Bitcoin in the Crossfire: Minneapolis Fed Causes Uncertainty with Drastic Proposals

The Federal Reserve Bank of Minneapolis recently published a study that is making significant waves. The researchers pose the question of whether Bitcoin could harm government fiscal policies. Their answer? A drastic one: A high tax on Bitcoin or even a complete ban could provide relief. In their analysis, the scientists argue that Bitcoin poses a challenge for governments, especially when dealing with a "permanent primary deficit"—a situation where the state's expenditures consistently exceed its revenues, excluding interest on debts. As a decentralized digital currency, Bitcoin competes with government securities, complicating financial management for states. The researchers believe that a legal ban or tax could help governments stabilize their fiscal strategies. It is akin to trying to steer a leaking boat while the waves relentlessly crash against the hull. Additionally, the researchers mention that the current primary deficit of the U.S. stands at $1.8 trillion, with national debt reaching a dizzying $35.7 trillion. They claim this deficit is sustainable—unless Bitcoin disrupts the balance. The paper describes Bitcoin as "worthless pieces of paper" since it is not tied to any real resources. However, the same applies to government securities, which, despite their intangibility, influence nominal interest rates that can be controlled by government monetary policy. Bitcoin, on the other hand, is an unpredictable guest throwing off the carefully planned financial dinner. Currently in the spotlight: An AI marketing startup, backed by Adobe, has managed to grow its valuation from five to $85 million in just three years and offers investments starting at $1,000 for only $0.50 per share. The researchers suggest that a tax on Bitcoin might suffice to maintain balance without resorting to a full ban. Without regulation, Bitcoin could severely disrupt the fragile structure of deficit financing.