Eugene Fama, a Nobel prize winner who is also known as the father of modern finance has not been a proponent of bitcoin and recently claimed that there is high probability that bitcoin will become worthless within next ten years. We have seen many critical points view regarding bitcoin over the years, and I think it important to listen to these arguments especially when it comes from the experts in the field. Eugene Fama is someone who dedicated lives work to finance, and I have no doubt understands finances and money much better than many of us. We may disagree when it comes to bitcoin. However, it is still important to see what the arguments are. I doubt bitcoin will disappear in ten years or hundred years. But I still accept the possibility it may. If there are such possibilities then I am interested to know.
For example, the most convincing argument for bitcoin becoming worthless, in my opinion, is the advancements in quantum computing. I can see how advanced quantum computing can make technologies like bitcoin obsolete. However, when such advancements in quantum computing are achieved, we have much bigger problems to worry about. We will have to reevaluate everything we do, starting with banking, governments, military, etc. When that time comes, I am sure we will see advancement in counter measures that will provide security against quantum computing attacks. Everything else would probably shift to quantum computing, including mining. I don't know how that future will look like. Human ingenuity and what has been accomplished so far suggests advance quantum computing will be a reality one day.
Eugene Fama is not talking about quantum computing. In fact, he is not suggesting anything we haven't heard before. I am kinda disappointed that one of the top experts in modern finance is not able to bring forward strong arguments against bitcoin while making big predictions like bitcoin will not exists in near future. It is also possible I am not taking these arguments seriously and they may actually be significant. So, what are the arguments?
- Bitcoin's value it not stable. Volatility.
- Bitcoin has no intrinsic value. It is not backed by central authorities.
- There are benefits of blockchain technology in form of stable coins, or government backed coins. But not bitcoin.
- Limited use case.
Fama primary focus is in the first two arguments. This aren't anything we haven't heard before. At first I thought Fama is confusing cryptocurrencies or currencies with money. Surely, father of modern finance would know the distinction between the two. The main problem Fama presents with bitcoin is that bitcoin's value is not stable, it is too volatile to be medium of exchange. For cryptocurrency to be medium of exchange there should be stability and predictability in its value. Otherwise nobody would use it, and there is no point of using it.
Bitcoin as medium of exchange vs as store of value has been debated over and over again. By now most people understand that bitcoin is great as store of value. But here is the problem. If it fails as a medium of exchange, it may lose its attraction as currency. Hence, lose value and no longer be a good store of value option. That is not what we have seen so far through bitcoin's history. It has demonstrated to be a great store of value, and also great investment instrument. It may not have seen massive adoption as a medium of exchange for daily purchases yet. Would this disqualify bitcoin from being money? Things get a little confusing here. Let's unfold.
I think the misconception of fiat as better medium of exchange comes from the illusion that fiat transactions are settled instantly. Yes, transactions are settled instantly when we use cash, actual paper money. Most of the transactions are cashless, and has been so for decades. In daily purchases, we use credit or debit cards which are layer 2 solutions for fiat. These transactions are not settled instantly. The credit based system allows these transactions to happen, but then it takes days for the payment process to actually clear. Even when fiat is digitized and had this technology for decades, the finality of the transactions takes days. In comparison, bitcoin transactions settle much quicker. It may take 10 minutes, it may take an hour. But definitely not days.
Now that banks will be able to custody bitcoins, if we were to utilize the same layer 2 solutions like debit cards transactions would go through as quick, settlement would happen in minutes. However, we don't need to rely on traditional solutions, we have layer 2 solutions like lightning network that will allow instant settlements. We may even see different solutions in the future. So, yes bitcoin as medium of exchange already works much better than fiat regardless we use the core network or layer 2 solutions.
When we consider international transactions, there isn't even comparison at the speed of transactions and settlements. The best feature of bitcoin as medium of exchange is no requirement for the middleman. People and companies can transact in billions of dollars worth of value in seconds, without an approval of a bank or financial entity. So technology is definitely superior. The money aspect of bitcoin is even better. No fiat currency can claim to be a strong money. Bitcoin is.
The real obstacle is the taxation and regulations. Fiat enjoys to be a standard medium of exchange because fiat is not taxed. It has a privilege of being a legal tender. Many people and merchants wouldn't use bitcoin in daily transactions because of the taxable events created after each transactions. If bitcoin was legal tender in the US, and we didn't have to calculate the US value of bitcoin every-time we engage in transactions, we may choose bitcoin as better alternative for transactions. Why not? It is cheaper than using fiat. Fiat transactions come with automatic 2%-3% fees for using the Visa or MasterCard. Yes, bitcoin has transaction fees, but they are not as crazy as fiat ones. Moreover, bitcoin transactions fee go to make the network more secure and stronger in an free market fashion. While fiat transaction fees act like hidden taxation to enrich the banks.
One of the main reason bitcoin's price is not stable and there is always volatility is because fiat system is broken. The prices fluctuate against fiat. In a long term bitcoin keeps appreciating in value, because fiat is being diluted by the central banks on regular basis. Perhaps, USD is more stable than other fiat currencies and there are better systems in place by Fed. There are many fiat currencies around the world that experience extremely high inflations and it is accepted norm. If we consider all fiat currencies and their value fluctuations it will be very clear how fiat is definitely not stable. In most cases these instabilities go against ordinary people and businesses. There are many around the world who take steps not to use their fiat and use stronger fiat currencies like USD as medium of exchange. Similarly, if obstacles were removed people would choose stronger money, bitcoin over USD to use as medium of exchange.
This future is coming. People and businesses will be attracted to stronger money. For the same reason world uses USD or EURO instead of other currencies. Over the last decade, governments were creating obstacles for bitcoin adoption, and that is why its adoption as medium of exchange has been slow. Nothing else. Slowly things are changing, and those who opposed and fought against bitcoin are becoming bitcoiners themselves. If there was a fair competition in place and free market to choose, I have no doubt many will go to bitcoin. Incentives of using bitcoin are higher, benefits of using bitcoin are higher, and it also preserves value better than fiat.
Bitcoin has all that is needed to be used as medium of exchange in faster, cheaper, secure, and peer-to-peer fashion. That said, with obstacles in place, bitcoin has demonstrated to be great store of value. Why use great store of value in medium exchange when there is no need to do so. Time will come when bitcoin will become the standard, and use of it as medium exchange will be norm. That time is not now. Today with all the monetary policy decisions, money flow manipulations, extremely high inflations, it may be wiser to hodl bitcoin, and use other option as medium of exchange. Not because bitcoin can't be used as such, but because it may be more beneficial to hodl it at this time.
Fama also compared gold with bitcoin and obviously favor gold. The reason was that gold has intrinsic value because it is also used in jewelry, electronics, etc. So gold's utility cases seem to give it its intrinsic value. Sometimes I don't even understand what people mean with intrinsic value. Do things have intrinsic value or all values are just based who is willing to pay how much for something at a given time and place? I guess gold may have more intrinsic value than fiat. Even if we went with utility case for intrinsic value, some people just can't comprehend the value brought by a decentralized network. The intrinsic value of bitcoin comes from its network. There no such network in existence yet. I am not talking about the protocol, software, and connections. I am talking about all in one that can produced a truly decentralized network where no one entity can be in control. That is priceless. Anybody can copy the code, anybody can fork the network. The question is who will use the network, who will entrust their wealth in the network, who will spend insane amounts of money to secure the network.
Another argument usually given is that bitcoin can be replaced with something better. Technology always evolves, and one day we may see a better technology. But it is not only about technology when it comes to bitcoin. Technology is one part of it. It is the network that needs to be imitated. If better decentralized monetary network emerges, perhaps then we may agree something better could replace bitcoin. But the decentralization takes time and should happen naturally. If your goal is to create a better bitcoin, the start is already flawed. That's why we have tens of thousands of coins and none are truly comparable to bitcoin. They all trying to imitate bitcoin or become an alternative. The key is natural formation of decentralized network and continuous growth. I don't know how, but one may emerge. But it will not be easy. In fact we may not even notice if such thing happens.
Fama also like stable coins because he seeing benefits of blockchain in improving the traditional fiat currencies. Obviously. Lol. I don't understand how Fama doesn't see the blockahin of bitcoin but for stablecoins is great. Stablecoins are not even using their own core networks but rather are layer two solutions, unless it is an algo coin like HBD. For Eugene Fama as long as the currency is backed by a central authority, mainly government than it has value as money. I think this where Fama and traditional finance is stuck. They need government to be in charge of money. Bitcoin was created specifically not to have central authority, because central authorities is the reason traditional money kept failing time and time again. Market crashes continued to happen for decades. People kept losing their wealth to bankers for decades. Central authorities did not fix money, but they broke the money. That is where the core issue is. It is not even governments, it is governments that gave the power to central banks which can't even control.
Recently one of the reporters asked Jerome Powell if he would step down if Trump asked him. Powell said nope, and that Congress gave Fed power to conduct the monetary policy independently. President of the US cannot fire the chairman of the Federal Reserve. Congress cannot audit the Federal Reserve. How are they government again? Where are the checks and balances here. Even if government branches had any authority over Fed, that wouldn't make money better either. The innovation of the new money in bitcoin is that there is no need for central authorities. Because they have a reputation of braking money and financial stability.
To Fama credit, he allows the possibility that he may be wrong. If he is proven wrong, he suggests that we will need to rethink the entire monetary theory we know today. Not a bad idea. Now it makes more sense why traditional finance experts are so attached to the old system and show resistance to the innovation in money. Because that would mean they have been wrong all along. I don't think that is completely accurate. Perhaps the systems in place were proper for the time they were used in. These systems however corrupt they maybe, may have been better than the systems before. It may just be a time for a reset in money.
Counting ten years starts now. I wonder if Eugene Fama and followers of modern financial system will embrace bitcion when they are proven wrong in ten years. When bitcoin not only haven't gone to zero, but has added many more zeros to its valuation.
"Modern" finance ... Behind ideas like ZIRP and even NIRP? If Eugene Fama is the "father" of "theories" like these, then I wouldn't spend any more time listening to anything he or anyone like him has to say.
Bitcoin is what got me investing in crypto, beginning in the summer of 2017. The idea that this was "virtual gold" was what caught my attention. To a key point of your post, that Bitcoin, as such, is a great store of value, has been proven beyond a reasonable doubt IMHO.
Why? Like gold, you can't just click on the "print button" whenever you may choose. No! Therefore, it has an essential property - it has its own built in "checks and balances!"
The future?
Are you not amazed at the rate at which changes are coming (not only quantum computing and / or exascale computing, but harnessing it to AI / AGI / ASI?)? These changes are not only occurring at a dizzying rate, but even accelerating?
To what end?
If the answer has anything to do with bringing the above to an end, that should at least be considered a great start. Assuming, of course, that whatever bright idea we are presented with is actually an improvement.
Whatever happens, I cannot imagine it will be boring to watch it unfold!
For some reason traditional finance minds see "print" button as a feature. Yes, these are interesting times indeed. Innovation never stops to amaze me, especially those that bring value to ordinary people.
The only thing that can make Bitcoin worthless is if the current financial system heals itself and stops being corrupt. This is the only valid argument, and it is conveniently an argument we never see posed, because no one would be stupid enough to imply that the current system in place could possibly heal itself of the cancer that has taken root.
This is an excellent point! With the same logic, there will always be those who care for healthy system and choose bitcoin. Hence, zero never happens.
This needs to be done like yesterday. Politics have killed the financial system and seven it by short term measures as opposed to building the system on long term sound and well thought principles.
To be honest trying to prove them wrong or waiting to see if they made the right call or not. Is a sheer waste of our time. #BTC is far beyond then and the research they do on their pentium2 computers.
BTC has time and again out witted its enemies and trump is unknowingly immortalizing it. After his term BTC will be unstoppable.
It's too bad that his view is like that, but it just seems like he is in favor of the current fiat system and he thinks that it won't fail at all. I think BTC has its value and I don't think it will go to zero.
Father of Modern Finance and you can't still see the continued existence of btc in years to come ? tragic!
Well, I’m not the person to say anything about this cause I have little idea of bitcoin, only that is a crypto and has value in currency. But, I can read you know a lot and you are predicting something good for Bitcoin. Fama can have knowledge but so are you. Ten years is a little time for something so big to disappear, especially when there’s so much invested and involved around it. If Bitcoin hasn’t gone farther is due to lack of freedom they impose on us.
It can't happen, in the next 10 years we will see the price of bitcoin go up a lot because it is now being added to the reserve and then we will see countries all over the world buying what they are and that is good news for all of us.
It is difficult for me to understand how a finance expert can use the volatility argument against Bitcoin and advocate for fiat currency, which is the exact representation of volatility.
!BBH
!PIZZA
Wow, very mature start in the introduction. Hearing others views and why they say so is a way to finding a solution for our problems on its on.
We can list many obstacles that threaten Bitcoin. It can also cause short-term concerns.
I think the biggest threat to Bitcoin is that all states unite and ban it. This does not seem possible. It may pause, its price may fall, but it will not reset.
True government bans were among the top risks for bitcoin. However, that never was a threat to stop it but slow it down. Usually, nonsense bans end up being reversed. The thing with global governments is that they can never unite on anythings.
We are well past the banning phase. Few countries kinda did bans of sorts, and found out they were on the wrong side of the history.
Disqualified himself imo. Such ignorance. 🤦🏼♂️
Quite an interesting argument on quantum computing. However, I would bank on the fast pace in technological advancement and resilience of the crypto community at this point, BTC is a country and its citizens are not going down without a fight, they will consistently develop ways to prove there financial models too. Quantum computing is a threat to BTC the same as it is to traditional finance.
Quantum is a mystery and fascinating. I don't know how we will get there, but it seems we aren't too far away.
Very poor arguments coming from a top scholar. This says a lot about our world and the people heading it and its various institutions. Quiet sad if I may say.
An interesting claim. As it is based on blockchain technology, I never thought that another technology would overthrow it.
Yes, of course we should take Eugene Farm's prediction seriously, but as the modern technology and cryptocurrency world is growing, I don't think Bitcoin will come back. I had also expressed my thoughts about Bitcoin and cryptocurrency. I also train through Binance and I had expressed these thoughts and my prediction was that Bitcoin will go to 150 k dollar, God willing.
Quiet laughable. Reminds me of the scene in black bather when the king was beaten and paraded to his people asking while villain shouting “ is this your king”.
Hahaha are “ these your intellectuals “ I would ask in this case
I think the change is a lot bigger that Bitcoin will reach 1 million than that it goes to 0, the financial system as it is is broken for a long time already.
Fiat has no intrinsic value as well, it only has the trust of the people using it, and it's not backed my anything since the decoupling with gold.
I would even go further and argue bitcoin has more intrinsic value than anything else. Physical properties have some use, but they also have higher risk of being stolen, confiscated, and damaged by natural events.
Your approach is class and the strength of the BTC community. Studying every and anything from the other world, building to combat attacks and further tech. While all the other can see are green and red candles and not bother going deep into the rabbit hole before the can say anything for or against crypto.
What makes BTC tick as a store of value is its ability to raise beyond what you put in through its season and circles.its just like gold but a gold that adds an extra shine to its self from time to time.
What a way to start loosing a honorable title that was given to him by pissing on the future of finance which he claims to have a title aligned to.
Wonderfully and informative article. I enjoyed reading it.
In case there is a dip. Buy some more. This a sign that crypto still has life in it.
This is so interesting indeed. So many experts but its still difficult to predict. Btc has value as there is supply and demand !
I loved this article. If BTC is replaced something better then it’s a legend and its scarcity will allow for it to even become more expensive. Now one ever died for giving birth and eventually becoming a grand father. If their legacy was great. Their name only gets stronger as their kids and grand kinds further the dream, power and well. BTC wins from every angle.
Btc to zero, Hive to 100.000$. I'm fine with this !LOLZ
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I do not think Bitcoin will go down to zero in ten year's just as Fama said, I believe cryptos (Bitcoin) is all about adoption, and why must it go down to zero after breaking a lot of ground's, as we have right now.
Bitcoin stays, just as other things that worth will come and stay.
Everything comes and goes, dollar wasn't here since begin of the age, and it will not last forever, everything has a time, same for bitcoin, but say 10 years, it's just pure guessing
Yes, I heard of quantum computing as a threat, and that is why there are tokens like HBAR that claim to be protected from it.
Fama's pro-centralization argument stinks!
This view is not new, we have heard repeatedly about predictions of Bitcoin collapse for more than a decade, however, it is still present and growing.
I wish I could be able to buy a little of Bitcoin because this is a sign that it still have much life in it
You can always buy Sats.
Please @geekgirl, I really want to buy (no matter how little) can you send me the link or something?
I think Fama has made a wrong statement. BTC will never move to zero in the next ten years. That’s something I’m sure of. BTC has a very bright future
This is a wrong prediction
I am very optimistic about the future of bitcoin and we are just starting
Thank you for this awareness
Hopefully we can take Cuan first. And it is profitable for all of us.
I don’t much about bitcoin just little..but reading your post I understand some few things.But personally I think bitcoin can’t be replace
!hiqvote
uh huh, sure. same way that old stocks guy said he wouldn't even take any btc, if he was given it.. sure.. 😉😎🤙
Hmm...I can't imagine btc price lover than 1$...in that case thousands of people will bankrupt immediately
Whereas it is definitely a good idea to stay up on ideas and opinions, I have long had an issue with so called "financial geniuses" who put forth lots of theories that don't actually hold up in tangible life.
Usually economists miss the point because they have models that are based around numbers that perhaps make sense in a vacuum where only calculations exist... but it all falls apart because they have close to zero understanding of human psychology.
I always felt it should be mandatory for economists and financiers to take a minimum of three years of human and industrial psychology as part of their education...
!PIZZA