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The fires of one of bitcoin’s hottest recurring debates raged on this week, with the digital currency’s potential use case as a safe haven asset during times of economic crisis taking the forefront amid continued struggles in the eurozone.
The focal point of the media’s attention, as with last week, was Greece, a beleaguered nation suffering the effects of economic uncertainty, with reports attempting to discern if and how the digital currency was playing a role in this larger narrative.
Not up for debate was the fact that bitcoin’s novel status as a fiat currency alternative was highlighted by the struggles. Complicating matters, however, were reports that often confused the expected usefulness of a more mature digital currency ecosystem with its current market.
Arguably more problematic were attempts to tie the issues in Greece to seemingly tangential events, such as the increase in the digital currency’s price and issues with its payment network, that ventured into speculation while providing little, if any, plausible conclusions.
Bitcoin, the new safe haven?
Though little evidence was found that Greek buyers were behind bitcoin’s rising price, some commentators noted that the perception of the digital currency’s utility as a hedge for the euro was convincing investors of its potential.
Nasdaq‘s David Floyd offered a truly relatable description of bitcoin’s current market position, asserting that bitcoin is “growing up” in the eyes of investors as a result of its association with the crisis.
“People are beginning to acknowledge that the kid [bitcoin] has a point.”
Still, he suggested that bitcoin perhaps isn’t a practical solution for currency crises today. “Bitcoin’s identity crisis,” he said, can’t last for ever. “It’s high time the cryptocurrency found a niche and made a productive contribution to the financial ecosystem. In short, bitcoin, get a job.”
Floyd also adddressed the digital currency’s potential in Greece, pointing to how the underdeveloped bitcoin ecosystem was holding back its utility in the current crisis.
“Some observers have called the price move purely coincidental. Others have suggested that the increased demand is coming not just because of Greece, but from within Greece, as panicked citizens move their savings into the digital currency. Greece’s one bitcoin ATM, however, has seen zero activity since capital controls were imposed on June 28: no one who’s managed to get euro bills is about to convert them,” he said.
Reports from on the ground differ from this conclusion, as Greek ATM owner Vedran Kajić estimates his ATM conducted €800 worth of business on Friday alone.
Still, drawing the connection between market movements and the media’s coverage, he added, is an exercise in armchair psychology. He argued the hypothesis that a potential Greek default would drive nervous capital into bitcoin is “perfectly plausible”.
“Bitcoin is the new safe haven,” he added.
The comments did much to boost the validity of many in the bitcoin community, who trumpeted how the price of gold, a traditional safe haven asset, has moved little over the course of the Greek crisis.
Less convinced of the usefulness of such debate was FT Alphaville’s Izabella Kaminska, who instead put forth the opinion that the attention given to bitcoin made little sense given that the country was not experiencing a currency crisis.
Her argument, put simply, seemed to imply that as a non-government currency, bitcoin or another blockchain-based money, while potentially helping individual citizens, would do little to solve the problems a government would face during a crisis.
“Why on earth would Greece want to replace the euro, a currency it already thinks too restrictive, with another which would be even more constraining and give Greeks even less control over monetary affairs!?”
In her argument, Kaminska cited FTCoin, a cryptocurrency-based solution proposed by Greece’s former Finance Minister Yanis Varoufakis. Using this concept, he had attempted to find a way to normalise Greece’s tax evasion issues – sometimes branded a national sport.
Kaminska, however, attacked the argument that a digital currency would solve tax collection issues in Greece, stating:
“If and when this [adopting a parallel currency] happens, the parallel scrip will remain a highly politicised form of money whose true value will be linked to the government’s democratically-approved authority to extract taxes and spend funds on the public’s behalf. Whether that coupon comes as FTCoin or drachma makes little to no difference.”
Cited in a CNBC piece by Kalyeena Makortoff, Garrick Hileman, an economic historian at the London School of Economics put things into perspective, agreeing it was unlikely that the Greek government would officially adopt bitcoin.
Search for answers
Finally, the narrative propagated in sometimes problematic ways in stories that sought to connect more specific issues with the technology to Greece.
Reporting for Bloomberg, Olga Kharif picked up on the surprise bitcoin fork that took place over the Independence Day celebrations in the US, leading to the validation of some transaction blocks meant to be invalid.
This fault, caused by the delayed implementation of a bitcoin core update by a small part of network participants, seemed to cause some concern among mainstream journalists, though it was written off as regular activity by many steady market observers.
Kharif led her piece with the Greek economic crisis, describing bitcoin’s price movements in relation to events in the European country but soon took to reminding people that the digital currency was flawed, suggesting it was not an ideal solution for the debt-ridden economy.
“Over the weekend, bitcoin’s software provided a well-timed reminder of why it’s not the perfect financial system, either.”
Given the attention Greece has driven to the technology, however, it remains to be seen whether next time there is a macro-level crisis, the ecosystem will be more prepared.
Pete Rizzo co-authored this report.
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