Federal Reserve Chairman Jerome Powell sent a loud and clear message to bitcoin investors recently: the digital currency doesn't have what it takes to be a regular currency. It isn't a suitable medium of exchange, and it isn't a store of value either.
It isn't a suitable medium of exchange because its value isn't stable. And it isn't a good store of value because it isn't back by anything, as is the case with all cryptocurrencies.
"They're highly volatile and, therefore, not useful stores of value, and they're not backed by anything," Powell said during a virtual panel discussion on digital banking hosted by the Bank for International Settlements.
What is bitcoin, then?
"It's more a speculative asset that's essentially a substitute for gold rather than for the dollar," he said.
Powell's comments echo the comments made by European Central Bank governing council member Gabriel Makhlouf last January when he warned bitcoin investors that they might end up losing all their money.
"Our role is to make sure that consumers are protected," Makhlouf told Bloomberg TV.
U.S. congressional leaders have also raised their concerns about investors losing money in cryptocurrencies and their determination to limit their use.
Meanwhile, Indian lawmakers are drafting a law banning cryptocurrencies and fining cryptocurrency traders and investors.
Still, U.S. investors do not seem to take the warnings from central bankers and lawmakers seriously.
Last month, Tesla (TSLA, Financial) founder Elon Musk announced the electric vehicle company is investing $1.50 billion in bitcoin and accepting it as a means of payment for its products.
That's a significant endorsement of the cryptocurrency as a medium of exchange, according to Chris McAlary, CEO of Coin Cloud.
"Tesla putting its stamp of approval on Bitcoin as a medium of exchange isn't exactly a trailblazing move, but it does shine the spotlight on digital currency," he said. "This will likely help accelerate the journey towards digital currency (and not just Bitcoin) being used daily by the majority."
Meanwhile, McAlary thinks bitcoin is a better store of value than the dollar because it is decentralized, in limited supply and instantly transferrable around the globe.
While it is still unclear how central banks and regulators will stop the rise of cryptocurrencies, one thing is clear: fighting the Fed runs against Wall Street wisdom.
Disclosure: I don't own any bitcoin.
Read more here:
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