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Betting on Dystopia
Traders Magazine Online News, December 19, 2018
With the price of Bitcoin down 80% from its peak a year ago, and the larger cryptocurrency market in systemic collapse, has “peak crypto” already come and gone? Perhaps, but don’t expect to see true believers lining up to have their cryptocurrency tattoos removed just yet.
At a recent conference I attended, the overwhelming sentiment was that market capitalization of cryptocurrencies is still set to explode over the next five years, rising to $5-10 trillion. For those who watched the price of Bitcoin go from $13 in December 2012 to roughly $4,000 today, this year’s drop from $20,000 is no reason to panic.
It is tempting to say, “Of course the price is collapsing.” Regulators are gradually waking up to the fact that they cannot countenance large expensive-to-trace transaction technologies that facilitate tax evasion and criminal activity. At the same time, central banks from Sweden to China are realizing that they, too, can issue digital currencies. As I emphasized in my 2016 book on the past, present, and future of currency, when it comes to new forms of money, the private sector may innovate, but in due time the government regulates and appropriates.
But as I also pointed out back then, just because the long-term value of Bitcoin is more likely to be $100 than $100,000 does not necessarily mean that it definitely should be worth zero. The right way to think about cryptocurrency coins is as lottery tickets that pay off in a dystopian future where they are used in rogue and failed states, or perhaps in countries where citizens have already lost all semblance of privacy. It is no coincidence that dysfunctional Venezuela is the first issuer of a state-backed cryptocurrency (the “Petro”).
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Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003.
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