A new research paper released by the Federal Reserve Bank of Minneapolis recently raised concerns about the impact of Bitcoin on government fiscal policy, arguing that it may need to be taxed or banned by law to help governments manage deficits.
The paper argues that Bitcoin complicates efforts to maintain permanent government deficits, especially in an economy that relies on nominal debt. It points out that Bitcoin creates a so-called "balanced budget trap" that forces governments to balance their budgets.
The paper has been sharply criticized by Bitcoin supporters. Matthew Sigel, head of digital asset research at VanEck, said the Federal Reserve Bank of Minneapolis now aligns with the European Central Bank's (ECB) criticism of Bitcoin.
He noted that the paper envisions legal bans and additional taxes on Bitcoin to ensure that government debt remains the only "risk-free" security.
Messari co-founder Dan McArdle specifically pointed out that a 1996 paper published by the bank titled "Money is Memory" describes money as a fixed supply object that does not enter production, a concept that is closely related to the design of Bitcoin.