Believers vs doubters: Here are experts' bull and bear cases for bitcoin

A Bitcoin (virtual currency) coin is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, June 23, 2017. REUTERS/Benoit Tessier/Illustration - RTS18BQW

The cryptocurrency world has been abound with news recently and not all of it has been good.

With many government and banks across the world are still seeing bitcoin as a threat and pushing for regulations, a major portion of Wall Street is bent on calling bitcoin prices a “bubble”. Yet aficionados are also not scarce with a whole crypto network supported by developers and technologists.

Notably, former Google CEO Eric Schmidt has called Bitcoin “a remarkable cryptographic achievement.” He said that the currency gets massive value from its non-duplicable quality in the digital space.

But governments are keen on stepping up regulations on Initial Coin Offerings (ICOs) and bitcoin usages. The Chinese government has recently made a move to do the same along with shutting down cryptocurrency exchanges.

In the beginning of this month, as bitcoin fell amid worries about government regulation, Harvard economist Kenneth Rogoff said the price of bitcoin would "collapse" under continued regulatory pressure. Nevertheless, Bitcoin surged to a record high of over USD 6,000 on Friday.

However, Rogoff did say that the blockchain technology behind cryptocurrency would flourish despite bitcoin.

Not Bitcoin, but blockchain would survive

While skeptic bankers promote the argument that the price of bitcoin is a bubble and that it would pop anytime soon, most of them are keen on adopting the new blockchain technology behind cryptocurrency.

Recently, CEO of the United States' largest bank JP Morgan Chase -- Jamie Dimon -- rubbished the credibility of bitcoin, called it a “fraud”, while his bank invested in a blockchain technology-based system for global transactions as it was proved safer than the traditional method.

Dimon is a believer in the bubble theory; CNBC quoted him as saying “If you're stupid enough to buy [bitcoin], you'll pay the price for it one day.”

Also, reports have emerged about British banks not letting companies dealing in bitcoin open accounts with them. Banks in general have been averse to bitcoin as it challenged the centralized regulation of money as has been done for the longest time by financial institutions.

But many institutions want to adapt the new technology as market demand rises. Financial company Goldman Sach's CEO had tweeted about bitcoin saying: "Not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold."

Afterwards, Goldman president David Solomon said the firm was looking at bitcoin as clients were taking interest in it.

TD Bank, Mizuho Financial Group and National Australia Bank are also collaborating with IBM to develop a payment system using blockchain for instant international transactions. But they are not keen on letting cryptocurrency flourish either.

The bubble theory

Jordan Belfort, better known as the “wolf of wall street”, reiterated the Wall Street skepticism. He told the Financial Times that "It's [bitcoin] the biggest scam ever, such a huge, gigantic scam that's going to blow up in so many people's faces.”

Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, claimed that cryptocurrencies like bitcoin qualified as a market bubble according to his firm’s criteria.

According to him, a rise in price of such currencies is deemed a market bubble as they do not have a reliable store of value due to their extreme volatility and people buy them with the main intention of selling them later at a higher price. “Bitcoin is a highly speculative market,” he told CNBC.

He said that lack of transactions and high market speculation are stopping bitcoin from thriving as a currency.

Dalio also voiced concerns about the privacy aspects of bitcoin, saying it was difficult to accept bitcoin as a currency as “people won’t know what you’re doing."

Adding to Bridgewater’s argument was financial service major UBS, which also described bitcoin price rise as a “speculative bubble”. UBS' argument was based on the lack of a government-sanctioned legal tender value that is typically attached to fiat currencies like the US dollar.

The Swiss major also said that cryptocurrency will not become mainstream as governments would not accept taxes in cryptocurrency and hence an important part of transactions in the economy would exclude them.

Bitcoin is decentralized and transactions stay anonymous, despite being registered on a public ledger online. This makes it hard for governments to trace and tax such transactions.

However, UBS also justified its “bubble” stance by saying the highly priced bitcoins had “an absence of any fundamental economic backing”, while bringing in the old debate on whether bitcoin had any intrinsic value.

Bitcoin expert Andreas M Antonopoulos had earlier told Moneycontrol that the value of bitcoin “comes from other people on the internet, who are with you” and attach value to it. He went on to say that those people believed in bitcoin’s value “because this technology cannot be arbitrarily changed, because the number of coins issued cannot be arbitrarily increased, because it is useful for trans-national transactions.”

Even Wall Street has some supporters of the cryptocurrency. Morgan Stanley’s Chief Executive James Gorman argued that cryptocurrencies are “more than just a fad.” He also underlined the significance of the security provided through crypto transactions and the alternative it holds to central banking systems, according to a Bloomberg article.