Ever get the feeling that some well-known economists, analysts, or investment gurus offer opinions on Bitcoin as if they just learned what cryptocurrency is a few minutes beforehand?
We’ve pointed this out before, similar to that Financial Times columnist who seemed to misunderstand the difference between the finite supply of Bitcoin and the scarcity of teeth.
Our highlighted example today is Kenneth Rogoff, a Harvard professor and former chief economist at the IMF, a role that typically lends considerable credibility.
However, in 2018, he suggested that Bitcoin was more likely to plummet to $100 than ever reach $100,000.
Yes, that prediction hasn’t aged well. 😬
Recently, he explained his perceived miscalculations, and we’d like to provide some commentary 👇
“I was far too optimistic about the US coming to its senses about sensible cryptocurrency regulation; why would policymakers want to facilitate tax evasion and illegal activities?”
In simpler terms, when Rogoff made his bearish forecast, he anticipated that US regulators would quickly implement stringent rules— such as eliminating tax loopholes, tracking transactions, and curbing criminal applications.
He believed that such regulations would trigger a collapse in Bitcoin demand because he views it as primarily a tool for illicit activities.
To be fair, he’s partially correct; US regulations have been slow and inconsistent. However, it’s incorrect to assume the only consequence has been the utilization of Bitcoin by criminals.
The regulatory uncertainty created opportunities for other forms of demand to emerge: including cross-border payments in nations with volatile currencies, individuals employing Bitcoin as a hedge against inflation, and, eventually, acceptance by institutional investors.
Even without definitive regulations, Bitcoin demonstrated its capacity to attract legitimate, worldwide demand, extending beyond just transactions in the black market.
“Second, I did not appreciate how Bitcoin would compete with fiat currencies to serve as the transactions medium of choice in the twenty-trillion dollar global underground economy. This demand puts a floor on its price.”
Here, he reiterates the “underground economy” argument, citing drugs, ransomware, sanctions evasion, and shadow finance.
While Bitcoin undoubtedly plays a role in those spaces, claiming it’s the primary driver of its value is a bit far-fetched.
Currently, the main factors influencing Bitcoin’s price are institutional involvement (from firms such as BlackRock, Fidelity, and Strategy) and Bitcoin’s reputation as digital gold.
Therefore, while the black market has some effect, it’s not the central element keeping Bitcoin above $100.
“Third, I did not anticipate a situation where regulators, and especially the regulator in chief, would be able to brazenly hold hundreds of millions (if not billions) of dollars in cryptocurrencies seemingly without consequence given the blatant conflict of interest.”
His final point argues that it’s problematic for regulators to hold substantial amounts of cryptocurrency without facing repercussions.
This could raise ethical questions; however, it doesn’t truly explain Bitcoin’s market value.
Markets aren’t moved by the crypto holdings of policymakers. They are driven by trillions flowing through ETFs, corporate balance sheets, and retail traders.
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The crux of the issue with economists like Rogoff is their expertise lies in analyzing traditional assets like stocks, bonds, and fiat currencies. Bitcoin doesn’t conform to those patterns.
Bitcoin lacks traditional cash flows or a central governing authority. Its price is determined by adoption rates, technological advancements, and the strength of its network. This combination makes it challenging to assess using standard methods.
That’s why even leading economists can predict a crash to $100 while Bitcoin steadily approaches $100,000.
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