According to Andrew Bailey, Governor of the Bank of England (BOE), Bitcoin may have obtained approval from the SEC for the spot ETF in the USA, but it remains a technology without intrinsic value and inefficient.
This is what was said to the Treasury Committee of the UK Parliament on January 10th during the latest BOE meeting where the country’s latest financial stability report was discussed.
According to Bailey, Bitcoin still struggles to emerge as an alternative option for digital payments and works much better as a mere speculative asset.
During the meeting, there was also a lot of discussion about other topics, such as stablecoins and CBDCs.
Let’s see all the details below.
According to the head of the Bank of England, Bitcoin technology is not taking off
Yesterday the Governor of the Bank of England, Andrew Bailey, spoke before the Treasury Committee of the UK Parliament to discuss current hot topics such as Bitcoin, stablecoins, interest rates, and future plans for the new “digital pound”.
What stands out most in the conversation that British leaders have had is the disapproval that Bailey feels towards Bitcoin.
According to the head of the BOE, the cryptocurrency may have also taken a step forward in terms of regulation thanks to the approval of spot ETFs in the USA, but it still lacks intrinsic value.
The Bitcoin technology, which is based on the concept of “P2P digital payments,” is still very immature and has little adoption by the general public.
These are his words in front of the parliamentarians:
“My feeling is that it is not taking off as what I could define as a fundamental financial service. […] For example, using Bitcoin as a payment method is rather inefficient.”
Always discussing Bitcoin, economist Carolyn A. Wilkins from the Financial Policy Committee of the Bank intervened and shared her point of view on the cryptocurrency.
Wilkins also agrees that there is little intrinsic value, but added that outside of the United Kingdom there is a lot of interest from investors.
Bitcoin currently reflects its relevance as a speculative asset, although its future will likely depend on how well it can integrate with the traditional financial system.
The former deputy then added that “guaranteed cryptocurrencies”, namely CBDC, where the value of the currency is anchored to a government-guaranteed currency, are much more important.
The debate on CBDCs then continued addressing the topics of privacy and programmability, praising the advantages they could bring to the country.
There has actually been talk of stablecoins, where parliamentarians have contrasting ideas but overall agree on their usefulness for specific tasks.
In the latest December report from the BOE, for example, there was talk of political choices regarding the spread of stablecoins and CBDC, which could:
“to mitigate the risks to financial stability arising from the possibility of a higher percentage of deposits being withdrawn from a banking system in a stress situation”.
UK regulators have been working on stablecoin regulations for much of 2023. It is expected that regulations on stablecoins will come into effect in the UK in 2025.
Status of the Lightning Network layer-2 market
Since the governor of the Bank of England, Andrew Bailey, has touched on a sensitive issue regarding Bitcoin, which concerns the ability of technology to integrate and spread as infrastructure for digital payments, let’s see how the work on the Lightning Network is progressing.
The LN represents the flagship application of the Bitcoin ecosystem for payments, and is currently a tool strongly supported by the cryptographic community.
Unfortunately, in support of Bailey’s theory, progress is not going well and we are still far from being able to rely on a reliable and scalable network for everyday transactions.
In particular, what is still not working concerns the capacity of the Lightning Network which supports a maximum of only 5,200 BTC, equivalent to just under 240 million dollars.
Despite appearing to be a significantly high figure in absolute value, it is actually not if we are talking about a tool that aims to replace traditional electronic payment providers like Visa and Mastercard.
Furthermore, from the beginning of 2023 until today, no particular progress has been made in this field, with the total capacity of the network remaining unchanged overall, with data even decreasing from July onwards.
Unfortunately, this affects the LN’s ability to effectively scale in the market of digital tokens payments.
By consulting the online portal “Mempool Space“, we can see that today there are only 13,828 nodes for a total of 58,792 channels with an average capacity of 8,278,528 sats, which is equivalent to 3,832 dollars per channel.
Furthermore, it should be emphasized how hosting of lightning nodes’ servers is mostly provided by centralized providers such as Amazon and Google Cloud, which, despite offering a stable connection, contribute to the centralization of the network.
With this, we do not want to diminish the progress that LN has made in recent years, which has grown a lot since 2008, attracting the attention of major fintech companies.
The point is that unfortunately we are still far from being able to compete with the competitors operating in this sector who have a significantly larger amount of liquidity for transactions and a much higher scalability.
We hope that the situation will change in the years to come.
Source: https://en.cryptonomist.ch/2024/01/11/head-of-the-bank-of-england-despite-the-approval-of-the-spot-etf-in-the-usa-bitcoin-remains-devoid-of-intrinsic-value-and-inefficient/