Following the footsteps of Tim Buckley, the CEO at Vanguard, an investment firm that oversees $5.1 trillion in assets, the company’s chief economist Joe Davis stated that he sees the price of bitcoin dropping to zero in the long-term.
Argument 1: No Viable Use Case
The core argument Davis offered on his ETF.com opinion piece to support his theory that the price of bitcoin drops to zero in the long-term is the lack of a viable use case of bitcoin. Davis resorted to the conventional “blockchain not bitcoin” argument, claiming that the most dominant cryptocurrency has no use case.
“I’m enthusiastic about the blockchain technology that makes bitcoin possible. In fact, Vanguard is using such technology. As for bitcoin the currency? I see a decent probability that its price goes to zero,” said Davis.
Bitcoin has many use cases. Xapo, the Swiss-based cryptocurrency wallet and vault service provider, stores more than $10 billion worth of bitcoin in its cold wallets managed offline in safe Swiss vaults. According to Bloomberg, more customers have stored bitcoin in Xapo’s vault than 5,670 banks in the US.
The primary use case of bitcoin, due to its fungibility, transportability, security, and decentralized nature, is an efficient store of value. It protects and stores wealth better than traditional assets and stores of value, such as gold.
Hence, the claim of Davis that bitcoin does not have a use case is evidently invalid, given that it is already being used as a store of value and has been used as a digital currency since its launch in 2009.
Argument 2: No Cash Flows and no Fundamental Value
Major cryptocurrencies and blockchain protocols like Ethereum are worth many billions of dollars. However, Davis claimed that unlike stocks and bonds, blockchain protocols do not issue interest payments or dividends for investors and as such, their value cannot be justified. He added that the underlying economic activity of countries can justify traditional assets like fiat currency. Davis said:
“The investment case for cryptocurrencies is weak. Unlike stocks and bonds, currencies generate no cash flows such as interest payments or dividends that can explain their prices. National currencies derive their prices from the underlying economic activity of the countries that issue them. Cryptocurrency prices, on the other hand, are generally not based on economic fundamentals. To date, their prices have depended more on speculation about their eventual adoption and use.”
The basis of the argument of Davis uses an assumption that every economy and government around the world can remain strong and solid. But, such an assumption is simply not realistic. Venezuela is a prime example of an economy that has turned into turmoil due to government corruption.
When the national currency of a country falls, there exists no other alternative except decentralized financial networks and autonomous systems. As the Venezuelan bolivar, the country’s national currency, lost all of its value because of hyperinflation, local residents and citizens turned towards bitcoin as the only form of sound money available to the country’s people.
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