Is Bitcoin Facing a Ban? Minneapolis Fed’s Shocking Proposal

Bitcoin, with its limited supply and decentralized nature, disrupts traditional economic models and forces some players to consider radical measures. It is in this context that the Federal Reserve Bank of Minneapolis has recently published an explosive report suggesting that to maintain permanent deficits, governments should either tax or outright ban Bitcoin. Such a shocking statement comes as the United States struggles to contain its national debt, which has reached record levels, and as crypto regulation becomes a sensitive topic.

The Drastic Recommendations of the Minneapolis Fed

In a report published on October 17, 2024, the Federal Reserve Bank of Minneapolis does not mince its words. To allow governments to maintain permanent deficits, Bitcoin must either be taxed or banned. “A legal ban on Bitcoin could restore the unique implementation of permanent primary deficits, just as a tax on Bitcoin would,” one can read in the report. This document relies on mathematical modeling that informs what the Fed calls a “balanced budget trap” caused by the existence of private assets like Bitcoin. In other words, the decentralized nature and fixed supply of Bitcoin prevent states from effectively manipulating their public debt, forcing them to balance their accounts—a scenario the Fed considers unsustainable in the long term.

The report is published in a context where the United States is facing a national debt exceeding $35.7 trillion, with a primary deficit amounting to $1.8 trillion. This situation is exacerbated by a rise in interest costs on the debt, estimated at 29% for fiscal year 2024. According to the Fed, the rise of assets like Bitcoin represents a major obstacle to managing these deficits by creating an attractive alternative to the traditional financial system, which justifies firm intervention.

Reactions and Implications for the Crypto Sector

Reactions to the Minneapolis Fed report did not take long to occur. Matthew Sigel, head of crypto research at VanEck, condemned what he calls a coordinated attack on Bitcoin. “The Fed of Minneapolis fantasizes about a legal ban and additional taxes on Bitcoin to ensure that public debt remains the only risk-free asset,” he stated. This comment echoes similar positions currently adopted by the European Central Bank, which has also suggested that Bitcoin could be regulated in a way to curb its growth or even eliminated from the traditional financial market.

Such recommendations raise more questions about the future of Bitcoin. While some view these calls for taxation or a ban as evidence of the danger crypto poses to existing financial systems, others believe that such regulation could, on the contrary, strengthen Bitcoin’s adoption as a resistance asset against centralized finance. In the long term, this regulatory pressure might push Bitcoin to reposition itself as an escape tool against inflationary monetary policies or, conversely, hinder its adoption in jurisdictions where authorities take repressive measures.

The report from the Minneapolis Fed pushes the debate around crypto regulation to another level, as it openly calls for radical measures against Bitcoin to preserve the viability of public debts. However, the implications of such policies are far from simple. While some governments may be tempted to follow this path, the question remains: how far are they willing to go to counter the rise of cryptos? In the months and years to come, the battle between traditional finance and decentralized innovation will only intensify, and regulators will face a crucial choice: adapt or fight against a phenomenon that seems unstoppable.