Harvard professor and renowned economist Kenneth Rogoff, who in the past argued for a reduction in the amount of physical cash, recently said that the bitcoin price “will collapse,” due to continued regulatory pressured from governments.
In his piece, written for The Guardian, Rogoff stated:
“My best guess is that in the long run, the technology will thrive, but that the price of bitcoin will collapse.”
After briefly mentioning bitcoin’s 1,600% surge in the past 24 months, Rogoff argued that what will happen from here will depend on governments and how they react to the cryptocurrency. Per his own words, a technologically superior bitcoin could easily emerge, but bitcoin’s established lead in credibility, along with the large ecosystem of applications built around it, keep it at the top.
However, Rogoff argued that “ it is folly” to think the number one cryptocurrency will be allowed to displace fiat currency, as governments may accept a few small transactions with cryptocurrency, but they won’t take large-scale anonymous payments which make it a lot more difficult to collect taxes and track down criminal activity.
Moreover, he argues that if bitcoin were stripped of its near-anonymity, its current price would be hard to justify, adding that bitcoin speculators are perhaps “betting that there will always be a consortium of rogue states allowing anonymous bitcoin usage.”
The economist added that it is hard to see what would stop central banks from creating their own digital currencies, and use regulations to turn the market in their favor until they win. Notably, he stated:
“The long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates. I have no idea where bitcoin’s price will go over the next couple years, but there is no reason to expect virtual currency to avoid a similar fate.”
As such, according to Rogoff, governments could contribute to the decline of bitcoin’s value. However, he acknowledges that “with some improvements” bitcoin could still beat the fees charged by banks on credit and debit cards.
In his piece the economist mentions Japan’s acceptance of bitcoin, and that the United States could follow Japan in regulating fintech, as reported by CCN. Japan, according to Rogoff, was a “major triumph” for bitcoin, due to its high currency-to-income ratio, of about 20%.
Last month, China banned Initial Coin Offerings (ICOs) and forced domestic cryptocurrency exchanges to close their doors. The government will likely resume cryptocurrency trading in the upcoming months, with Know Your Customer (KYC), and Anti-Money Laundering (AML) systems in place.
By contrast, Japan embraced bitcoin and recently recognized 11 companies as registered cryptocurrency exchanges. The move, which Taiwan is following, according to Rogoff, will see tax evaders use bitcoin to launder their money through Japanese accounts, despite the country’s exchanges enforcing AML/KYC systems.
The economist, however, also notes that in his recent book on past, present, and future currencies, the issuance of large-denomination fiat currency bills may aid tax evasion and crime.