Ben Bernanke, former chairman of the US Federal Reserve, does not believe that Bitcoin or other cryptocurrencies can succeed as alternative money. He claims that their prices are too volatile to serve as a practical medium of exchange and lack the underlying use cases to serve as stores of value.

Bitcoin is for criminals, says Bernanke

In a recent interview with CNBC’s Andrew Sorkin, Bernanke stated that cryptocurrencies have been successful as a “speculative asset.” However, as substitutes for fiat currency, they have not lived up to expectations.

“If Bitcoin was a substitute for fiat money, you could use it to go buy your groceries,” he argued. “No one buys groceries with Bitcoin because it’s too expensive and too inconvenient to do so.”

He added that the price of groceries also fluctuates regularly against Bitcoin, further impeding its adoption as a medium of exchange. In fact, the price of Bitcoin has seen a lot of downward volatility over the past 7 weeks, breaking an all-time record for its longest weekly downtrend on Monday.

In fact, Bernanke believes that the “primary use” of Bitcoin is within underground economies to facilitate illegal activity.

Although it is a popular theory, on-chain data fails to corroborate this. Chainalysis’s latest crypto crime report shows that illegal activity takes up a smaller portion of Bitcoin trading activity over time. Even the Treasury Department has admitted that fiat currency is still the go-to currency for criminals, not cryptocurrencies.

Sorkin also asked if Bitcoin at least had value as a non-transactional store of value, or “digital gold.” Bernanke also rejected this comparison:

“Gold has an underlying use value: you use it to fill cavities,” he explained. “The underlying use value of Bitcoin is to do ransomware or something.”

The picture of inflation

Bernanke predicted that current US inflation, which is trending to its highest level in 40 years, will decline without direct intervention from the Federal Reserve over time, as supply chain problems continue to recover. However, if the Fed is forced to keep tightening interest rates, there is a greater chance of a recession across the country.

This month, the Fed raised rates by 50 basis points, the first hike of that size in 22 years. Markets reacted negatively just a few days later, including Bitcoin, which has since traded close to $30,000.

However, the former president stated that such conditions are difficult to predict. “What people should watch more closely is inflation expectations,” he said, stating that a rise in expectations will indicate the market has lost confidence in the Fed’s credibility.

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