When the Federal Reserve Bank of New York published a blog post with the headline “Bitcoin Is Not a New Type of Money,” the authors may have hoped their thought-provoking piece would inspire genteel, reasoned debate. But probably not.
Either way, Michael Lee and Antoine Martin have faced a vociferous backlash from the crypto community—with one venture capitalist describing their argument as “insane.”
In the June 18 Liberty Street Economics blog post, Lee and Martin argued that it is a misconception to describe Bitcoin as a new type of money. They wrote that the only “radically new” thing the first and biggest cryptocurrency offers is its exchange mechanism, which allows electronic transactions to take place without a trusted party serving as a middleman.
The pair went on to describe Bitcoin as “just another example of fiat money”—drawing parallels between the cryptocurrency and banknotes.
“Fiat money corresponds to intrinsically worthless objects that have value based on the belief that they will be accepted in exchange for valued goods and services,” they wrote. “A typical example is currency. The paper on which a $20 bill is printed is worth almost nothing. But a consumer can purchase coffee by handing over that piece of paper because the barista believes that she can in turn use the latter to purchase something of value.”
Crypto Twitter did not respond kindly to the Federal Reserve’s interpretation of Bitcoin, with some suggesting that the authors ought to dig out a dictionary.
Nic Carter, a partner at Castle Island Ventures, pointed out that fiat means “by decree”—meaning that dollars are valuable because a central bank says they are.
He added that he was “shocked to see this level of ignorance, misclassification, and abuse of language” by the New York Fed, especially when other branches “have opined intelligently on the topic.”
“No one is decreeing or insisting that Bitcoin be worth anything. No one is enforcing its value at the point of a gun,” Carter tweeted. “I know we’re in a post-structuralist era where the meaning of words doesn’t matter, but c’mon. Do better.”
He tweeted: “This incompetence should be frightening to everyone!!”
Unsurprisingly, crypto skeptics such as gold enthusiast Peter Schiff were quick to agree with Lee and Martin. He wrote: “The Fed gets #Bitcoin right. It categorizes it with fiat, in contrast to #gold that has real value. It sees nothing new in Bitcoin, just in the way it’s exchanged. As confidence in both traditional and crypto fiat is lost, savers will return to gold.”
It’s not the first time the Fed has been called behind the curve on digital assets broadly. Last November, as China and the EU were ramping up work on making central bank digital currencies a reality, Federal Reserve Chair Jerome Powell dumped cold water on the prospects of the U.S. CBDC, saying, “we have not identified potential material benefits.”
Still, there are signs the U.S. government is opening up to cryptocurrencies and digital assets. In April, the Coinbase exchange’s chief legal officer, Brian Brooks, took a new role as COO of the Treasury Department’s Office of the Comptroller of the Currency.
Of course, the New York Fed isn’t the only financial institution to attract the ire of crypto enthusiasts of late. Just last month, Goldman Sachs attracted the cryptocurrency community’s ire when it declared that Bitcoin is not an asset—with the bank recommending that its clients go invest in something else.
Cameron Winklevoss opted for sarcasm when he responded to the investor call, tweeting: “Hey Goldman Sachs, 2014 just called and asked for their talking points back.”