An economist at one of the world’s leading investment companies predicted that there was a high likelihood of Bitcoin becoming worthless.
“I see a decent probability that its [Bitcoin’s] price goes to zero,” Joe Davis, the global chief economist at Vanguard, said in an op-ed in ETF.com.
That said, Davis was enthusiastic about the blockchain, which is the distributed ledger technology that underlies Bitcoin, and which is being used by Vanguard.
While Bitcoin and its peers can qualify as a unit of account and as a medium of exchange to some extent, they cannot be a store of value due to the high volatility in their prices that limits their adoption, the economist said.
Davis said central banks pose the greatest threat to cryptocurrencies as they are exploring blockchain-based currencies and regulating exchanges.
“Given the additional control and policy effectiveness that digital currencies could provide, central banks have good reason to adopt digital currencies in the coming decades,” he wrote.
“Those currencies would be “legal tender,” legally recognized forms of payment for all debts and charges.”
Cryptocurrencies are also a weak form of investment as they generate no cash flows to justify their prices, Davis wrote.
They lack the support of economic fundamentals and their prices are determined by speculation about their eventual adoption and use, the economist said.
“With no cash flows and extreme volatility, the investment case for bitcoin is hardly compelling,” Davis said.
Further, cryptocurrencies are not necessarily tied to the value of blockchain applications that may improve their efficiency in terms of cost and speed, the economist pointed out. Hence, an investment in cryptocurrencies do not offer a chance to capitalize on blockchain technology, he added.
“As innovation quickens and competition increases, the majority of networks (and their associated cryptocurrencies) may be rendered obsolete, leaving many cryptocurrencies like tulip bulbs in 17th-century Holland—soaring to incredible heights before the speculative bubble pops,” Davis said.
The Nobel laureate Robert Shiller wrote in an op-ed on Project Syndicate, early this week, that cryptocurrencies could turn out to be just another failed currency experiment.
“As in the past, the public’s fascination with cryptocurrencies is tied to a sort of mystery, like the mystery of the value of money itself, consisting in the new money’s connection to advanced science,” the Yale University Professor wrote.
“That mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a compelling story may not be enough.”
by Jyotsna V