Bernard Durkan (Kildare North, Fine Gael)
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67. To ask the Minister for Finance if bitcoin is being gradually recognised globally as a currency; and if he will make a statement on the matter. [10884/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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The popularity of Bitcoin has been increasing rapidly in recent months. In February 2020, one Bitcoin could be purchased for $10,000. It is currently priced at c. $47,000, having reached a historical record price of c $57,500 on 21 February 2021. In other words, this represents a change in value of -2% from a few days ago and +465.2% from one year ago. In contrast, the Euro vs USD exchange has moved by little over 0.10% over the same year.

Assuming that the question as to whether Bitcoin is gradually being recognised as a “currency” is meant to infer that Bitcoin may be accepted as “money”, I would like to recap on the three most basic functions of money:

1. Medium of exchange. Money can be used for buying and selling goods and services.

2. Unit of account: Money is the common standard for measuring relative worth of goods and service.

3. Store of value: Money can be saved and used for future purchases with limited risk to its value depreciating

4. These fluctuations in the value of Bitcoin, as evidenced in recent days and months, make its use and applicability as a trusted means of payment rather unreliable and inadequate. In other words, its volatility makes it hard to be used as a medium of exchange. There are other considerations as to why Bitcoin may not be accepted as a “currency”. For example, as a means of payment, it is slow when compared to credit card payment transactions or online SEPA payments. VISA for example, can process +1700 transactions per second. In contrast, the Bitcoin blockchain can process 3,000 transactions every 10 minutes.

5. Bitcoin has been labelled a currency, a commodity and a new investment asset class. What may be happening is that Bitcoin is gradually being adopted not so much as a “currency” or means of payment, but as an investment. Buyers of Bitcoin tend to hold on to their purchases with the expectation that this “digital gold” or “digital commodity” will increase in value. This would mean that Bitcoin may be gradually recognised as a commodity, not a currency.

6. It can be said that Covid-19 has had an effect in the wider acceptance of Bitcoin as a commodity. First, the pandemic has accelerated the move to transacting and living in a digital world: what might have taken 10 years (in technology adoption terms) has been achieved in 10 months. People were forced to drop the use of cash and become proficient in online payments. As people became more comfortable with making financial transactions online, access to cryptocurrencies (not only Bitcoin) have been made more accessible to the public. Bitcoin can be traded 24/7, unlike other traditional stocks. This availability, combined with the allure of its increasing value, may have attracted more investors into Bitcoin.

7. Its scarcity cannot be ignored, however. The Bitcoin protocol was written with a maximum supply of 21,000,000 BTC coins. There are already 18,623,718 BTC coins mined, or in circulation. As the reward for mining Bitcoin halves every 210,000 blocks, so does the reward, which makes the current Bitcoin in circulation increase in value. This programmed scarcity is why Bitcoin has been increasingly called “digital gold”.

8. In fact, there are financial instruments based on Bitcoin available to purchase: exchange-traded funds, commonly known as an ETFs, a type of investment fund that tracks the price of an underlying asset, such as gold, oil, an index, or a basket of stocks. It is traded on exchanges in the same way as stocks.

9. This would point to the fact that Bitcoin may be recognised globally more as a commodity than a currency.

10. Finally, considering the current negative interest rates markets, it is possible that many investors are purchasing Bitcoin as an alternative avenue to earn investment returns. Recently, some financial institutions have publicly announced significant investments in Bitcoin, as a means to diversify the risk of their investment portfolios. While purchases of Bitcoin seem more “main stream”, its use a payment mechanism (and thus its use as a fiat currency) is rare.