Bitcoin

Is Bitcoin Bubble Ready to Burst? Economists From Yale University Have an Answer

Ever since the launch of different types of cryptocurrencies in the market, many economists are busy predicting the role that such currencies might play in shaping the economic cycle. Some economists are predicting that cryptocurrencies like bitcoin, are here to stay and eventually, they might take over the traditional mode of banking. However, there are some economists who believe that with time bitcoin will become worthless.

A new report has been published by two economists from Yale University. Their report revolves around answering the question that every other person has in their mind i.e. “How likely it is that bitcoin will become worthless?” The findings of the report state that there are 0.4% chances that bitcoin will become worthless. The economists studied the data from 2011 to 2018 and they were able to calculate the probability that the price of digital currencies like bitcoin would drop down to zero in a day.

The report states:

The current implied daily disaster probability is about 0.4 percent for Bitcoin, 0.6 percent for Ripple, and 0.3 percent for Ethereum.

Furthermore, the economists also calculated the likelihood of government-backed currencies also failing in the market. The chance of Euro eventually becoming worthless is 0.009% whereas the chance of the Australian dollar becoming worthless is 0.003%. Even though the chances of bitcoin becoming worthless is not that low but the percentage can turn out to be a “massive risk” in comparison to the traditional form of currencies.

Earlier this year, Global investors like Allianz, which is the investment arm of Euope’s biggest insurer stated that “It’s a matter of when, not if, the Bitcoin bubble will pop.”

The head of the Allianz further pointed out:

A bitcoin is a claim on nobody—in contrast to, for instance, sovereign bonds, equities or paper money—and it does not generate any income stream.

People are busy making bitcoins comparison with gold and many of them believe that just like gold, bitcoin will also be held by people as a store of value. The head of Allianz, Stefan Hofrichter believes that gold is being used and accepted as a store of value since always, as compared to bitcoin, that is only a few years old. How can it replace something as valuable and as old as gold. He further states that bitcoin is a bubble that is soon going to burst.

Bitcoin’s demise would have few spillover effects on the ‘real world,’ since the market for this cryptocurrency is still quite small in size.

Last year, another similar prediction was made that bitcoin boom will eventually end in tears. The bubble will pop as it has always happened in the history as well. Whenever something valuable reaches its peak, it always comes down to a level as low as the number zero. Currencies have been a mode of payment and a medium of exchange since a very long time. Currencies are accepted globally and they are considered as a denominator of value. Bitcoin, right now is not performing any of the functions mentioned above. It cannot be regarded as a store of value mainly because it has to become valuable itself.

Whether bitcoin continues to rise or whether the bubble pops before the anticipated time, would be an interesting dimension to analyze. Live polls are conducted on different forums where people can place their vote based on their own perception regarding the world of digital currency.

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Hiram Nadeem

Hiram is a teacher and media sciences graduate with focus over finance news. Contributes to BlockPublisher with fintech news and sometimes, her opinions. Email: editor.news@blockpublisher.com

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