What's the problem with Bitcoin?
But why could Bitcoin lose its value in the next decade? Luigi and Gene address some points, such as the lack of a global institution to monitor transactions and ensure payments, generating more confidence in the market. Another point is the fluctuations to which these currencies are exposed. #MicroStrategyAcquiresBTC
“The problem with all cryptocurrencies is that in order to create a trustless system, you basically limit the supply. And when you limit the supply, the price is driven only by demand. When demand fluctuates, prices fluctuate wildly. And because they fluctuate wildly, nobody wants to use it as a currency. And that’s why the movement, especially with Bitcoin, is to say that it’s not a currency, it’s digital gold,” Luigi explains.#MicroStrategyAcquiresBTC
At this point, Gene resorts to the subjective theory of value, which determines that the value of a product is decided by how scarce or useful it is to the individual. “It is only digital gold if it has a use. If it has no use, it is just paper. In this case, it is not even paper. It is nothing,” says the economist, who adds: “That is what the old theory says.”
Luigi points out that, throughout history, several abstract currencies have been created to represent the value of something, and that they do not necessarily have a use value. The discussion reaches stablecoins, which Gene acknowledges makes sense, given their real value, but asks: “But if you replace the dollar on the blockchain with a dollar-backed stablecoin, why not just use dollars? I mean, what problem are you solving there?”
“I actually think you’re solving a huge problem in making sure that you can transact regardless of what the government decides to do,” Luigi argues, citing a case where protesters in Ottawa, Canada, were prevented from receiving money from supporters during the pandemic because they were protesting against the government.
With blockchain and cryptocurrencies, banks lose power, says the economist, which can be both positive and negative from a social point of view. This facilitates, for example, crimes such as currency evasion.
Finally, Gene Fama is asked about what the government should do about cryptocurrencies, whether this market should be regulated or whether the free market theory still applies in this case. The economist considers that, if there is, in fact, a bubble, crypto investors who lose their money when the bubble bursts will end up turning to the government to avoid bankruptcy.
“So if you’re a libertarian, like I am, you say the government should never do anything. But if the government is going to do something after the fact, then you have to work backwards and decide what you’re going to do before the fact to minimize the cost of doing it. And I don’t know what that is at this point. Does that mean you should start imposing rules on Bitcoin and how it’s traded? Maybe that’s the direction you’re going to have to go,” he says.
