Vanguard’s Global Chief Economist and Global Head of Vanguard Investment Strategy, Joe Davis believes the price of bitcoin is headed to Zero. The sentiments come as a surprise given that many high profile investors that had similar views over the past year have had a change of heart.
Bitcoin (BTC) appears to be struggling for direction after an explosive 2017 that saw it rally by almost 1,200 percent. After dropping below the $10,000 mark, the cryptocurrency has struggled to bounce back arousing concerns as to what the future holds.
So where is bitcoin headed? That’s the big question, which continues to baffle the industry amidst mixed sentiments. While most people remain bullish about the underlying technology, Blockchain, that powers bitcoin, the same cannot be said about the digital currency itself.
Joe Davis. Source: LinkedIn
Bitcoin Headed To Zero
Vanguard’s Global Chief Economist and Global Head of Vanguard Investment Strategy, Joe Davis believes the price of bitcoin is headed to Zero. The sentiment comes as a surprise given that many high profile investors that had similar views over the past year have had a change of heart.
However, Mr. Davis is backing his thesis with many factors that he believes will play a pivotal role in the price of the popular cryptocurrency tanking to zero.
Cryptocurrencies vs. Currencies
There has been a lot of discussion as to why cryptocurrencies are currencies of the future. How true that is, is still a point of debate. There is no doubt that just like traditional currencies, virtual currencies do qualify as units of account as they can be used to measure the value of goods and services.
Cryptocurrencies also qualify as a medium of exchange. However, there’ are a limited number of vendors that accept them as a means of settling transactions. Increased levels of volatility had all but stifled their adoption, something that Mr. Davis believes will continue to haunt bitcoin prospects and sentiments going forward.
Fiat currencies act as a store of value something that cannot be said about bitcoin despite being the largest cryptocurrency. Price volatility is expected to continue undermining its adoption a headwind that the Vanguard executive believes will continue to hurt its price going forward.
Regulation poses the biggest threat to cryptocurrencies, even though most of them do qualify for niche purposes. According to Mr. Davis, Central banks pose the biggest threat to bitcoin prospects. Given that most of them have already started to research on blockchain-based currencies raises serious concerns.
Stringent regulations on exchanges have already started to crop up, something that Mr. Davis believes does not provide a suitable environment for the success of virtual currencies. The fact that some central banks are contemplating creating and adopting their digital currencies all but spell trouble for bitcoin, which was developed with the aim of replacing fiat currencies and reduce the influence of governments.
The fact that the new digital currencies would be legal tender, recognized as a form of payment for all debts and charges, could significantly affect bitcoin adoption in the mainstream sector.
Given a choice between blockchain-based dollar and bitcoin, most people are likely to go with the former.
Bitcoin as an Investment
Contrary to perception, bitcoin is not an investment. Unlike other financial instruments such as stocks, bonds, and currencies, bitcoin does not generate cash flows such as dividends or interest payments. Another deficiency of the popular cryptocurrency has to do with the fact that its price is not derived from any underlying economic activity.
Bitcoin price is not based on any economic fundamentals, and its price tends to move up and down on speculation. The value of the digital currency has mostly been undermined by the high levels of speculation that makes it be volatile thus unstable.
Bitcoin value is not tied to the blockchain. The cryptocurrency is merely an investment in blockchain whose value will always be based on speculation.
A lack of cash flows with bitcoin investment as well as extreme volatility all but explains why Davis remains pessimistic about bitcoin as an investment and its long-term price.