Federal Reserve Proposes Bitcoin Ban to Tackle Budget Deficits!

A recent report from the Federal Reserve Bank of Minneapolis suggests that taxing or banning Bitcoin may be necessary for governments to manage budget deficits effectively.

The paper , released on October 17, highlights how Bitcoin complicates fiscal policy in an environment where governments aim for continuous deficits. This creates a “balanced budget trap,” pressuring the government to maintain a balanced budget.

Describing Bitcoin as a fixed-supply asset without “real resource claims,” the researchers argue that either taxing it or enforcing a ban could help address these fiscal challenges. Such measures would enable the government to sustain permanent primary deficits.

Currently, the U.S. national debt stands at $35.7 trillion, with an annual primary deficit of about $1.8 trillion. A Reuters report from October 19 indicated that rising interest costs on Treasury debt, driven by increased rates and borrowing, significantly contribute to the fiscal 2024 deficit.

Matthew Sigel from VanEck noted that the Minneapolis Fed’s findings align with criticisms from the European Central Bank (ECB) regarding Bitcoin. He suggested that the Fed is contemplating legal restrictions or additional taxes on Bitcoin to keep government debt as the only “risk-free security.”

Interestingly, Messari co-founder Dan McArdle pointed to a 1996 paper by the Minneapolis Fed titled “Money is Memory,” which argued concepts later embodied by Bitcoin, defining money as a fixed-supply asset.

On October 12, the ECB stated that older Bitcoin holders profit at the expense of newer investors and called for regulations to limit price increases or impose outright bans. Jürgen Schaaf, a senior adviser at the ECB, further advocated for measures to curb Bitcoin’s growth, highlighting the wealth redistribution it entails.