Grayscale Investments, a subsidiary of the Digital Currency Group (DCG), has published a report which argues that legacy banking infrastructure has made it difficult to distribute stimulus money, following the COVID-19 outbreak.
The report states:
“Central bank digital currencies [CBDCs] have the potential to streamline payments, but may compete with commercial banking, further politicize financial services, and fail to gain widespread adoption.”
It argues that Bitcoin (BTC), the flagship cryptocurrency, “isn’t waiting for CBDCs – it is rapidly gaining mindshare on its own.”
However, the report notes that if CBDCs are successful, then the infrastructure and education that would be offered and gained by using these bearer assets may ultimately lead to the mainstream adoption of Bitcoin and other virtual currencies.
The report explains:
“Moving fiat currencies to digital infrastructure would highlight that Bitcoin is special not because it is digital, but because Bitcoin is a scarce, uncompromising, apolitical currency that is open for anyone to use.”
The report argues that CBDCs could potentially censor “non-ordained” addresses, and reserve banks may retain their firm control over monetary policy with central bank-issued virtual money.
CBDCs may increase a government’s ability to monitor users’ transactions. However, this will require “buy-in” from all participants, including a nation’s citizens, merchants, or corporations.
This might be challenging, and suggests that CBDCs could lack the liquidity and acceptance of cash. A CBDC could actually “reduce user freedoms without providing monetary policy assurances – a combination which may hinder widespread adoption,” the report argues.
Grayscale, which is the largest institutional holder of Bitcoin (BTC), states:
“The interest in developing and implementing CBDCs may be accentuating Bitcoin’s role in the global digital economy. Whether or not CBDCs are successfully introduced, they already strengthen the case for non-sovereign digital currencies, like Bitcoin, by forcing institutions to consider adopting digital currency infrastructure, while also educating users on digital bearer assets and the characteristics of good money.”
It adds:
“Bitcoin is unique not only because it is digital, but because it is scarce and available for anyone to use.”
The full report can be accessed here.