Bitcoin has recently hit a global market cap of $1 trillion after consecutively tapping multiple all-time highs. With a bullish trend like this, opinions and investments are all in favor of the first and largest cryptocurrency. However, some still fear the volatility risk in Bitcoin and doubt its safe-haven potential, and generally take a bearish approach to Bitcoin. Dr. Jon Danielsson, the Director of the Systemic Risk Centre at the London School of Economics, is one of them.
Danielsson has recently penned his take on Bitcoin, and it is one of the most bearish take-ups on the digital asset. He warns that the “Bitcoin Aristocracy” is soon going to rule the world. Moreover, he says that if you want Bitcoin to succeed then the world must perish for that.
Bitcoin Is Not a Safe Place?
Jon Danielsson commented that even though we don’t see it now, but “most of us would not want to live in a society where Bitcoin [sic] succeeds.” According to him, when one does not provide a valuable service and invest in an asset like crypto, then it is like “collecting stamps or beanie babies.”
“The bitcoin [sic] enthusiasts are quite vague on what success means beyond rising prices, they seem more fond of arguments wrapped in mysticism than basic economic logic.”
He believes that the success of Bitcoin is a zero-sum game. Its success means the failure of all other currencies like the Euro, Pound, Yen, and so on. Bitcoin will either replace current transaction mediums or it utterly fails. He also mentioned Dr. Muhammad Cheema, a Senior Lecturer in Finance at the University of Waikato, to support his argument. In Cheema’s article, he pointed to research that crypto is viewed as risky, citing himself as his source, before adding that BTC is not a safe haven.
Danielsson Fear Bitcoin Has Unfair Wealth Distribution
Jon Danielsson imagined a future where Bitcoin has fully displaced fiat currency and said:
“The current owners of bitcoin will become the wealthiest people in the world, rivalling the kings and emperors that ruled over empires in centuries past. They literally will own all the money. They can buy anything they want.”
However, the above statement ignores the fact that the world currently operates this way. The richest 1% controls two-thirds of the world’s wealth. The same is with the USA. Only 1% of the population controls 38% of the entire wealth. Interestingly, the BTC wallet distribution records suggest that a great portion of BTC’s supply is in the hands of just 2% of wallets. So why should we worry when the same thing comes to Bitcoin?
But Can’t Fiat and Bitcoin Co-Exists?
Jon Danielsson affirms that Bitcoin’s use case as a hedge against inflation will require people to continue to invest in it. Even though this sentence is something that will fascinate you, however, he ignores the other benefits that Bitcoin brings with it.
Bitcoin could displace gold, thats not what bitcoin advocates claim to want, nor likely.
— Jon Danielsson (@JonDanielsson) February 26, 2021
We have to remember the other economic aspects that Bitcoin brings with it. Bitcoin allows peer-to-peer transactions at any time, day or night, whenever you want. It overcomes the limitations of banking systems. It also plays an important role in countries where financial censorship is common such as Russia, China, and Belarus. Moreover, leading global payments companies like MasterCard and Visa have openly shown their support for Bitcoin and other cryptocurrencies. Mastercard has announced that it is looking to integrate cryptocurrency into its payment networks. The international payment network is considering giving preference to stablecoins. Visa CEO Al Kelly recently revealed in an interview, “The digital currencies are a potential player in the global commerce going forward.”
To add more to it, OKCoin’s Lightning Network, (even though not fully developed), offers lower fees and minimum withdrawal amounts at the same time faster transactions to its Bitcoin users. It is an impressive step to bring an end to payment solutions related to the largest cryptocurrency.
And when we talk about Bitcoin completing removing fiat currencies after it becomes the ultimate success, we should ask ourselves that they are already co-existing at the moment.
Jon Danielsson’s colleague and head of research at Blockchain.com, Dr. Garrick Hileman, put out this point and said:
“For decades gold and fiat currencies have coexisted, and today Bitcoin is primarily used as “digital gold” (a macro hedge).”
He further added:
“Based on how Bitcoin is predominantly used today, the terms “crypto-asset,” “digital asset,” or “digital commodity” are more correct and useful labels for Bitcoin than its original “cryptocurrency” label.”
— Garrick Hileman (@GarrickHileman) February 26, 2021
Jon Danielsson does point out one important query, and that is, whether Bitcoin should be defined as cash, or as a speculative asset. Even though the whitepaper describes it as “a form of digital cash that would decentralize finance and perhaps shake up the balance of power,” Bitcoin’s role as a store of value and a hedge against inflation has seen the “cryptocurrency” definition getting overshadowed.
Whatever may be the case, the largest cryptocurrency Bitcoin is also one of the largest currencies in the world. The bullish trend of Bitcoin has made powerful minds like strategists of JPMorgan Chase change their opinion on Bitcoin and support the class of digital assets. With this, it is safe to say that Bitcoin is here not only to stay but also to co-exist with fiat currencies.