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Why the Craze for Central Bank Digital Currencies is Alarming for the General Cryptocurrency Market

Crypto 2021/07/18 20:08 by Olivia Brooke
U.S. Struggles To Keep Up As China Further Develops Its CBDC

Over the years, central banks have been dropping hints about making their own digital currencies. The updates have come not long after independent digital currencies like Bitcoin and Ethereum were tagged threats by the governments of these countries; some of which include China and India, and more recently, the U.S government has sparked conversations on a possible digital currency.

CBDCs are becoming a hot topic

The craze for digital currencies backed by central banks becomes alarming for independent cryptocurrency users when the possibility of eliminating the latter for the former to thrive is considered. In the past, many government officials have insisted that CBDCs will be created to replace cryptocurrencies, as they may pose a threat to CBDCs.

Recently, U.S. Federal Reserve Chairman Jerome Powell noted that although the United States is yet to make a decision on whether or not a Central Bank-based digital currency would be launching anytime soon, the integration of one could make digital currencies like bitcoin as well as other Stablecoins obsolete.

Can CBDCs render Bitcoin useless?

While the elimination of digital currencies like Bitcoin has been extremely ineffective over the years, it will not be surprising to see force exerted on the cryptocurrency industry in the future, upon the implementation of CBDCs.

This is a sentiment that Billionaire investor Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates shared when he had asserted that gold also had a tough time as a booming alternative store of value back in the day.

Back in the ’30s in the war years … because cash and bonds were such bad investments relative to other things, there was the movement to those other things, and then the government outlawed them, they outlawed gold, that’s why also outlawing bitcoin is a good probability.” Writes Ray.

CBDCs are already marking their territories 

Meanwhile, with the high adoption rate for crypto assets like bitcoin and Ethereum, many proponents doubt that users will easily boycott Bitcoin for a centralized digital currency, which is where Ray’s second point —on how the government’s inability to control demand and supply levels will make Bitcoin a threat once again— holds water once again.

“..every country treasures its monopoly on controlling the supply and demand. They don’t want other monies to be operating or competing, because things can get out of control.”

With China recently recording 20 million wallet users making around $5.4 billion worth of transactions with its digital yuan, it is clear that there is a market for Stablecoins. However, the bigger questions include how big the said market is, in comparison to the market for independent cryptocurrencies.

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