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Monday 11.12.2017 | Name days: Valdis, Voldemārs, Valdemārs

What do five real economists think about Bitcoin’s future

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There isn’t just a bubble in the Bitcoin economy, there’s a bubble in the number of posts about Bitcoin. Most of these posts are subjective and unprofessional, so, instead of trying to determine future scenarios in a world they don’t understand, Tech Crunch reached out to a number of practicing economists and asked them to chime in briefly on a future with Bitcoin.

Author: SXCChris Robert, currently a Professor of public policy and economic development at Harvard:

“It would really be something if intelligent people chose to invest more trust in a currency system built and managed, in large part, by anonymous computer hackers than they did in currency systems built and managed by governments of the people, by the people. Fortunately, we are not there yet. Today, Bitcoin is mostly just a matter of media speculation arising from the continuing financial turmoil and growing distrust in the global financial system.”

Robert McMillan, a former economist with the U.S. Federal Trade Commission and Stanford economist, currently Head of Portfolio Management and Director of Quantitative Research at HNC Advisors AG:

Bitcoin is dead. Long live Bitcoin. The value of having an easy-to-store, hard-to-steal, and hard-to-counterfeit medium of exchange is substantial. (..) Unfortunately, as those familiar with Paul Krugman’s writings on liquidity traps know, Bitcoin’s known and finite supply dooms it as a workable replacement currency. (..) Nevertheless, the flaw lies with the implementation, rather than the idea itself. I expect Bitcoin (“BC”) will soon see competition in this space from “Currency 3.0″ entrants that fix the flaws in Bitcoin and thus have a better (i.e. nonzero) chance of achieving the “gold standard” of currency acceptance, namely a liquid market in Forex forwards with another major currency.”

Matthew Bishop, currently the U.S. Editor for The Economist, where he’s been for 22 years:

“As I wrote in my recent ebook on the future of money, “In Gold We Trust?“, the resurrection of gold and the emergence of Bitcoin are two sides of the same, er, coin. Both are a response to falling confidence in the soundness of government-backed ‘fiat’ money in an era of quantitative easing. I think the algorithmic approach to controlling the money supply used by Bitcoin and other digital currencies being developed in Silicon Valley could go a long way to creating a sound store of value. The biggest risk to these currencies may turn out to be government action to destroy an alternative to fiat money. But what if a sovereign state was to issue an algorithm-based currency? Would that drive fiat money out of business?”

Brett Gordon, currently a Professor at Columbia’s Graduate School of Business:

“There are two scopes for discussion about the future of bitcoin. First, the short-term: if this is a bubble, when will it burst? It’s notoriously difficult to predict the end of a speculative bubble. Those lucky enough to time it correctly can make a lot of money, but that won’t be true for the rest of us mere mortals. The price chart for bitcoins reminds me of the Nasdaq from 1995 to early 2000. Clearly, these are vastly different, but I think the Nasdaq plot is representative of many yet-to-burst bubble prices. (..) Second, the long-term: what will the bitcoin market look like in 5-10 years? That’s even harder than calling the peak of a bubble. I think a significant contribution of the bitcoin market is that it serves as a proof-of-concept for a decentralized crypto-currency. Two benefits are that bitcoins are inherently deflationary and transactions are anonymous. Given the recent slew of fiscal crises and increasing concerns about online privacy, these are two strong points in bitcoin’s favor—or whatever future crypto-currency arises.”

Peter Rodriguez, currently a Professor at Virginia’s Darden School of Business:

“At first blush Bitcoin is nothing special. Virtually anything can be used as a pseudo-currency. And, there is nothing new about a profound fear of fiat currencies and all manner of efforts to avoid the risk of relying on central bankers. (..) In some ways, Bitcoin is just a virtual pack of smokes. But in other ways, it’s revolutionary. Cigarettes have inherent value and alternative uses, like cotton and even gold. Bitcoins are valued in and of themselves. They have even less alternative uses than paper currency or baseball cards. So, if they can establish their worth and hold the confidence of investors long enough, the institutions that can eventually convert Bitcoins from a fad-like store of value to a real currency might just begin to develop. And then, Bitcoins could become a reliable medium of exchange. (..) The real question isn’t whether Bitcoin will falter, plummet or take us all on a crazy ride, it’s whether it will actually survive its inevitable test. If it does, even at very low values, it will change the way we think about stores of value, finance and the independence of the virtual economy.”

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