Cryptocurrencies have become a global phenomenon, attracting the attention of investors, economists, and governments. As the popularity of digital currencies like Bitcoin USD/BTC and Ethereal EUR/USD skyrocketed, some experts question its long-term impact on the global economy.
quoting by Charles Kindleberger "Manias, Panics and Shocks" (which, in part, examines the cryptocurrency market as a hobby) and author Roberto McCauleyThe view that cryptocurrency is "the most speculative asset ever invented by the human mind." Dieter Wermutheconomist and partner at Wermuth Asset Management, said on a Wednesday note to investors that several economists at the European Central Bank have expressed concern about the long-term consequences of cryptocurrencies.
Also read: Bitcoin Will Go To Zero, But The Journey "Won't Be A Straight Line," Says Peter Schiff
Economists have argued that cryptocurrencies are not a viable alternative to regular money, but rather an asset without substance, a get-rich-quick scheme for insiders, and a haven for money launderers, tax evaders, and other dubious characters. Additionally, economists have pointed to the massive power consumption of data centers powering the crypto ecosystem, which, in turn, has contributed to climate change.
Despite the initial narrative that Bitcoin would be a better and more stable currency than traditional money, Wermuth said that cryptocurrency has proven inadequate in fulfilling all three essential functions of money: as a means of payment, a unit of account, and a deposit of money. worth. .
Bitcoin's volatility, slow and expensive transaction processes, and limited acceptance as a form of payment inherently make it a poor substitute for traditional fiat currencies, he added.
As a store of value, Bitcoin is particularly lacking, Wermuth explained. It has no inherent value, there is no interest payment, and there is no promise to redeem the purchase price or face value. This makes it impossible to calculate a "fair" price, making Bitcoin a purely speculative asset, he said.
If market participants lose faith in its price appreciation potential, Bitcoin could simply disappear, he warned.
From a macroeconomic perspective, Wermuth said that Bitcoin and other cryptocurrencies are "a negative sum game" that causes significant waste of resources.
The socially undesirable redistribution of wealth, the high income earned by those who trade in a fundamentally worthless asset, the facilitation of money laundering and tax evasion, and the environmental costs associated with running IT systems all contribute to a net loss for the economy, he explained. .
Ultimately, Wermuth said, the global economy could be better off without crypto, allowing more funds to be put into consumption and investment.
Read next: Here are 3 reasons why the US dollar is not going away, despite the ambitions of the BRICS
Photo: Shutterstock
