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January 11, 2018

Between a blockchain and a hard cash: cryptocurrencies are condemned as currencies and worthless as assets

By MarketLine

The bitcoin price is too high. Its price, and that of other popular cryptocurrencies, is only going to go down. Here’s why.

The price of bitcoin has so far been shaped by two forces, but as mainstream adoption proves elusive and governments begin to crackdown on unofficial currencies these forces will begin to give way.

The first force is the expectation of bitcoin’s wider adoption. The second is speculation based on bitcoin’s deregulated nature.

However, the second force is actually driven by the first. This means bitcoin will not survive without the expectation of a wider adoption as currency, since it is worthless as an asset.

But the expectation of a wider adoption cannot be met as bitcoin is against the interests of any government that wants to retain its money-supply power, with the loss of that power likely to have a devastating effect on any economy.

Governments will crush bitcoin if it ever truly becomes widely adopted enough to be a threat to traditional currencies or the economy.

Bitcoin has no intrinsic value – it is only based on the expectation of a next-to-be currency

Bitcoin is still an asset, not a currency, as its limited adoption constitutes that status.

However, unlike other financial assets, bitcoin has no fundamentals to be based on. Its value is entirely based on the pure confidence for that value per se, being perfectly compatible to an asset bubble.

The crucial point though is that this confidence for its value is derived from the expectation of bitcoin becoming a widely adopted currency.

This entails its transformation from an asset to currency, but there have not been any encouraging signs of that happening.

In fact, it seems that investors have been biased to interpret neutral events as positive signs – namely the introduction of bitcoin to the futures trading market — in order to feed their optimistic preconception for its expansion as a currency.

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Governments will never allow cryptocurrencies to have an institutional role for the economy

At the time of writing, bitcoin was tumbling by 10.75 percent from its opening price on 11 January, as news leaked about the planned government ban of cryptocurrency trading in South Korea.

The South Korean cryptocurrency market is one of the largest globally, but the deeper implication is that governments are taking action against cryptocurrencies before they seriously threaten the economic system.

The institutional adoption of bitcoin in the form of a currency standard or as an officially circulated currency would impair the effectiveness of monetary policy of governments, as they would yield money-supply power.

Governments would never agree to abolish their control of money supply as this would have devastating effects for their respective economies.

For instance, it is unlikely that the US government would ever abandon its capacity to print money based on demand for dollar as a global currency reserve, as that would undermine its economic power.

Moreover, those who even support the vision of Bitcoin (or any other cryptocurrency) as a global currency, are not aware of its destructive implications for the global economy, or at least are ignorant to the harmful effects of a single currency for weaker economies in the Eurozone.

Particularly, the Eurozone sovereign debt crisis stands as an example of the trade imbalances that inherently arise from the adoption of a common currency by diverging economies.

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