Is Bitcoin an Anti-Inflation Haven? The biggest cryptocurrency, according to market capitalization, is Bitcoin. Two experts consulted by WSJ have more to say.
The Wall Street Journal recently consulted two investment world experts with conflicting views on the pioneering cryptocurrency. Zach Pandl of Grayscale Investment and Eswar Prasad of Cornell expressed their respective views on why Bitcoin is or is not a haven of value.
In the interview, Pandl believes the reigning cryptocurrency is a reserve asset against inflation. Prasad claims that digital currency is nothing more than a speculative vehicle whose volatility rules out the possibility of being a store of value.
Proponents of digital currencies argue that it is a haven against rising prices. However, the ongoing inflationary crisis did not end with investors turning to BTC. On the contrary, institutional and retail capital treated the currency as another risky asset.
For experts like Mike Novogratz, the currency is a potential store of value. By this, he means that, although it is not yet at that point, it will be at some point.
Bitcoin is a refuge against inflation.
For Pandl, Bitcoin is a refuge against inflation, and all its characteristics prove it. He explains that the pioneering digital currency has the same elements as other assets historically functioning as a hedge. Gold is the best known of the latter, but there are others.
The expert considers scarcity the main element shared by value reserves throughout human history. In that sense, the queen cryptocurrency has excellent credentials. It has a capped issuance of 21 million tokens.
He says the system guarantees Bitcoin’s scarcity, unlike other reserve assets. “While there are estimates, the absolute amount of gold that will ever exist is unknown,” he tells the media outlet. He acknowledges that Bitcoin lacks tangible backing in the real world. However, he adds that 85% of the gold mined is for speculative purposes. He adds that gold has value due to a social agreement, just like cryptocurrency.
On the other hand, he emphasizes that another of the significant advantages of the currency is that it is entirely digital. Thus, any investor anywhere in the world can access it with an Internet connection and private keys. Therefore, Bitcoin is not only a refuge from inflation but also avoids the problem of portability and counterfeiting.
Bitcoin value? No way
The Cornell University expert, for his part, considers that cryptocurrency is far from reaching that category. For him, the fundamental issue with virtual currency is what gives it value in the market. He believes the only advantage of the electronic asset is its scarcity.
“Bitcoin has no intrinsic value because it is a purely speculative financial asset. There is no valuation model,” he comments. Although he agrees that Bitcoin is scarcer than gold, he expresses that its usefulness limits to speculative operations. He stresses that gold has an intrinsic value for the jewelry industry.
At the same time, the expert considers that other elements nullify the possibility of Bitcoin being a value ephemeral beyond its lack of intrinsic value. He opines that the underlying technology, the blockchain, is less reliable than it appears at first glance. “Supposedly, it’s a medium of exchange like a bank. But it is volatile and inefficient. The blockchain system can’t handle many transactions simultaneously,” he laments.
He acknowledges that Bitcoin offers excellent returns in some opportunities but has high volatility. In conclusion, he believes the currency is not a reserve but a risky asset like stocks. In many instances, he completes, it is much more volatile than stocks.