Cryptos Don’t “Pass Basic Test” for Currency, Says Next President of NY Federal Reserve

Siamak Masnavi
  • John Williams, the next President of the Federal Reserve Bank of New York, thinks that cryptocurrencies are not real currencies.
  • Williams said:"cryptocurrency doesn't pass the basic test of what a currency should be."
  • He further revealed he is skeptical about bitcoin, as he doesn't see it as a stable store of value.

John Carroll Williams, the current President of the San Francisco branch of the Federal Reserve Bank, the central bank of the United States, and the man who will take over as the next President of the Federal Reserve Bank of New York, said in a speech on Friday, April 20, 2018, that cryptocurrencies are not real currencies.

According to CNBC, he made the following comment about cryptocurrencies like Bitcoin (BTC):

Cryptocurrency doesn't pass the basic test of what a currency should be.

John Williams, President Of Federal Reserve Bank Of San Francisco

He went on to say that a currency should be "a store of value" and that it needed to be "elastic" in order to be able to adjust to changes in the economic and financial climate.

He noted that the prices of cryptocurrencies are volatile, which makes it hard to use them as a form of payment, and as such they fail the first test. Williams added that while central banks are able to easily adjust the amount of paper currency in circulation, cryptocurrencies such as Bitcoin have a fixed supply - 21 million in BTC’s case - which means they fail the elasticity test.

It is worth noting that not all cryptocurrencies are exactly like Bitcoin. For example, the new price-stable cryptocurrency from Intangible Labs, Basis, which we reported on a few days ago, uses the idea of an "algorithmic central bank" that adjusts the amount of Basis coins in circulation based on changes in demand.

The next New York Federal Reserve president, who after getting his PhD in Economics, from Stanford University in 1994, started his career at the Federal Reserve Board as an economist, acknowledges that he is "very biased" on this issue. He went on to say that “the idea of the supply of currency and thinking about currency really belongs more in the sphere of government and central banks."

Williams' opinion of Bitcoin mirrors that of William Dudley, the incumbent President of the Federal Reserve Bank of New York. According to Bloomberg, at an event in New Jersey in November 2017, Dudley stated:

"In terms of bitcoin, I would be pretty cautionary about it. I think that it’s not a stable store of value... I would be, at this point, pretty skeptical of bitcoin. I think it’s really more of a speculative activity... Bitcoin is tiny relative to the amount of payment transactions that are executed in the United States... I think at this point it’s really very premature to be talking about the Federal Reserve offering digital currencies, but it is something we are starting to think about."

William Dudley, President Of Federal Reserve Bank Of New York

This cautionary attitude towards Bitcoin from the Federal Reserve isn’t new. Back in December 2013, in an interview with Bloomberg Television, former Federal Reserve Chairman Alan Greenspan, called Bitcoin a "bubble":

You really have to stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven't been able to do it... But if you ask me, 'Is this a bubble in Bitcoin?' 'Yeah, it's a bubble'

Alan Greenspan, Former Federal Reserve Chairman

Not everyone in the world agrees with the view that cryptocurrencies are not real currencies. One such person is Jack Dorsey, the current CEO of microblogging platform Twitter and payments app Square, who famously said in an interview in March 2018 with the UK's Sunday Times newspaper that he expected Bitcoin to become the single global currency within the next decade.




Weekly Newsletter

Bitcoin Dominance Bump Unlikely to Last — Market Analysis

The entire crypto market seems to be going risk-off and turning to a state of correction, after an excellent start to 2020 throughout January and February which saw significant gains. This is reflected in the brief pop in Bitcoin market dominance. But in the longer term, it’s a different story, and we must always bear in mind the intercourse the conflicting trends of different timeframes – and how they can still agree with each other.

Here, rather than focusing on any specific crypto, we’ll look at the market as a whole using some trusted indicators.

We first look at a small-to-medium-timeframe chart of Bitcoin plus Bitcoin’s market dominance arrayed against the “Others” market dominance, Others being a basket of all altcoins below the top 10. This panoply of charts gives us a broad insight into the whole market.

just some speedbumpsBTC chart by TradingView

During January and some of February, we can see clear risk-taking in the form of a rising altcoin market share. Bitcoin’s price was rising even as its dominance was falling: peak altcoin conditions, where so much buying is coming into the system that more entities are buying Bitcoin than selling Bitcoin for altcoins, even when there is a lot of that.

This pattern has reversed in the past few days, with Bitcoin’s price falling even as its dominance rose, with altcoins being sold back into Bitcoin. The market was overheated in the short term, and people are wisely hedging their profits.

But this trend is unlikely to last. Zooming out and looking at a chart of Ethereum/Bitcoin and both dominance charts again (with Ethereum being a general proxy for the altcoin market), we see a different story.

the bigger picture says the opposite thingETH chart by TradingView

There is a lot going on here. First we can note that Ethereum – again, bearing in mind its role as a general proxy for altcoins – has retaken a very important inflection line that it lost during 2019, the dotted line. It is likely, based on this line retaken last week, that Ethereum is starting a long term uptrend against Bitcoin – and that altcoins in general will do the same in the long term.

Moving to the Bitcoin dominance display in the middle panel, we see an agreement of the above thesis. Bitcoin’s dominance has fallen below its own critical level, namely the area near and above 70%, which BTC held for a while during 2019. This level had not been held since 2017, when Bitcoin put in its all-time-high – and it now looks to be trending steadily away from it again.

This trending away will again provide the space for altcoins to grow in market share, and we have already seen the beginning of this trend during 2020. Perhaps what we have seen was only ‘Round One’.

And moving below to the Others dominance, we see that this indicator has, yet again, taken an important level of 6% and is likely trending away from it. This is the same message in reverse: this level was first tickled during the first real altcoin mega-rally, in the beginning of 2017, and stayed above it for years. It was lost for a time in 2019, about the same time Bitcoin retook its level of 70%.

The larger trends are likely moving in the opposite direction than the shorter ones. Bitcoin's price, based on these indicators, is likely to continue rising even as its market share continues to falls. Altcoins, after years of being battered, are likely to continue gaining market share; and in that situation, the pie can only be getting larger overall.

The views and opinions expressed here do not reflect those of and do not constitute financial advice. Always do your own research.

Featured Image Credit: Photo via