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Economists’ Take on Why It Is (Or Isn’t) Worth Investing After the Bitcoin Dip

 This article was originally published on  concentral.com    Compared to January 2018, cryptocurrency prices have been down somewhat in recent months. The so-called bitcoin dip has created some skepticism amongst some investors. Is this just a short-term hiccup or part of a larger trend?  With constant media coverage about prices “near zero,” many investors are asking themselves, “Is investing in bitcoin worth it?” In this article, we’ll look at a few different stories related to what economists and academics  have to say  about investing in cryptocurrencies. We’ll also try to get a better understanding of what impacts these evaluations.  Can Economists Accurately Predict Cryptocurrency Prices?  Economists play an important role in predicting the future of the global economy. They have traditionally been instrumental in helping governments, businesses, and individuals make decisions that impact the world. Now, many economists are beginning to research and predict what the future of cryptocurrency and  blockchain financial services  will look like.   In the cryptocurrency market, there are a number of factors that go into determining the market outlook. For many economists (as well as investors), price volatility due to technical limitations, regulations, and market adoption has made it quite difficult to predict price changes.  For example, in January 2018, Yale University economics professor  Robert Shiller  said, “[bitcoin] might totally collapse and be forgotten, and I think that’s a good likely outcome, but it could linger on for a good long time, it could be here in 100 years.”   While this prediction is far from certain, it is indicative of how many economists view the cryptocurrency market. We also see that increased pessimism seems to follow recent market trends. 

This article was originally published on concentral.com 

Compared to January 2018, cryptocurrency prices have been down somewhat in recent months. The so-called bitcoin dip has created some skepticism amongst some investors. Is this just a short-term hiccup or part of a larger trend?

With constant media coverage about prices “near zero,” many investors are asking themselves, “Is investing in bitcoin worth it?” In this article, we’ll look at a few different stories related to what economists and academics have to say about investing in cryptocurrencies. We’ll also try to get a better understanding of what impacts these evaluations.

Can Economists Accurately Predict Cryptocurrency Prices?

Economists play an important role in predicting the future of the global economy. They have traditionally been instrumental in helping governments, businesses, and individuals make decisions that impact the world. Now, many economists are beginning to research and predict what the future of cryptocurrency and blockchain financial services will look like. 

In the cryptocurrency market, there are a number of factors that go into determining the market outlook. For many economists (as well as investors), price volatility due to technical limitations, regulations, and market adoption has made it quite difficult to predict price changes.

For example, in January 2018, Yale University economics professor Robert Shiller said, “[bitcoin] might totally collapse and be forgotten, and I think that’s a good likely outcome, but it could linger on for a good long time, it could be here in 100 years.” 

While this prediction is far from certain, it is indicative of how many economists view the cryptocurrency market. We also see that increased pessimism seems to follow recent market trends. 

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What Are Economists Saying After January 2018?

Flash-forward past the January all-time high price point for many cryptocurrencies, and there are many new reports and quotes from economists that look at cryptocurrency in a negative light. What’s important to understand is that some are backed by research. For example, two economists stated in July 2018 that the price per Bitcoin should only be around $20, instead of the $7,000 mark (price in mid-July 2018). 

This number takes a few different factors into consideration like the current supply of Bitcoin in circulation and its daily usage in transactions. According to these two economists, the use of Bitcoin would need to increase 1000x in order for its actual price to equal its current value.

Back in March 2018, Harvard economist Kenneth Rogoff said, “Basically, if you take away the possibility of money laundering and tax evasion, [Bitcoin’s] actual uses as a transaction vehicle are very small.” Rogoff also said that the price of Bitcoin is more likely to be $100 rather than $100,000.

A Matter of Perspective: Bitcoin Bubble or Bitcoin Dip?

One of the biggest questions to ask is whether we are currently in a bitcoin bubble or merely in a bitcoin dip. Many economists and financial experts looked at the price fall that took place in January 2018 as a sign of the big bubble burst. Others, like the above example, look at it as just part of a larger bubble. Still, it’s easier to say that prices will collapse to “near zero” when they’ve been consistently down.

On the other hand, it’s possible to also see the price declines in 2018 as merely a bitcoin dip. It’s important to also share the work being done by economists that is pro-cryptocurrency.

Economist and Mathematician Now Working in the Field of Cryptocurrency 

Myron Scholes

While many economists have denounced all cryptocurrencies as unstable and volatile, Myron Scholes and other big names in traditional finance are taking the opposite stance. Myron Scholes is an economics Nobel laureate who created the Black-Scholes formula, the most well-known model for pricing options and derivatives. 

Now, Scholes is getting involved in the world of cryptocurrency with the launch of a new stablecoin, Saga. Since stablecoin prices are intended to be stable, it’s not important that investors invest during a bitcoin dip or a bull market.

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Even though investors can’t expect to make large profits from investments in stablecoins, these projects help the overall cryptocurrency market mitigate price volatility issues.

Additionally, Scholes’ decision to work on a cryptocurrency project represents the possibility that economists, who have mostly lived in a fiat economy, are starting to work on the creation of a new cryptocurrency economy. Scholes and other crypto economists are beginning to work on innovative projects that solve many of the issues with traditional finance and centralized banking systems.

Charles Hoskinson

Charles Hoskinson is an example of a mathematician/technologist who believes in the development of cryptocurrencies. While Scholes started to work on cryptocurrency projects in 2018, Hoskinson has been working on big-name projects for a few years. Hoskinson, one of the eight original co-founders of Ethereum and the founder of Cardano, is one of the biggest names in cryptocurrency. 

According to Hoskinson’s LinkedIn, he studied analytic number theory, mathematics, and cryptocurrency. He has worked on complex mathematical problems such as the Goldbach Conjecture. Hoskinson’s story is proof that someone starting out in academia can make a career transition towards entrepreneurship and have a significant impact on cryptocurrency. 

 

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Conclusion: Will More Economists Support Cryptocurrencies in the Future?

When considering that many economists are skeptical of cryptocurrencies in 2018, we need to dissect why this has been the case. It’s important to understand whether or not economists invest in cryptocurrencies. Regardless if one invests in the bitcoin dip or not, it’s essential for any researcher to view the market as objectively as possible. 

First, price volatility and general market unpredictability do make investment risky. Anyone can say that prices will rise and fall. However, economists generally try to be more precise with numbers that are backed by extensive data and research. The reality is that it is difficult to predict if or when solid data will exist to make the cryptocurrency market more predictable for economists. 

Lastly, it’s possible that some economists make decisions based on what the current market is doing rather than where the market can go in the future. If we continue to see advances in user adoption, usability, scalability, and more, it’s possible that more economists, mathematicians, and others in academia will become optimistic about why cryptocurrencies are worth investing in.