ANDOLFATTO: BITCOINS EXISTENCE AS THREAT TO THE DOLLAR IS VERY GOOD”

In a world where digital currencies are increasingly vying for prominence, the spotlight often falls on Bitcoin and its potential impact on traditional financial systems. Last week, St. Louis Fed vice president and director of research David Andolfatto released a presentation on Bitcoin, becoming one of the most prominent central bank officials to study the cryptocurrency.While some view Bitcoin as a disruptive force, threatening the established order, others see it as a catalyst for positive change. In this video, St. Louis Fed Vice President and Economist David Andolfatto discusses whether bitcoin has the characteristics of a good money, or a money that maintains stable purchasing powerAmong the latter is David Andolfatto, Vice President and Director of Research at the Federal Reserve Bank of St. David Andolfatto, who is the Vice President of Research at the Federal Reserve Bank of St. Louis, recently let it be known that bitcoin may work as a store of value. The comments related to this topic came during a recent interview on the Epicenter Bitcoin podcast.Louis.His perspective, particularly his assertion that Bitcoin's existence as a threat to the U.S. dollar is ""very good,"" has sparked considerable debate and interest. 154 votes, 158 comments. true. Open menu Open navigation Go to Reddit HomeThis isn't about Bitcoin replacing the dollar wholesale; it's about the competitive pressure it exerts, potentially forcing central banks to adopt sounder, more responsible policies.What does this mean for the future of money? Dr David Andolfatto, who is Vice President of the St. Louis Federal Reserve, has been one of the most forward-looking people at central banks around the wHow does a central bank official view this decentralized digital currency? U.S. dollar-based stablecoins are similar to money market funds that peg the price of their liabilities to the U.S. dollar. They also look very much like banks without deposit insurance. As the financial crisis of showed, even money market funds are subject to runs when the quality of their assets is questioned.Let's delve into Andolfatto's views, the challenges and opportunities Bitcoin presents, and the broader implications for the global financial landscape.We'll explore the evolution of money, the role of stablecoins, and the potential pitfalls along the way, offering a comprehensive look at Bitcoin's place in the modern financial world.

Bitcoin as a Catalyst for Sound Monetary Policy

David Andolfatto's view isn't about Bitcoin dethroning the dollar, but rather about the competitive pressure it exerts on the existing financial system. A piece I wrote on Bitcoin way back in the early days. How does it hold up? David Andolfatto s Post. David Andolfatto Chair, Department of Economics, University ofHe believes that Bitcoin's existence acts as a check and balance, pushing central banks to maintain sound monetary policies. The Bitcoin Threat Model is intended to help developers, investors and users better understand the security of Bitcoin. Threats are assumed to be any activity designed to prevent Bitcoin from accomplishing its mission to become cash (including a unit of account).This competition, he argues, is ultimately beneficial for everyone.

Think of it this way: If central banks engage in excessive money printing or pursue policies that erode the dollar's purchasing power, individuals and institutions may be more inclined to explore alternative stores of value, such as Bitcoin.This potential shift in demand can incentivize central banks to act more responsibly, preserving the dollar's value and maintaining its status as a reliable medium of exchange.

• Competitive Pressure: Bitcoin challenges the dominance of traditional currencies.
• Incentivizes Sound Policies: Central banks are motivated to maintain the dollar's value.
• Benefit to Consumers: Responsible monetary policy protects purchasing power.

The Evolution of Money and Bitcoin's Place in It

To understand Bitcoin's potential impact, it's crucial to consider the evolution of money itself.Throughout history, new currencies have emerged and competed with older ones, each vying for acceptance and adoption.Bitcoin is simply the latest iteration in this ongoing process.

Money has evolved from commodity money (like gold) to fiat currency (like the U.S. dollar), which is backed by the government's promise.Bitcoin represents a departure from both, operating outside the control of central banks and relying on cryptographic principles for its security and integrity.

Bitcoin's Unique Characteristics

Bitcoin possesses several unique characteristics that distinguish it from traditional forms of money:

• Decentralization: No central authority controls the network.
• Limited Supply: Only 21 million Bitcoins will ever be created.
• Transparency: All transactions are recorded on a public ledger (the blockchain).
• Global Reach: Bitcoin can be sent and received anywhere in the world.

Bitcoin as a Store of Value

Andolfatto acknowledges Bitcoin's potential as a store of value. There s been little sunlight this crypto winter, so it may seem odd to present the Bitcoin as legal tender argument again. That is, will or should any country other than El SalvadorUnlike traditional currencies, which can be subject to inflation through government policies, Bitcoin's limited supply can make it an attractive alternative for those seeking to preserve their wealth.

The concept of scarcity is central to Bitcoin's appeal.With a fixed supply, the value of Bitcoin is theoretically less susceptible to dilution than fiat currencies, which can be printed at will by central banks. David Andolfatto, Vice President at the Federal Reserve Bank of St. Louis, stated that bitcoin is a threat to the establishment, which he argues is a good thing for the Federal Reserve System and other central banks, because it prompts these institutions to operate sound policies. [74]: 33 [125] [126]This perceived scarcity has led some to view Bitcoin as ""digital gold,"" a safe haven asset in times of economic uncertainty.

However, it's important to note that Bitcoin's volatility remains a significant concern.Its price can fluctuate dramatically, making it a risky investment for those seeking short-term gains. Top cryptocurrency prices and charts, listed by market capitalization. Free access to current and historic data for Bitcoin and thousands of altcoins.A long-term perspective and a tolerance for risk are essential when considering Bitcoin as a store of value.

Bitcoin's Challenges and Criticisms

Despite its potential benefits, Bitcoin faces several challenges and criticisms that warrant careful consideration.

• Volatility: Bitcoin's price is highly volatile, making it a risky investment.
• Scalability: The Bitcoin network can process a limited number of transactions per second.
• Regulation: The regulatory landscape surrounding Bitcoin is still evolving and uncertain.
• Environmental Concerns: Bitcoin mining consumes a significant amount of energy.
• Security Risks: Bitcoin exchanges and wallets are vulnerable to hacking and theft.

The Mt.Gox collapse in 2014, where 850,000 BTC vanished, serves as a stark reminder of the security risks associated with Bitcoin.While the Bitcoin network itself is secure, exchanges and wallets can be vulnerable to attacks.Users must take precautions to protect their Bitcoin holdings.

Stablecoins: A Bridge Between Crypto and Fiat

U.S. dollar-based stablecoins are cryptocurrencies designed to maintain a stable value relative to the U.S. dollar. David Andolfatto provides a look at the evolution of money and the long tradition of new currencies competing with old ones. Here, he also discusses the bitcoin competitors. One of the benefits of these new, virtual currencies is their ability (and desire) to be global.They offer a potential bridge between the crypto world and the traditional financial system, combining the benefits of digital currencies with the stability of fiat currencies.

Stablecoins are typically backed by reserves of U.S. dollars or other assets.However, the quality and transparency of these reserves can vary significantly.Some stablecoins are subject to runs when the quality of their assets is questioned, similar to what happened with money market funds during the financial crisis.

Potential Risks of Stablecoins

Despite their potential benefits, stablecoins also pose risks:

• Lack of Transparency: The reserves backing some stablecoins may not be fully transparent.
• Regulatory Uncertainty: The regulation of stablecoins is still evolving.
• Potential for Runs: Stablecoins can be subject to runs if users lose confidence in their backing.
• Systemic Risk: Widespread adoption of stablecoins could pose systemic risks to the financial system.

The Fed's Perspective on Bitcoin

According to Andolfatto, Bitcoin is barely on the radar screen for most Fed researchers and policymakers.This is largely due to the Fed's focus on managing its balance sheet and conducting monetary policy in the presence of large excess reserves.

While some within the Fed may view Bitcoin with skepticism, Andolfatto's perspective highlights the importance of considering its potential impact on the financial system.His willingness to engage in a dialogue about Bitcoin and its implications is a positive sign.

Rand Paul's Warning About the Dollar

U.S.Senator Rand Paul has warned of a potential threat to the U.S. dollar.While his concerns may be broader than just Bitcoin, they underscore the importance of maintaining the dollar's credibility and stability.

Rising national debt and fiscal deficits could erode confidence in the dollar, potentially leading investors to seek alternative stores of value.This scenario highlights the importance of responsible fiscal policy in preserving the dollar's status as the world's reserve currency.

Bitcoin and the GENIUS Act

The GENIUS Act, while categorically pro-crypto, is not necessarily aligned with Bitcoin maximalism. The largest Bitcoin theft in history remains the Mt. Gox collapse of 2025, which saw 850,000 BTC vanish, representing 7% of all Bitcoin in existence at the time. But that catastrophic failure was just one chapter in a longer story of hacks, heists, and hard-learned lessons.It aims to utilize cryptocurrency to support the dollar, which differs from the libertarian view of Bitcoin as an alternative to the dollar.

Mike Benz, a former Trump State Department official, highlights this distinction, emphasizing that the GENIUS Act seeks to leverage cryptocurrency to strengthen the dollar's position, rather than replace it entirely. Max Rangeley: How have you found the reactions to Bitcoin within the Fed? Dr David Andolfatto: Bitcoin is barely on the radar screen for most Fed researchers and policymakers. This is to be expected, given the large size of the Fed s balance sheet and the debate over how to conduct monetary policy with the existence of large excess reserves.This approach reflects a more pragmatic view of cryptocurrency's role in the financial system.

Why Bitcoin Isn't Lousy Money (Despite What Some Say)

Some argue that Bitcoin makes ""lousy money."" These arguments often center on Bitcoin's volatility and its limited acceptance as a medium of exchange.However, these criticisms overlook Bitcoin's potential as a store of value and its increasing adoption by businesses and individuals.

While Bitcoin may not be suitable for everyday transactions due to its volatility, it can serve as a valuable tool for preserving wealth and transferring value across borders. But for advanced economies, at least, it is difficult to take in how consumers volition practise goodness ask past times using bitcoins instead of dollars or pounds. As Satoshi Nakamoto wrote inwards his seminal 2025 newspaper introducing Bitcoin, the [current] organization industrial plant good plenty for most transactionsAs the technology matures and adoption increases, Bitcoin's utility as a medium of exchange may also improve.

Practical Advice for Navigating the Bitcoin Landscape

Navigating the world of Bitcoin can be daunting, especially for newcomers. The ascent of Bitcoin presents both opportunities and challenges for the U.S. dollar's status as the world's primary reserve currency. Institutional leaders like Larry Fink have underscored the potential risks, particularly in the context of escalating national debt and fiscal deficits.Here's some practical advice to help you get started:

1. Do Your Research: Understand the technology, risks, and potential benefits of Bitcoin.
2. Start Small: Invest only what you can afford to lose.
3. Secure Your Bitcoin: Use a reputable wallet and enable two-factor authentication.
4. Be Aware of Scams: Be wary of promises of guaranteed returns or other red flags.
5. Stay Informed: Keep up-to-date on the latest developments in the Bitcoin space.

Conclusion: Embracing the Challenge

David Andolfatto's perspective on Bitcoin is a refreshing and insightful take on the digital currency's potential impact. There is no reason to believe the virtual currency bitcoin will replace the U.S. dollar, David Andolfatto, an economist at the Federal Reserve Bank of St. Louis, said during a November 16 talk at the Atlanta Fed's Jacksonville Branch.While Bitcoin may not replace the dollar entirely, its existence as a threat to the established financial system can be a catalyst for positive change.By incentivizing sound monetary policies and fostering competition, Bitcoin can help create a more resilient and efficient financial system for everyone.

The key takeaways are:

• Bitcoin provides competitive pressure on central banks.
• Sound monetary policy benefits consumers.
• Bitcoin can serve as a store of value.
• Stablecoins offer a bridge between crypto and fiat.
• Understanding the risks and benefits is crucial.

Ultimately, the future of money is uncertain, but Bitcoin is undoubtedly playing a role in shaping that future.Embracing the challenge and engaging in thoughtful dialogue is essential for navigating the evolving financial landscape.