Economy May Be Better Off Without Cryptocurrencies, Economist Argues: Bitcoin And Other Cryptos Are ‘A Negative-Sum Game’
Cryptocurrencies have grown into a world phenomenon, garnering consideration from traders, economists, and governments. As the recognition of digital currencies like Bitcoin BTC/USD and Ethereum ETH/USD has skyrocketed, some consultants are questioning their long-term impression on the worldwide financial system.
Citing Charles Kindleberger’s “Manias, Panics, and Crashes” (which, in-part, examines the cryptocurrency market as a mania) and creator Robert McCauley’s take that cryptocurrency is “essentially the most speculative asset ever invented by the human thoughts,” Dieter Wermuth, economist and accomplice at Wermuth Asset Administration, mentioned in a Wednesday note to investors that a number of economists of the European Central Financial institution have raised considerations in regards to the long-term penalties of cryptocurrencies.
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Economists have argued that cryptos are not a viable alternative to regular money, but rather an asset without substance, a system for insiders to get rich quick, and a haven for money launderers, tax evaders and other dubious characters. Additionally, economists have pointed out the massive energy consumption of data centers that power 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 to be inadequate in fulfilling the three essential functions of money: as a means of payment, a unit of account and store of value.
Bitcoin’s volatility, slow and expensive transaction processes, and limited acceptance as a form of payment inherently makes it a poor substitute for traditional fiat currencies, he added.
As a store of value, Bitcoin is particularly deficient, Wermuth explained. It has no inherent value, no interest payments and no promise to redeem the purchase price or nominal value. This makes it impossible to calculate a “truthful” price, rendering Bitcoin a purely speculative asset, he said.
If market participants lose faith in its potential for price appreciation, Bitcoin could simply vanish, he warned.
From a macroeconomic perspective, Wermuth said Bitcoin and other cryptos are “a negative-sum recreation,” causing a significant waste of resources.
The socially undesirable redistribution of wealth, the high income earned by those dealing in a fundamentally useless asset, the facilitation of money laundering and tax evasion and the environmental costs associated with running the IT systems all contribute to a net loss for the economy, he explained.
Ultimately, Wermuth said the global economy might be better off without cryptos, allowing for more funds to be directed towards consumption and investment.
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