Cryptocurrency Assets Are Not Very Useful, Says LSE Economist

The cryptocurrency assets must provide some valuable services to justify the high valuation, according to Jon Danielsson, Director of the Systemic Risk Centre at the London School of Economics. Danielsson added that a price rise in Cryptocurrencies Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term will increase inequality.

According to a column published by Danielsson on VoxEU, the only reason for Bitcoin’s $1 trillion valuations is the expectation of success by BTC investors. Danielsson mentioned that if cryptocurrency assets cannot be exchanged for real goods, they are unlikely to succeed.

Danielsson gave an example of Tesla’s announcement of exploring the possibility of accepting Bitcoin as a payment method and mentioned that the success of cryptocurrency depends upon its usage in commercial transactions.

“A sharp increase in inequality is an inevitable consequence of bitcoin success. And, unlike the richest people of today, the Jeff Bezoses and Elon Musks, whose wealth comes from creating companies that benefit most of us the bitcoin aristocrats will get their rank just by buying early. They will make no contribution to society,” Danielsson said.

Cryptocurrency Bubble?

Economists around the world have criticized Bitcoin and other cryptocurrency assets in the last few years for the lack of usage and high price Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term. David Rosenberg, a Canada-based economist criticized Bitcoin recently and termed it as a 'massive bubble'. Danielsson argued that for Bitcoin to become mainstream as a currency, it must become a unit of account for daily usage but its volatility will affect the purchasing power of its users.

“If bitcoin becomes the money we use in our daily lives, it must also become a unit of account. The current volatility of bitcoin precludes it from becoming such a unit of account because which shopkeeper wants to change their prices every time bitcoin goes up or down in value, and who wants high volatility in the purchasing power of their salary or savings,” Danielsson added.

Despite the recent sell-off, Bitcoin is still up more than 50% since the start of 2021.