You can count on it. Whenever a major financial market struggles for survival in a deep, enduring bear market, undertakers with access to the financial press gleefully pronounce its imminent demise. For Bitcoin, such dire pronouncements have been arriving at a steady pace since summer 2018. Simultaneously, plenty of big names in the financial world envision Bitcoin as an unstoppable, universal digital currency that will benefit every person on Earth. So, who’s right? Is anyone right about any of this? Is the Bitcoin future one of widespread acceptance? Or is it one forever relegated to the shadows of the worldwide financial system?
Perhaps the truth lies somewhere in-between these two extremes.
Why Such Bitcoin Pundit Polarization?
Here are recent excerpts demonstrating this black or white, but definitely not gray mindset:
“Crypto is the mother or father of all scams and bubbles.”
– Nouriel Roubini, October 11, 2018
“(Bitcoin) is the greatest store of value ever created.”
– Lou Kerner of CryptoOracle, November 21, 2018, CNBC interview
“I come to bury Bitcoin, not to praise it.”
– Paul Donovan, Chief Economist at UBS, November 2018
“I don’t make significant price predictions. But it’s (Bitcoin) certainly going to be worth a great deal more than it’s worth today. I am long in the market.”
– Jeremy Allaire, CEO, Circle.com, CNBC interview, December 14, 2018
“You should outlaw it (crypto). I am personally surprised that regulators haven’t stepped in harder.”
– Andreas Utermann, CEO, Allianz Global Investors, December 11, 2018
“It (Bitcoin) wasn’t tulips. It was a mania built on something that’s real. Most bubbles are built around things that are real. The Internet bubble felt like mania, and whoa, did the Internet change our world. When I look ahead, I’m pretty constructive.”
– Mike Novogratz, Bloomberg Television interview, December 17, 2018
Without attempting to call anyone out for agenda pushing, might not there be some financial or ideological motivations behind such weighty pontifications?
Paul Donovan and Andreas Utermann are key figures at a major bank and investment house, respectively. Their firms likely do well in times of central bank financial stimulus (money-printing). That’s because of increased financial speculation and more demand for loans. Central banks don’t like Bitcoin (and cryptos in general) as they fear competition to their centralized means of planning in the world economy and financial markets. Nouriel Roubini is an economist, professor, and former advisor to the World Bank, the IMF, and the Federal Reserve. None of those monetary superpowers are noted for outbursts of Bitcoin praise and adoration.
On the other hand, witness Bitcoin’s cheerleaders. Lou Kerner recently said that Bitcoin is the “greatest store of value ever created.” Try feeding that line to the poor HODLR who jumped into Bitcoin at $10,000, $15,000, or even $19,000 in 2017. Not much value left in their portfolios now, is there?
How about Mike Novogratz and his recent statement, “It wasn’t tulips.” Bitcoin’s price chart might have a pronounced disagreement with Mr. Novogratz. Its technical chart eerily resembles the famous tulip bubble chart of the 1600s, despite his claim to the contrary.
Jeremy Allaire, CEO of Circle seems very confident that Bitcoin will be worth “a great deal more” than it is today.
A More Realistic Assessment?
Somewhere in Bitcoin’s dull, boring, gray area may reside the best depository for Bitcoin truth. Some of these truths are potentially disturbing. Others are hopeful, while still others suggest a very bright future for Bitcoin.
In early 2018, writer and professor Paul De Grauwe painted a stark picture of Bitcoin’s inability to function as a universal currency. He cited Bitcoin’s supply limitations as a major stumbling block. For example, in the financial crisis of 2008, central banks added vast amounts of liquidity (currency units) to shore up the banking and economic system. He says Bitcoin, with a fixed supply, would prove useless as a financial crisis panacea.
In his own words,
More generally, the problem of a Bitcoin economy is that in times of financial crisis, which one can be sure will arise again, there is a generalized flight into liquidity. That’s when a central bank is needed to provide all the liquidity needed. In its absence, individuals scrambling for liquidity sell assets, leading to asset deflation and insolvency of many. A Bitcoin economy does not have this flexibility and therefore will not withstand financial crises. A Bitcoin economy will not last in a capitalistic system, which regularly generates financial crises.
De Grauwe also claims that…