Economy Might Be Better Off Without Cryptocurrencies, Economist Argues: Bitcoin And Other Cryptos Are ‘A Negative Sum Game’

Cryptocurrencies have emerged as a global phenomenon, drawing the attention of investors, economists, and governments. As the popularity of digital currencies pleases Bitcoin BTC/USD And ether ETH/USD has skyrocketed, some experts question its long-term impact on the global economy.

Quote Charles Kindlebergers “Manias, Panics, and Crashes” (partly exploring the cryptocurrency market as a mania) and author Robert McCauleyassume that cryptocurrency is “the most speculative commodity ever invented by the human mind” Dieter WermuthEconomist and partner at Wermuth Asset Management, said in a Wednesday note to investors that several European Central Bank economists have expressed concerns about the long-term implications 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 get-rich-quick scheme for insiders, and a haven for money launderers, tax evaders, and other dubious figures. Additionally, economists have pointed to 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 is a better and more stable currency than traditional money, Wermuth said the cryptocurrency has proven insufficient to perform money’s three essential functions: as a means of payment, a unit of account, and a store of value.

Bitcoin’s volatility, slow and expensive transaction processes, and limited acceptance as a form of payment inherently make it a poor substitute for traditional fiat currencies, he added.

Bitcoin is particularly poor as a store of value, Wermuth explained. It has no intrinsic value, no interest payments, and no promise of repayment of the purchase price or face value. This makes it impossible to calculate a “fair” price, making Bitcoin a purely speculative asset, he said.

If market participants lose faith in its potential to rise, Bitcoin could simply disappear, he warned.

From a macro perspective, Wermuth said Bitcoin and other cryptos are “a negative-sum game” that causes significant wastage of resources.

The socially undesirable redistribution of wealth, the high revenues of those trading what is essentially a 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 to the economy, he explained.

Ultimately, Wermuth said the global economy could be better off without cryptos, allowing more funds to flow into consumption and investment.

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