Vancouver’s mayor wants the city to analyze the “feasibility, risks and potential benefits” of adopting a “bitcoin friendly” financial strategy
Vancouver Mayor Ken Sim is a fan of bitcoin and wants the city to consider becoming “bitcoin friendly,” perhaps putting some of its own reserves into the cryptocurrency and accepting it as payment for taxes and fees.
Those in the bitcoin sector lauded the idea as having merit, considering bitcoin’s recent run up in value, topping its record high to hit US$101,000 on Friday. Critics, however, say municipalities have no business putting financial reserves in an asset as volatile as bitcoin.
Sim’s motion asks staff to make a “comprehensive analysis” of how this might be done, including accepting bitcoin as payment or investing some of Vancouver’s financial reserves “to preserve purchasing power and guard against the volatility, debasement and inflationary pressures of traditional currencies.”
In his motion, Sim argues the city “has a fiduciary responsibility to manage its financial reserves prudently and to safeguard the purchasing power of its funds,” which the digital currency bitcoin could be a part of. He said holdings in “fiat currencies” have had values eroded by inflation.
He also noted that Vancouver wouldn’t be alone, listing other government entities such as Zug, Switzerland, in allowing municipal payments to be made in bitcoin and El Salvador, whose government made bitcoin legal tender in 2021.
The idea of accepting bitcoin as a form of payment sounds attractive to Andrey Pavlov, a finance professor at Simon Fraser University and supporter of digital currencies. It would set an example, he said, and make other businesses more comfortable accepting bitcoin.
“I love that part of it,” Pavlov said. “It doesn’t matter if bitcoin is perceived as a store of value or speculative investment, (this would be) purely for transaction purposes.”
However, Pavlov considers bitcoin far too volatile for a city to sock away significant amounts of its financial reserves in the cryptocurrency.
“Putting maybe one per cent, or five per cent, (into bitcoin) might be worth doing, just so that we learn how to do it,” Pavlov said.
Otherwise, Pavlov added, bitcoin is doing great now, but it has had periods where it’s gone down 50 per cent, so I wouldn’t put (in) anything substantial.”
UBC economist Werner Antweiler pointed to the section of B.C.’s community charter that states the top priority for municipalities is to preserve and safeguard the public tax dollars they are investing.
Bitcoin is, he said, “incompatible with existing guidelines that there are for how cities handle financial assets,” Antweiler said.
In the motion, Sim argues that bitcoin has become more accepted and widely used by investment companies such as Fidelity, BlackRock and Charles Schwab in the U.S., which suggests bitcoin are a way to store investment value.
Antweiler, however, said bitcoin’s weakness is that it there is no underlying thing of value to it beyond the digital coins that are created, or mined, by high-powered computers that solve complex equations within the bitcoin structure.
“It is an asset that basically is completely determined by how much people are willing to buy it for,” Antweiler said. “It’s a piece of art and now, if people think it’s worth $1 million, it’s worth $1 million. If they think it’s worth zero, it’s zero.”
Some initial reporting when Sim first raised the idea suggested he might be in conflict of interest. The website Breaker.news pointed to bitcoin investments in the portfolio he had listed in his financial disclosure.
But Sim consulted with both the city’s auditor general and an independent lawyer who advised him he isn’t in a conflict on the issue, according to an unattributed statement from the mayor’s office.
If passed, the motion would direct staff to “report back to council on the feasibility, risks and potential benefits,” of a strategy to become “bitcoin friendly.”