Economy may be better off without cryptocurrencies, Economist claims: Bitcoin and other cryptos are “a negative sum game”
Cryptocurrencies have grown into a global phenomenon, gaining attention from investors, economists and governments. As the popularity of digital currencies like Bitcoin BTC/USD and Ethereum ETH/USD have skyrocketed, some experts question their long-term impact on the global economy.
Citing Charles Kindleberger’s “Crazes, Panics and Crashes” (which partially examines the cryptocurrency market as a craze) and author Robert McCauleyhis opinion that cryptocurrency is “the most speculative asset ever invented by the human mind,” Dieter Wermutheconomist and partner at Wermuth Asset Management, said in a Wednesday note to investors that several economists at the European Central Bank have raised concerns about the long-term consequences of cryptocurrencies.
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Economists have argued that crypto is not a viable alternative to regular money, but rather an asset without substance, a get-rich-quick scheme for insiders, and a safe haven for money launderers, tax evaders and other dubious characters. In addition, economists have pointed out the enormous energy consumption of data centers that run the crypto ecosystem, which in turn has contributed to climate change.
Despite the initial narrative that Bitcoin would be a better, more stable currency than traditional money, Wermuth said the cryptocurrency has proven insufficient to fulfill the three essential functions of money: as a means of payment, a unit of account and a store of value. .
Bitcoin’s volatility, slow and expensive transaction processes and limited acceptance as a form of payment make it inherently a poor substitute for traditional fiat currencies, he added.
As a store of value, Bitcoin is particularly flawed, Wermuth explained. It has no intrinsic value, no interest payments and no promises 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 the potential for price appreciation, Bitcoin could simply disappear, he warned.
From a macroeconomic perspective, Wermuth said Bitcoin and other cryptos are “a negative sum game,” causing significant waste of resources.
The socially undesirable redistribution of wealth, the high income they earn on a fundamentally useless asset, the facilitation of money laundering and tax evasion and the environmental costs associated with the operation of the IT systems all contribute to a net loss for the economy, he explained. .
Ultimately, Wermuth said the global economy may be better off without crypto, allowing more funds to be directed toward consumption and investment.
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