonetheless have value? Why do individuals demand Bitcoin enough to drive its market capitalization into trillions of dollars?

The answer is simple Bitcoin has value because people think it does. This might sound unsatisfying, but keep reading, and it will all make sense.

We are all speculators, all the time

Money facilitates people’s ability to acquire valuable goods and services. It’s better than bartering because it’s relatively less expensive and complex.

Living in a world where we have to trade our apples for chickens feels anachronistic and needlessly costly, given how many different goods and services we consume today.

Money provides a solution, providing a commonly accepted medium we can exchange among ourselves for the things we need.

Given that many forms of money are accepted as media of exchange, why do people choose one over the other?

For example, why would you hold US dollars in your wallet rather than Argentine pesos?

When you elect to hold US dollars, you are speculating that at least two things are true.

One, that the people who have the goods and services you desire will be more likely to accept US dollars than Argentine pesos.

And two, that the dollars in your wallet will be a better store of value over some time period, reducing the risk that the purchasing power of those dollars will deplete in the future.

People hold Bitcoin for the same reason. Just like with dollars, pesos or any other currency, Bitcoin holders are placing a bet on Bitcoin’s ability to be exchanged for valuable goods and services in the future.

This brings us to the critical question – why do people prefer Bitcoin to other currencies?

Or, put differently, why do they choose to store their wealth in Bitcoin, speculating it will be a good store of value?

Bitcoin has qualities that people prefer for their money

  • The meteoric rise in the price of one Bitcoin, rocketing from $1 to tens of thousands of dollars in a few short years, demonstrates that people place high value on it. As it turns out, the reason is that Bitcoin exhibits certain qualities that make it very good at being money.
  • Bitcoin is a secure, decentralized payment network, uncontrollable by politicians and governments. Anyone with internet access can use it and exchange it with others with no third party or intermediary.
  • Bitcoin has a fixed supply, preventing an issuing body, such as a company or central bank, from issuing more units and diluting the equity stake in the network enjoyed by Bitcoin holders.
  • Being digital, Bitcoin can be divided into infinitesimal parts. Everyone’s used to the base currency unit, like dollars, being divisible into hundredths, like cents. In Bitcoin, every coin is divisible into 100,000,000 sub-units called, ‘sats.’ If needed, the protocol could one day be updated to divide it further.
  • It’s impossible to counterfeit Bitcoin because it’s so easy to make software that can validate whether a Bitcoin is real.

These are only some of the strong monetary qualities of Bitcoin, and why people value it.

There are already many use cases for Bitcoin

Although Bitcoin offers nothing outside of its use as money, its monetary qualities make it highly desirable as both a medium of exchange and as a store of value.

While it’s important to remember that Bitcoin is primarily used as a store of value in the United States, there are many countries where it is prized as a medium of exchange as well.

To those in the developing world, where property rights may be weak and currency debasement is regularly used as a political tool by those in power, Bitcoin offers a way out.

Millions of people in developing countries throughout the world rely on Bitcoin to protect their wealth and transact with others.

Outside of the developing world, it is also easy to see why people buy Bitcoin. In the United States, from June 2021 until the time of this writing, the official rate of inflation was 8.6%.

It is widely accepted that the calculation by which this percentage is generated is corrupted by political interests.

While fiat currencies in developed nations are relatively stable, the truth is that something that can’t go on forever won’t.

Bitcoin is an invention that improves upon money

While Bitcoin does not have intrinsic value as defined by monetary economic theory or fundamental value as defined by financial analysts, its qualities as money offer a level of utility unlike any other.

It assures participants the value they store on the network can never be debased or stolen from them by governments and other entities in control of financial infrastructure.

With about one-percent of the world’s population estimated to own Bitcoin at the time of this writing, Bitcoin is here to stay.

Regardless of whether the price goes up or down, every day it is adopted by more individuals and businesses.

As the immutable Bitcoin blockchain continues to grow over time, Bitcoin will be there for anyone who wants to store the fruits of their labor on the most secure monetary network in the world.

David Waugh is a business development and communications specialist at Coinbits. He previously served as the managing editor at the American Institute for Economic Research.


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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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Why Bitcoiners Are Unfazed by the New Spot ETF Drama

Despite the hype around Wall Street’s spot bitcoin ETF applications, Bitcoiner enthusiasts remain unfazed, seeing the unencumbered use and ownership of bitcoin itself as superior to any third-party managed financial product.

The recent wave of spot bitcoin ETF applications by Wall Street giants, such as BlackRock, Fidelity, and Ark Invest, marks a reignition of institutional interest in bitcoin.

However, the Securities and Exchange Commission (SEC) has yet to approve the filings, deeming them inadequate and forcing firms to refile, as sources recently revealed to the Wall Street Journal. The SEC’s reaction appears political and related to its ongoing legal battle with Grayscale regarding the Grayscale Bitcoin Trust (GBTC)

Related reading : Spot Bitcoin ETF Filings Progress To A New Phase In The U.S.
Related reading : Recent Spot Bitcoin ETF Filings Are Inadequate — Says SEC

Most people who understand bitcoin are apathetic to the SEC’s rejection and instead are more concerned with how the ETFs and similar products could affect bitcoin’s prospects as a tool for monetary freedom. Why?

It’s simple: No one needs SEC approval to own bitcoin. Bitcoin itself is superior to Wall Street’s repackaging of it into an ETF product.

Anyone can own and transact with bitcoin. No third-party permission — or involvement — is required. People who understand bitcoin have little incentive to purchase, or even care about Wall Street’s ETF, which would place the familiar barriers that come with traditional financial products in the way of their ability to use the underlying asset.

Although a spot ETF makes it easier for investors to gain exposure to bitcoin’s price in their brokerage accounts, it also comes with artificial restrictions that bitcoin itself doesn’t have.

For example, a bitcoin ETF would only be tradeable during the market’s hours of operation, which is normally from 9:30 a.m. to 4:00 p.m. Eastern time on weekdays (excluding holidays). Brokerages and exchanges will be able to halt trading for a variety of unpredictable reasons. They must also comply with regulatory actions directed at them, putting additional constraints on the salability of ETF shares. 

If the government decides to clamp down on bitcoin, it would be much easier for the state to seize a large amount held by an asset manager than by millions of hardened Bitcoiners who self-custody the asset.

Does that sound unconstitutional? It would be, but that isn’t something to rely on when mitigating risk. The recent 90th anniversary of FDR’s gold seizure is a good reminder of the government’s ability to seize citizens’ money.

As the first digital bearer asset, bitcoin offers true ownership, enforced not by ink on paper but by cryptographic certainty. This is something that no other financial instrument, including other cryptocurrencies, can provide.

And unlike bearer assets like cash, gold, silver, stocks, or bonds, anyone can transfer large amounts of value across the Bitcoin network worldwide at any time.

Because of bitcoin’s superiority over its repackaging as an ETF, some people have been outwardly hostile to them, going so far as to call them a “sh*tcoin,” (a popular catch-all term for all forms of money other than bitcoin, the U.S. dollar included). Bitcoiners place a high value on personal freedom, and bitcoin ETF ownership does not mint more sovereign individuals

Further, the recent slate of spot bitcoin-ETF denials is nothing new. The Winklevoss twins applied for one over ten years ago, and they are still awaiting approval. The only difference between those old applications and the ones filed recently is that the recent ones were filed by white-shoe firms with deep ties to the SEC. It’s not by accident that BlackRock’s ETF approval record with the SEC is 575-1.

Although a bitcoin ETF product might provide more people exposure to bitcoin’s price in the short term, it is not a substitute for real bitcoin, and could even delay what many consider its destiny: separating money from the state.

When the first Bitcoin block was mined in January of 2009, it included the inscription, “Chancellor on the Brink of Second Bailout for Banks,” a clear rebuke of crony capitalism. People who understand bitcoin share this sentiment and own real bitcoin rather than relying on firms like BlackRock.

David Waugh is a business development and communications specialist at Coinbits. He previously served as managing editor at the American Institute For Economic Research.
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Protection Against The Financial System Requires More Than A Spot Bitcoin ETF

This is an opinion editorial by David Waugh, a business development and communications specialist at bitcoin investing platform Coinbits.

A few weeks ago, BlackRock and other major financial firms filed for permission to offer spot bitcoin exchange-traded funds (ETFs).

Though the U.S. Securities And Exchange Commission(SEC) stated that these initial filings were inadequate, forcing the firms to refile, many investors believe that they will eventually be approved, creating the first-such products on the market. These new financial instruments would allow institutional and retail investors to access exposure to bitcoin’s price without having to purchase actual bitcoin.

On the surface, this would be a major win for Bitcoin adoption because it will become easier for financial advisors, previously hesitant or unable to enter this market, to assist clients with a form of bitcoin allocation.

Banks and other traditional financial players will also use the spot ETF to increase their exposures, which may increase bitcoin’s exchange rate with the dollar. For families and individuals, however, shares of a bitcoin product through spot ETFs are not a substitute for holding bitcoin in self custody.

Ultimately, Bitcoin ETF products still exist within the traditional financial system and do not offer complete protection from market, government or compliance risk. As such, market forces can affect the ETF issuers, and governments can enact and enforce regulations by decree that devalue or debase the consumer’s assets.

In contrast, holding real bitcoin allows individuals to access a digital bearer asset outside of control of governments and traditional financial institutions. Though it introduces new risks associated with private key management, every diversified portfolio should have a real bitcoin allocation, regardless of any additional allocation to a bitcoin ETF.

As investors seek to diversify to spread risk and protect themselves from geopolitical and market shocks, there is no substitute for bitcoin in self custody.

Advice Outside Of The Financial System

For years, financial advisors have dutifully allocated clients’ wealth across a variety of traditional financial assets (stocks, bonds, real estate, insurance). In aggregate, they have performed reasonably well. Vanguard analysts have calculated that advisors can increase the value of client portfolios by up to 3% by simply ensuring that they follow best practices, rather than trying to chase returns. Advisors benefit from a typical 1% annual fee on assets under management (AUM).

Yet good financial advisors are more than outsourced portfolio allocators who recommend the right “blend” of assets to match a client’s goals and risk profile. They work with clients to ensure protection from a wide range of outcomes and ensure wealth preservation through retirement and for future generations.

Some advisors ignore the reality that allocations entirely within the traditional financial system are exposed to risk stemming from the “boom and bust” financial market cycle. As a result, sometimes clients must risk being unable to retire or change jobs until the market picks up again, placing them at a significant lifestyle setback.

Proper diversification requires liquid assets outside of the traditional financial system. For generations, the best asset for doing so was physical gold. In 2009, however, Satoshi Nakamoto released the next-best bearer asset, bitcoin, and with it a novel system with a credibly fixed monetary policy. Now, anyone can use bitcoin to free up liquidity during a crisis.

A Spot ETF Vs. Real Bitcoin

The potential spot bitcoin ETF would provide benefits, such as exposure to bitcoin’s price movements, some diversification from traditional financial markets and ease of purchase. Despite these advantages, it falters in saleability, a key feature of a diversified portfolio.

Bitcoin operates on a monetary network that runs 24 hours a day, 365 days per year. Individuals and institutions can use it to instantly transfer value without third-party approval. They can also sell bitcoin for fiat currencies at any time via centralized exchanges or peer to peer.

In contrast, individuals and institutions can only exchange shares of a spot bitcoin ETF for fiat liquidity when financial markets are open, which, for retail investors, is 9:30 a.m. to 4:00 p.m., Eastern Standard Time on weekdays, excluding holidays. Exchanges can also halt trading at will or because they receive a regulatory order, further limiting the saleability of ETF shares.

In another scenario, if a government attempts to restrict the acquisition of bitcoin, it might be able to seize the asset manager’s bitcoin or order it to liquidate the ETF. Holding real bitcoin yourself by managing your own private keys offers exit ability from a system with strong capital controls, rather than suffering the consequences of an unpredictable future.

Essential Protection, Meaningful Diversification

Owning shares of a bitcoin product is not equivalent to directly holding bitcoin. Spot bitcoin ETFs would remain tethered to the conventional financial system. This has some mild advantages, but ultimately this limits the ability of bitcoin to be used as a shield against the risk inherent in the traditional financial system.

Including actual bitcoin is essential to a diversified portfolio, even if that portfolio already has a spot bitcoin ETF position.

This is a guest post by David Waugh. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.