A future without digital assets is hard to imagine, but Bitcoin (BTC) is far from perfect by design, according to a professor of finance at the London School of Economics (LSE).
Igor Makarov, professor of finance at LSE, believes that digital currency and digasets will undoubtedly be part of the future of finance and that their effectiveness will depend a lot on their design.
In an interview with Cointelegraph, Makarov said there is not much evidence that Bitcoin can become a store of value as it has been extremely volatile over the past 10 years.
Since Bitcoin’s volatility remains high despite its massive rise in value and increased liquidity, there is no guarantee that its price will ever become more stable, he said.
“Without any government backing bitcoin, the value of the cryptocurrency depends on the general public’s willingness to hold it, which in turn depends on how investor sentiment evolves and where it stands relative to others. cryptocurrencies,” Makarov said.
The professor also speculated that allowing US public institutions to invest in BTC would almost certainly lead to “temporary price appreciation.” However, this appreciation will mean that early adopters will benefit “at the expense of the general public” and other stores of value, especially fiat currencies, Makarov said, adding:
“Since Bitcoin is an unproductive asset – given its current design – its returns come entirely from price appreciation and over the long term, we should not expect them to exceed the growth rate of the global output.”
Makarov is known for co-authoring a study claiming that 10,000 Bitcoin investors, or 0.01% of all BTC holders, own 5 million BTC, which is 25% of all 19.1 million Bitcoin mined. currently in circulation. Analysts have argued that top BTC holders control a greater share of crypto than wealthier Americans control dollars.
According to Makarov, the study is based on data from the Bitcoin network as well as public data from blogs, chat rooms and the like. “We also use Bitfury Crystal Blockchain information about the identity of large public entities such as exchanges, online wallets,” he noted. Makarov also said that very few individuals in the United States hold large sums of cash, as the majority of wealth is held in real estate and securities, adding:
“Cash transactions can be difficult to trace, but unlike Bitcoin transactions, the cost of cash transactions increases with the amount of the transaction. Additionally, storing large amounts of cash is expensive.
Although he is skeptical of Bitcoin’s design, Makarov is still positive about the future of digital assets. He has been involved in arbitrage and trading in the crypto markets since 2016 and has been enthusiastic about the financial applications of crypto and blockchain, working on many related projects including crash investigation. of the Terra ecosystem.
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“I find many developments in the crypto space fascinating. They start with Bitcoin and its ingenious design and include many others including smart contracts, oracles and the like,” Makarov said. But to benefit the industry , it is important to properly address issues such as governance, regulation and others in a timely manner, the expert stressed, saying:
“There is no doubt that in the future we will have digital money and digital assets. Their effectiveness will depend on their design, so it is important to get it right.”
Makarov said he does not currently hold any cryptocurrencies.