The MMT Perspective on Crypto

Introduction

Cryptocurrencies such as Bitcoin make promises of decentralization, liberation from central banks, and amazing investment returns. Enthusiasts consider them as the future of money, while skeptics consider them tech bubbles. Modern Monetary Theory (MMT) — especially its chartalist perspective — provides an alternative lens to understand why cryptocurrencies, lacking enforced demand by a sovereign authority, are speculative assets with no intrinsic value. Below is a brief overview of MMT, followed by an argument on why crypto cannot hold up as true money from this perspective.

Past Bytepawn articles on crypto:

• Crypto I: On cryptocurrencies, explained using FTX Tokens
• Crypto II: On fiat currencies vs. crypto currencies
• Crypto III: On perceived crypto advantages such as anonymity and irreversibility
• Crypto IV: On stock investing vs. crypto investing
• Crypto V: On NFTs

MMT in a nutshell

1. Sovereign Currency Issuance
   MMT focuses on nations that issue their own currencies, such as the United States, Japan, and the UK. These governments are not revenue-constrained in the same way households or businesses are. They can always issue more currency to meet obligations.

2. Spending Precedes Taxation
   A central MMT insight is that government spending effectively creates money in the economy, which citizens and businesses then use for transactions, including paying taxes. Thus, from an MMT point of view, taxation removes money from circulation — it does not fund government budgets.

3. Inflation, Not Insolvency, Is the Real Constraint
   Because a sovereign government can issue currency, it cannot go bankrupt in its own currency (but it can in external currencies). The true limit is inflation — if the government spends too much relative to the economy’s capacity, it risks driving up prices.

4. Government Debt Is a Private Asset
   When governments run deficits, they issue bonds or other instruments. These are assets in the private sector (e.g., a treasury bond is someone’s investment). MMT sees no inherent danger in deficits as long as they do not spur excessive inflation.

5. Chartalism: The State Theory of Money
   According to chartalism, money’s value derives from the state’s power to impose taxes and demand that those taxes be paid in its chosen currency. This ability to enforce tax payments generates ongoing demand for the currency, ensuring its acceptance and stability.

6. Role of Full Employment
   MMT prioritizes real resources and employment levels. It argues that the government can and should use fiscal policy — direct spending — to maintain full employment, rather than obsessing over balanced budgets.

7. Functional Finance Over ‘Sound Finance’
   MMT rests on the principle that government fiscal decisions should be guided by economic goals (employment, price stability) rather than a rigid focus on balanced budgets. Spending should be used strategically to achieve societal outcomes.

MMT and crypto

From the chartalist perspective, a currency’s value is intimately tied to the sovereign nation’s ability to enforce demand for it. Governments do this by levying taxes, fines, and fees exclusively in their own currency — ensuring citizens and businesses must acquire that currency. This legal obligation creates a constant, non-negotiable need for that money — it citizens don't pay taxes, eventually men with guns take them away. For instance, in the U.S., no matter how much you like bartering, you ultimately need U.S. dollars to pay your federal taxes. Cryptocurrencies, by contrast, lack this built-in mechanism. No government requires citizens to pay taxes in Bitcoin or Ethereum. As a result, their value depends entirely on voluntary use and speculation — people hold crypto only if they want to, not because they need to.

Traditionally, money serves as: (i) medium of exchange, (ii) store of value (iii), and unit of account. Cryptocurrencies struggle on all three fronts. Most people and businesses cannot use them to pay for everyday goods or settle taxes, meaning their role as a medium of exchange is limited. Price swings, sometimes ranging into double-digit percentages in a single day, make them a highly unstable store of value. And virtually no governments or major businesses use Bitcoin or Ethereum as an official unit of account, limiting wider adoption.

Because crypto tokens do not benefit from government backing or enforced demand, they operate purely in the realm of speculation. Users hope prices will keep rising, allowing them to sell at a profit. It’s the classic “greater fool” dynamic. By MMT standards, money is something that not only has purchasing power but is also necessary to meet legal and economic obligations — qualities cryptos do not possess. When market sentiment shifts or a new hyped coin appears, demand can evaporate rapidly. Without a sovereign anchor, cryptocurrencies have no reliable floor to their value, making them intrinsically unstable.

MMT underscores that sovereign money underpins crucial societal functions. Taxes, infrastructure, government salaries, and various public goods are paid for in the domestic currency. This spending structures the entire economy — everyone needs dollars, yen, or pounds to operate effectively within those jurisdictions. Cryptocurrencies offer none of these systematic, economy-wide services. They are not required to pay taxes or utility bills; they do not fund government projects; and they lack widespread use as a stable medium of exchange. Any “utility” stems from niche adoption or speculative trading, making crypto’s societal value marginal at best.

In a fiat system, central banks (e.g., the U.S. Federal Reserve) and governments oversee the money supply, interest rates, and liquidity to safeguard economic stability. They can inject money into the economy during downturns or reduce spending if inflation overheats. Cryptocurrencies have no equivalent guardian. If a crypto crashes, there is no central authority to inject liquidity, stabilize prices, or guarantee acceptance. The entire ecosystem depends on private exchanges and miners, which can vanish or fail just as quickly as they rose.

From an MMT (chartalist) standpoint, the basis of any currency’s value is the state’s ability to demand it back through taxes. Crypto tokens have no such structural demand, leaving their valuation at the mercy of market enthusiasm. Once enough participants lose faith prices collapse. Without a sovereign backing or binding need for these coins, there’s no floor. A currency without enforced demand is effectively a speculative asset that can, and often does, go to zero.

Conclusion

Combining these insights from Modern Monetary Theory, we argue that cryptocurrencies fall short of being “money” in any meaningful sense. They lack:

• a sovereign authority demanding taxes in that currency,
• a role in funding public goods or broader economic stability, and
• an inherent or enforced need that guarantees ongoing demand.

Instead, crypto markets are driven by speculation and hype, making them extraordinarily volatile and prone to collapse. While blockchain technology might have interesting applications outside of money, these digital tokens themselves cannot hold long-term value without the fundamental chartalist pillar of enforced demand. From an MMT perspective, it is therefore difficult to see how cryptocurrencies won’t eventually go to zero.