A Nobel-winning economist has made a prediction that Bitcoin will reach a value of zero within the next 10 years. Eugene F. Fama, often referred to as “The Father of Modern Finance,” stated during an episode of the Capitalisn’t podcast that the rise of this digital asset would ultimately have a predictable ending. Fama argues that it would be unsustainable to build an entire financial system using blockchains due to the excessive computing power required. He also points out that cryptocurrencies violate the fundamental principles of a medium of exchange and are not expected to survive according to established monetary theory.
Bitcoin, with its fixed supply of 21 million coins, has been positioned as a form of “digital gold” and a hedge against inflation, rather than a cryptocurrency suitable for everyday transactions. However, Fama does not find this argument convincing, stating that Bitcoin can only be considered digital gold if it serves a purpose. Otherwise, it is essentially worthless.
At present, Bitcoin ranks as the seventh most valuable asset in the world, with a total market capitalization approaching $2 trillion, according to Infinite Market Cap. The current price of Bitcoin has experienced a 1.1% decline compared to the previous day, settling slightly above $97,000, according to CoinGecko data.
When asked if he believes this to be a bubble, Fama responded that he cannot predict when it will burst, but he hopes it does. He expressed his desire for the bubble to burst because, if it doesn’t, it would require a complete reevaluation of monetary theory. Fama jokingly mentioned that he is willing to predict that the bubble will burst within 10 years, but as an 86-year-old, the likelihood of him having to pay up on this prediction is low.
Fama also suggested that if and when the crypto sector collapses, it is likely that the industry will turn to the government for a bailout. He further argued that the crypto space should be kept separate from the traditional financial system to prevent the wider economy from bearing the consequences if the industry implodes. However, with the increasing integration between Wall Street and the crypto sector, including the introduction of Bitcoin and Ethereum ETFs and the removal of regulatory barriers for banks to custody digital assets, this separation may prove challenging.
This article was edited by Stacy Elliott.