Most Americans have bank accounts – reliable places to store money that are federally insured, carefully regulated and generally better than coffee cans full of money. But about five million families not have bank accounts. So every two years, Federal Deposit Insurance Corporation take a survey to find out why. Is it a matter of faith? A thing in the distance? A fee and service thing?
Last November, for the first time, the FDIC reported the results of a new question it added to the survey: Do you use a cryptocurrencies like bitcoin instead of a bank?
From the beginning, the dream for crypto has always been “to be your own bank”. I’m being a bit simplistic there, but bitcoin, ether and their digital cousins were supposed to be a smarter flavor of money. They are accounted for in unbreakable digital ledgers called blockchains, with no barriers to entry other than internet access and no government eyes. Booster companies like Coinbase promise “a cryptocurrency infrastructure that can serve as an increasingly sustainable alternative to the traditional financial system.” With such funds, who needs banks?
The answer turns out to be: almost everyone. Only 4.8% of all households owned or used crypto, FDIC survey found. Among unbanked households, it was even lower: just over 1%. Furthermore, almost all crypto users – 92.6% of them – held it as an investment; only 4.4% used it to buy items. Which, for something that calls itself a “currency”, doesn’t really sound like much moneymuch less a futuristic alternative to the hegemony of the global banking system.
Crypto has been around since 2009. But there is no evidence, an FDIC official tells me, that unbanked households are using crypto to meet any of their major financial needs. It’s time to admit what crypto really is: a speculative asset, a pool of funded electrons with no purpose other than “the number grows”. And unlike most investments – Microsoft, government bondshog futures — crypto is untethered from the real world, free of any external benchmark that can be used to gauge its value. Outside of the underworld, it’s just a gambling thing, and it’s mostly used by wealthy people: The FDIC found that 7.3% of households making more than $75,000 a year held cryptocurrency, compared to just 1.1% of households making more just under $15,000.
So what happened? Why has cryptocurrency not become the actual currency as its pioneers predicted?
The purpose of money is to serve as a medium of exchange. If you have something I want to buy, instead of giving you an object of equal value, apples to oranges, I might give you money – but only if we both believe the money is worth the orange. For this to work, sub classical definitionthe money itself must have intrinsic and reliable value. To preserve value, you must HAVE value.
But this definition no longer works. Gold fits the definition, but we don’t use gold much as money these days. (It’s heavy.) And if you think about it, no legal tender currency really has any intrinsic value. A “dollar” and a “euro” are worth €0.97 and $1.03 respectively just because we all say they are. Current thinking says that money is a metaphor – what economists call a “social technology of account”. This is what we as a society agree to agree on.
And we don’t agree that crypto is all that. It is clear that there is value vessel. Quite a lot, actually. As I write, all cryptocurrency put together is worth $3.5 trillion, and the price of an individual bitcoin is rising against $100,000, more than double the price a year ago. But its price volatility and peer-to-peer algorithmic nature feel fundamentally sketchy to the norm. According to a Pew Research Center study, 63% of Americans have “little or no faith“in the reliability and security of the digital mechanisms required to use or invest in crypto; only 5% of Americans say they are “extremely” or “very” confident. This is not a good picture for a “social technology.” Money are like Tinker Bell: Everyone must believe in her, or she will die.
A coin isn’t really a coin if two out of three people don’t believe it. This is why it is easy to buy and trade cryptocurrencies, but almost impossible BUY anything with it. Amazon doesn’t accept it; try checking out with bitcoin at walmart and you’ll soon be conversing with security. “If the federal government starts taking cryptocurrencies as satisfaction for my tax liability, that’s exactly why dollars have value,” says Darren Aiello, a finance professor at Brigham Young University who studies cryptocurrencies. “I can’t buy groceries with a cryptocurrency right now.”
Now, people who believe in crypto believe a lot. But their faith in it is like something to possess, to increase their wealth. In general, retail investors follow “contrarian” strategies in the stock market – they try to buy low and sell high. But in 2023, an international team of economists discovered that crypto investors tend to hold up through crashespending earnings. Believers say “HODL,” a corruption of “hold”—once on the ride, they don’t get off.
“If you think the price will go down, you sell it as soon as you can. If you think the price will go up, you won’t spend it on coffee,” says Hanna Halaburda, an economist. at NYU’s Stern School of Business. “It’s not a means of payment. It’s not exactly a store of value. It’s extremely volatile. It’s more of a casino chip.”
In 2021, the government of El Salvador made bitcoin legal tender. People could pay their taxes with it and businesses were required to accept it. The government launched a “wallet,” an app that stores crypto information and acts as a sort of user interface for holding and spending crypto, and made it free to use. It even offered people $30 (in bitcoin) to download it – more than a few days’ wages at minimum wage.
However bitcoin STILL it was not returned to the money. Nearly a third of Salvadorans polled in early 2022 said they would never heard of wallet app. Those who had been mostly educated young people who already had bank accounts and internet access – the exact opposite of the “unbanked” population that was supposed to benefit from having a crypto account. Most people who downloaded the app turned the bonus into dollars and spent them. In December, the government announced that it was bringing its initiatives back to bitcoin.
In fact, the mere existence of the dollar is one of crypto’s biggest challenges. The United States already has a very good, stable currency and a solid banking system. As the FDIC notes, 95.8% of households in its survey had checking or savings accounts. Beyond money laundering, crypto does nothing better than dollars and banks.
It is not a means of payment. Not exactly a store of value. It is extremely unstable. It’s more of a casino chip.
Hanna Halaburda, NYU
Now, in some parts of the world without a solid financial infrastructure, crypto is starting to be used as an actual currency. In places like Venezuela AND Nigerbitcoin and “stablecoins” — a form of crypto whose value is tightly tied to something, usually the dollar — are being used to buy things and replace banking functions like wire transfers, bypassing weak financial systems, as mobile phone networks bypass landlines. One last one global survey from investment firm Castle Island Ventures found that stable currencies “It increasingly appears in the ordinary economic life” of people in many countries.
The Trump administration is clearly intent on greasing the wheels for crypto. “The thing that’s clearly going to happen, which is both good and bad, is less regulation, more do whatever you want,” one investor tells me. But if this approach of leaving ends up sparking one speculative frenzy that screams the stock market, it actually might be lower ones trust in cyber currency as currency. Banks became banks because of strict government oversight – if FDR hadn’t stepped in after the stock market crash of 1929 and implemented reforms such as FDICno one would have put a dime into their local savings and loans. If crypto is to become something more than a casino chip, it will be the government, not investors, that will make it happen.
“Here’s what you have to have in order for crypto to be a means of payment: We’re going to have to get paid in it,” says Halaburda. If that happens, she adds, “we could see bitcoinization.” But until then, cryptocurrencies will remain less about banks and more about making the bank.
Adam Rogers is a senior correspondent at Business Insider.
