The economist was not alone in providing such warnings, as a Goldman Sachs note predicted that it was "unlikely" that "any of today's cryptocurrencies will survive over the long run."
Argument For Bitcoin Price Reaching Zero
In an op-ed piece, Vanguard economist Joe Davis wrote that there is a "decent probability" that Bitcoin's price would fall to zero. He made this statement while maintaining that blockchain technology holds promise.
Davis explored whether digital currencies are in fact currencies, coming up with mixed results. He argued that Bitcoin is not a store of value, emphasizing its volatility. Davis claimed that these price fluctuations make vendors more hesitant to accept the digital currency, thereby hindering adoption.
The economist stated that cryptocurrencies do function as a medium of exchange, but that their price fluctuations only interfere with this use, and that only a fraction of merchants accept them as a means of payment. Davis emphasized that digital currencies function as a unit of account, giving these digital assets at least one of the qualities needed for them to function as a currency.
The aforementioned Goldman Sachs note, which featured a Q&A with Head of Global Investment Research Steve Strongin, stated that most of these digital assets are "too primitive" to be practical over the long haul, and predicted that their value will therefore fall to zero.
He said that digital currencies have security vulnerabilities, and their transactions can be both time-consuming and expensive. Strongin has reasonable cause for concern, as the average time needed to confirm a Bitcoin transaction approached 12,000 minutes (20 hours) in January 2018.
Amid these criticisms, several market observers have provided counter arguments as to why Bitcoin's value will never hit zero. The digital currency has "historical evidence," Balaji Srinivasan, a serial entrepreneur and former board member of Andreessen Horowitz, told CNBC during a January 2018 interview.
There is a large community of individuals who have held the currency through very tough times, such as the more than 85 percent decline that Bitcoin suffered between January 2014 and January 2015, Srinivasan said. He predicted that in the long-term the digital currency's market capitalisation (or total market value) will continue to push higher.
Further, some market participants have started using Bitcoin as a "disaster hedge," investing in the digital currency during times of geopolitical turmoil, ARK Invest analyst Chris Burniske told CNBC during an interview. Burniske predicted that more investors will begin using Bitcoin for this purpose because the digital currency does not correlate with more traditional asset classes.
In spite of Bitcoin's great success in generating visibility and drawing investors, some market observers have predicted that the digital currency's value will eventually fall to zero. However, others have disagreed, providing multiple reasons why this will never materialise.
These Bitcoin enthusiasts have emphasized that many investors have held onto the digital currency even when it suffered sharp price declines. In addition, some market analysts have noted that Bitcoin can function as a disaster hedge, because its price movements frequently don't follow those of other assets.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…