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 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.
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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. 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.