Crypto community tired of scapegoating as more economists call for bitcoin ban

Bitcoin advocates are increasingly worried about potential future government actions against the technology.

Just days after economists at the European Central Bank urged the banning of bitcoin (BTC), two authors at the US Federal Reserve Bank of Minneapolis argued for "a legal prohibition against" bitcoin.

In a paper titled Unique Implementation of Permanent Primary Deficits?, research analyst Amol Amol and visiting scholar Erzo G.J. Luttmer wrote that bitcoin stands in the way of governments' ability to "uniquely implement a permanent primary deficit."

According to the authors, this is possible in an economy with incomplete markets and consumers who are sufficiently risk-averse.

"But this result fails if there are also useless pieces of paper (bitcoin, for short) that can be traded. If there is trade in bitcoin, then there is no continuous Markov strategy for the government that leads to unique implementation," Amol and Luttmer argued.

In this context, the Markov strategy means that the government's financial decisions are based on current economic and fiscal conditions. This allows governments to be more flexible in responding to challenges, such as economic downturns, without taking into account historical data.

Therefore, the paper's authors claim that "a legal prohibition against bitcoin can restore unique implementation of permanent primary deficits," though it might also be solved with "a large enough tax on bitcoin."

The US is infamous for its ever-growing debt, which is used to finance its budget deficit. US debt has already surpassed $35.7 trillion, compared with $33.1 trillion in December 2023. The entire US economy was worth over $27 trillion last year.

The line about the "unique implementation of permanent primary deficits" went viral among bitcoiners, who often criticize governments for their ever-growing debt.

"Not really supposed to say the quiet part out loud, guys," popular bitcoin analyst and investor Lyn Alden reacted.

However, as this was the second paper published by central bank representatives in October, it made bitcoin advocates more worried about potential future government actions against the technology.

"When things go to shit, they are going to blame us. This is why I've never shown my face publicly," popular bitcoin writer Shinobi said.

Meanwhile, the research arm of a major crypto derivatives exchange, "BitMEX," warned as early as 2021 that if central banks tighten their monetary policy too far and the economy crashes, they will look for culprits. One such culprit could be the crypto industry.

"They could point to the unprecedented drop in the value of various coins and blame our economic woes on this, providing justification for crippling legislation," the researchers said back then, adding that only the most decentralized crypto assets could withstand this.

As reported by Cybernews, economists at the European Central Bank called for legislation against bitcoin because, according to them, investing in BTC impoverishes and harms society.