Bitcoin: store of value or speculative investment

Jim O'Neill, President of the British “think tank” Chatham House, shares his thoughts on cryptocurrencies, i.e. bitcoin, in an article published in the magazine “Política Exterior”.

According to Jim O'Neill, the value of bitcoin and other cryptocurrencies and their popularity to obtain capital gains responds to a high speculative component, taking into account that:

• The price of bitcoin and other cryptocurrencies is very volatile responding to the usual stock market investment, that in his opinion "does not seem to reflect their strengths, but the excesses of the current moment, with a runaway stock market on the rise, interest rates ultra-low and spikes or recoveries driven by politics, after a year of lockdowns due to covid-19”.
• They do not work as legal tender currency. In his opinion "for a currency to be credible, it must function as a medium of exchange, a store of value and a unit of account." In this sense, the high volatility of bitcoin makes it "almost impossible to imagine that it will become a store of value or a reliable medium of exchange". For the President of Chatham House, the role of bitcoin as a means of transmitting monetary policy, would also be doubtful.

However, for Jim O'Neill there is a situation in which the enthusiasm caused by bitcoin or other cryptocurrencies can be understood: when there is an alarming lack of confidence in the legal tender. It would be the case in some developing or emerging economies "where central banks can often not be trusted or investment in foreign currency is forbidden". In his opinion, in those cases "hoarding savings in digital currency is obviously attractive".